No one likes to plan for the failure of a marriage. But with the average nuptials in Canada lasting a mere 13.7 years, according to StatsCan, it's not surprising that prenuptial agreements are becoming more popular among today's couples looking to walk down the aisle.
Having a prenup is especially important when there is a family business involved. The business is often the main source of income for the family and it needs to be handled with care in the event of a divorce in order for the family to preserve their wealth.
While many people dread the idea, it is best to be up front and have an open conversation around expectations as early as possible in the relationship. Maintaining fairness and perspective is easier at this stage, when there isn't a lot of negative emotion involved. In fact, one client tells potential mates right up front, "I come with a marriage agreement."
When two generations disagree about the prenup
Parents involved in a family business, especially where there is considerable wealth, often require their children to enter into a prenuptial agreement before they start cohabiting with someone or before getting married.
This was the case with one client, the second generation of a wealthy Canadian family, whose parents were not pleased that her future husband was not agreeing to their terms. She was not comfortable forcing her parent's rigid expectations on her reluctant fiancé.
This created rifts within the family and also between the family and the fiancé. Eventually, a more balanced prenup was signed, which provided enough protection for the shares of the family business -- held for several generations -- but also addressed some of the fiancé's concerns.
There were two elements lacking in that case:
• Early discussions among the family members before any negotiation with the fiancé even began. It's important to be open regarding expectations from the outset, and come to some kind of alignment on what's really important.
• Ongoing dialogue within the family as the negotiations of the prenup evolved, so that everyone is kept apprised of what is and is not achievable at the negotiation table.
More communication before and during the negotiation process would have helped smooth the relations. The patriarch and matriarch would have understood why some of the items on their wish list were unacceptable to the fiancé, and the daughter would not have felt so conflicted as she tried to please the two opposing sides -- her parents and her fiancé.
If the kids won't sign a prenup
A substantially wealthy family I'm working with is devastated that, unlike their two eldest sons who have already wed, the youngest son refuses to sign a prenup. The son said that he would prefer being stripped of any family wealth than ask his fiancée, who is also the mother of his newborn baby, to sign a prenup.
In another family, while the son was perfectly willing to enter into a prenup, the fiancée refused resulting in the couple getting married without one.
Another unfortunate situation may occur where the family member enters into the prenup to appease the family but negates its effect during the marriage.
We can't force our own children, or their future partners, to sign a prenup. We can educate them on some of the benefits of having a prenup.
If education and honest communication fail, the family may need to reconsider other methods of keeping some control over their family wealth. Creating a discretionary trust is a popular vehicle though, in family law, even discretionary trusts have quantifiable value when it comes time to divide assets upon a divorce. Some families may decide not to pass on the ownership of the shares in the family business to their offspring whose new partner refused to sign a prenuptial agreement.
Prenups don't have to be all one-sided in favour of the family that wants to protect hard-earned assets. I find that bringing fairness and a balanced approach will often allow the young couple to reach a satisfactory agreement.
Nathalie Boutet is an experienced family law lawyer, mediator and certified Family Enterprise Advisor™ skilled at providing unique strategies and out-of-court results to the complex human, legal and financial matters related to separation or divorce within businesses and family enterprises.. To learn more, visit http://www.boutetfamilylaw.com/.
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The discussion of such an agreement often enables both parties to learn key things about the other: Each other's view of money, knowledge about each other's assets and debts, and money management skills. So often therapists and family law attorneys encounter people who are in a bad situation because they didn't know what they needed to know about the other person. People caught up in the romance aspects of the relationship, or who get busy with daily life, often fail to have discussions about money. Disputes over money are one of the most frequent causes of break-ups. Putting the information on the table before making a long-term commitment helps people become educated about their future partners, how they handle financial issues, and can lead to an open discussion about how to address these issues before the relationship progresses and one person realizes that they cannot handle how the other person deals with money.
A written agreement makes each person's obligations to one another clear, avoiding stressful situations down the road. It is easier to focus on the relationship if the financial part of the relationship is worked out in advance. Written agreements make clear what each party's obligations are and how things are going to be handled going forward. They also set forth expectations so there is no ambiguity down the road. For many couples, this enables them to move forward knowing that their financial commitments to one another are settled, removing one of the most frequent causes of relationship stress from the picture.
While the property you bring into the relationship may start off as yours, over time, people are inclined to mix things up. Sorting out commingled property is tedious, expensive, and difficult to prove in court. Putting it in writing at the outset relieves this burden. Today, second or third marriages, or cohabitation arrangements after a marriage are commonplace. With people deciding to marry later in life they often come to a marriage with assets, as well as children. An agreement serves to confirm that those assets will remain separate property and be available for the children, or go back to the spouse who earned them if this marriage does not work out. Once people are living together, property often gets mixed up. A written agreement signed in advance can deal with that eventuality and save a lot of time and money if you end up in divorce court.
In some states there is a legal presumption that when a marriage has endured for a certain amount of time, the spouses are obligated to support one another for life. Through an agreement, you can modify this legal standard, or avoid support altogether. If the relationship becomes difficult, one party may be more inclined to work it out knowing that there is little financial cost to hanging in there longer. With spousal support not up for dispute, a divorce is easier to resolve.
A prenuptial agreement simplifies things. One that is properly prepared eliminates issues that one would fight about in a divorce. A properly drafted agreement will be approved by the court as the divorce decree. Let's face it: lawyer's fees are expensive, and courts are overburdened. Cases do not get resolved quickly. The more issues that exist, the more there is to fight about. If the issues are resolved at the outset, the case becomes much simpler and faster to resolve. Without an agreement, there is often uncertainty in terms of a how issues will be decided. Judges are only human and they have great discretion in making decisions in family court. With an agreement in place, the parameters of settlement are already spelled out.
Second or third marriages in our society are no longer uncommon. How often do we hear about children being upset when their parents remarry, thinking the subsequent spouse is going to take what they would otherwise inherit? Prenuptial agreements can protect that property so it ends up in the hands of the children from the earlier marriage. The new spouse is no longer a threat to those children (at least not financially.) How often do we hear of stories where the adult children make things difficult for the new spouse, who they see as a "gold-digger". With an agreement in place, you can assure your children that their inheritance is protected. They don't need to worry about their father or mother being "taken", and they don't need to resent the new spouse for that reason.
Marital problems often arise in two areas: sex and money. If both parties are free to do what they want with their own assets, it removes stress from the relationship. "You do what you want with your money, and I'll do what I want with mine" means there is less to fight about, especially when both parties come into the marriage with assets. There is no arguing over "you spent our money on that!".
An agreement properly drafted, and publicly recorded puts creditors on notice. If your spouse goes on a shopping spree and wracks up thousands of dollars in debt, it isn't your responsibility to pay for it. The spouse who has saved his or her money does not have to worry that it will be used to pay debts that he or she did not know were incurred, or received no benefit from. Many times in divorce proceedings, one discovers that debt was racked up that was heretofore unknown. With this protection in place, it becomes the responsibility of the person who incurred it.
There are many aspects of the law that govern marital relationships which are just unfair. You could live for 80 or more years, and only be married for 10 of those. Without an agreement, that alone can create lifetime liabilities to your former spouse. A prenuptial agreement gives you and your partner the ability to define the law as you want it to apply to your relationship, not as the legislature or courts have determined. By planning out your financial life in advance with a cohabitation or prenuptial agreement, you take control of your own life and your future. If you and your partner don't like what the law says, you have the opportunity to create your own set of rules to live by. With so many people shying away from marriage because of legal consequences they don't want, an agreement enables them to live the way they wish to, while still have the certain benefits of being in a marriage or a committed relationship.
These agreements can define just about any aspect of your financial life. Who is going to pay for what, whether there will be a joint account for living expenses, whether some property will become joint or not, and many other aspects of your financial life. Whether we like it or not, marriage and cohabitating relationships do have business aspects. You would write a partnership agreement before going into business with someone--there is no reason not to do the same thing here. Once set out in writing, it is always clear what one party expects of the other. The concept of false expectations are addressed when everything is set out in black and white. This minimizes disappointments, and a typical source of stress in a relationship.
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