Second marriages, an inheritance from your grandmother, or sizeable retirement assets are a few of the many reasons why more and more Canadians are signing on the prenuptial dotted line.
Prenuptial arrangements, while not yet the rage, are becoming more and more commonplace, explains Jim Stoffman, a Winnipeg-based lawyer with 34 years of family law experience. Since the Divorce Act was passed in 1977, Stoffman has noticed a consistent and persistent increase in the use of prenuptials among his clients.
“Prenups are becoming more common because society is becoming more aware of an individual’s rights,” says Stoffman. “And people are realizing that marriage is not a one-size-fits-all proposition.”
Stoffman believes that advisors who have clients entering a relationship where one person owns property, has an inheritance, or has amassed assets should consider having a discussion about prenuptial agreements.
Under current legislation, most assets accumulated during the marriage (and in some provinces, after a certain period of time of cohabiting) are deemed to be subject to division should a divorce occur. These assets must be shared evenly with a 50/50 split, either in value or in kind. While property is governed by distinct provincial laws, it is also subject to court scrutiny and can also be divided (either with a payment from one party to the other or through sale of the property and then division of the assets).
“The biggest issue is that most people don’t realize that the division of property assets is legislated,” explains Wade Walters, CFP with W.H. Stuart & Associates in Victoria, B.C.
“People are marrying later, which means they are going into the [union] with RRSPs, assets, pensions and other investments that they consider ‘mine’, but the court might not agree.”
The biggest problem, according to Walters, is that while courts are only interested in dividing the assets and growth accrued during the marriage, many couples do not keep records of what they owned before they got hitched.
“If a couple was married 10 or 12 years they probably didn’t keep documentation of who came into the marriage with what assets,” explains Walters. “Then, when the courts go to divide the estate, all assets — even those not accrued together — are thrown into the same pot. It’s very messy.”
Stoffman says, despite the negative impressions surrounding prenuptial agreements, people are turning to these arrangements because they provide an opportunity to talk about a taboo topic: money.
“When these discussions take place it shows what a unique situation we are in [as a culture]. People are prompted to declare what they view as the financial worth of the other, and this [type of discussion] can take on a whole life of its own,” explains Stoffman. “People get to drill down to the core values that drive one another — core values that are often intentionally not spoken about during the courting stages.”
From Stoffman’s perspective, prenuptial agreements are being used as “a way of making more informed decisions about their life.”
On many occasions, discussions prompted by a prenuptial agreement can lead to the dissolution of the relationship before the marriage even takes place, explains Stoffman.