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First comes love, then comes the prenup?

The “money talk” is difficult enough for most couples. Who, then, is going to bring a prenuptial agreement, a legal document that spells out who gets to keep which assets should the marriage not work out?

“It’s such a romance killer,” says Marie Phillips, a wealth advisor at IPC Securities Corp., based in Mississauga. “But divorce is a leading cause of bankruptcy, so having a marriage contract in place is a good idea.”

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Not many people agree; an Ipsos survey last year found only 8 per cent of Canadians have prenuptial agreements – legal contracts that are typically designed to address postmarriage division of property and spousal support. South of the border, about 14 per cent of married Americans have a prenup, according to a 2016 study from George Mason University in Virginia and Stanford Law School in California.

“Prenuptial agreements are not a social trend,” says Jeff Rechtshaffen, a Toronto-based family lawyer. He points out that a basic element of family law spells out that "everything you own before marriage is yours and that the wealth you accrued during marriage is to be divided equally between the spouses.”

cake-topper wedding couple and a pre-nuptial agreement

zimmytws

For people with significant assets, however, the country’s laws don’t always address their desire to protect the wealth they or their parents have built. While this may seem ungenerous and unloving, there are a number of situations where a prenuptial agreement is sensible or even necessary, says Mr. Rechtshaffen.

For instance, entrepreneurs who co-own their business with their spouse would be wise to have a marriage contract restricting or limiting their spouse’s rights to company assets. This helps protect the business and all the partners in the business, says Mr. Rechtshaffen.

“Or if someone is getting married a second time and they have children from a previous relationship, they’ll want to protect their children so their second spouse doesn’t take a larger proportion of the assets that they would otherwise want their children to have,” he says.

While prenups are often sought by high-net-worth individuals and families, being wealthy doesn’t necessarily make these agreements a necessity, says Keith Whitaker, president of Wise Counsel Research, a Milton, Mass., think tank focused on family wealth and philanthropy.

Most wealthy families in Canada use trusts to preserve their wealth, says Mr. Whitaker, who recently wrote a book with Tom McCullough of Toronto’s Northwood Family Office called Wealth of Wisdom: The Top 50 Questions Wealthy Families Ask. With the family wealth placed in an irrevocable trust, a prenuptial agreement may be redundant.

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“But what typically happens is that it’s the parents of young adults who are most concerned because they created the wealth or are the holders of wealth that’s been passed down by a previous generation,” says Mr. Whitaker. “So they start feeling anxious when their adult children get into a serious relationship, but they find it difficult to raise their concerns with their child.”

Wealthy families who believe in prenups should start talking about the importance of these agreements before any of their children are in committed relationships, says Mr. Whitaker.

“That way, you can present it as ‘just something we would like our family to do because we want to preserve our family business or wealth,’” he suggests. “This approach depersonalizes the issue so it doesn’t become about the child or their prospective spouse.”

A good time to have this discussion is when children are in university or college, or right after they graduate, says Mr. Whitaker. “That’s the time when people start to think about relationships and building their own career and family path,” he says.

It’s important to make sure a prenuptial agreement aligns with existing trusts and estate plans, including wills, says David Altro, a lawyer and managing partner at Altro LLP, a law firm specializing in trusts, estate planning and cross-border tax with offices in Canada and the United States.

For example, when one-half of a couple stands to inherit significant wealth, the prenup might stipulate that any inheritance received will not be subject to family, divorce or succession laws – even if the monies become intermingled within marital accounts.

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“Or the wealthy parents could structure things so that their child never inherits under his or her name but inside a protected trust,” says Mr. Altro. “This protects the inheritance from getting into the name of the fiancé.”

In some cases, it wouldn’t make sense to place certain assets in a trust because it would trigger a tax bill. This is where a prenuptial agreement would be useful, he says.

Prenups and wills should be reviewed regularly to ensure they work together, Mr. Altro adds. As a general rule, a prenuptial agreement trumps a will. “The will does not govern the marriage contract – the marriage contract governs, so a good estate-planning lawyer will ask if there is a marriage contract before drawing up a will,” he says.

For a prenup or marriage contract to be considered valid, both parties need to be represented by separate lawyers and provide full disclosure of all assets.

“Very often when people get divorced, the spouse who has the ‘bad’ side of the marriage contract sues to have it declared null and void,” says Mr. Altro. “They might say their partner prepared the contract and pressured her to sign it before marriage, and that the lawyer she used was recommended by him and that he didn’t disclose everything.”

It’s also a good idea to provide detailed breakdowns of items to be divided or paid for under a prenup, says Mr. Altro. For instance, the clause on child support might list specific payables such as clothing, schooling, orthodontic expenses and extracurricular activities.

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In any case, it’s not exactly what most couples will want to talk about on the eve of their wedding. That’s why they should have “the talk” well before they march down the aisle, say Ms. Phillips at IPC.

“If you want to talk about a marriage contract, then make it part of a clear discussion on financials that any couple – regardless of their level of wealth – should have before they decide to get married or move in together,” she says. “It’s not going to be an easy discussion, but it’s a necessary part of building an honest and solid foundation for your relationship.”

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