Wealth planning for women: Why do I need a prenup?

This article was originally published by CIBC Private Wealth

In today’s world of ever-changing relationship dynamics and financial complexities, prenuptial agreements have become increasingly relevant and essential for couples contemplating marriage. These legal documents, often associated with high-profile celebrities, are not solely reserved for the wealthy elite. Prenuptial agreements, along with other domestic agreements such as cohabitation agreements, offer a powerful tool to provide financial protection and clarity in the event of a future separation or divorce, alleviating the stress of implicit, unclear, or family-related financial arrangements.

A prenuptial agreement is an agreement made between two people before marrying that establishes rights and/or limits with respect to property and spousal support entitlement in the event of divorce or death. Prenuptial agreements (or prenups as they are referred to in this article) are one type of domestic agreement or contract. Other types of domestic agreements include cohabitation agreements (between individuals who are living together and who may or may not get married in the future) and post-nuptial agreements (for married persons).

“The prenup is more complicated than most contracts because there’s more emotion involved,” explains Elena Hoffstein, a lawyer with Miller Thomson LLP. “You’re happy in your relationship, but you’re also contemplating the possible end of that relationship. It can be a tricky situation to handle.”

Despite the obvious discomfort of having to contemplate the possible demise of your relationship before you’ve even said ‘I do,’ the demand for prenuptial agreements is on the rise, especially among millennials. “One reason for this could be that millennials seem to be getting married later in life, and later marriages often mean more assets could be at risk,” says Nathalie Boutet, Managing Partner of Boutet Family Law & Mediation in Toronto. “These couples have also likely experienced divorce in some capacity, either watching their parents, other family members, or friends go through it.”

Many modern couples also like the simplicity of maintaining financial separation, unlike prior generations which were more likely to have one bank account. “At 57 years old, I’m old enough to remember when men were disproportionately the higher income earners in relationships, but that’s no longer the case. Many women are earning more than their spouses today and many come into a marriage with established wealth,” says Pat Marshall, Director, Wealth Strategies with CIBC Private Wealth in B.C.

With divorce on the rise, many women are turning to domestic agreements to ensure their own financial security and peace of mind in the long run. “This is an important era for women, and it’s anticipated that many will inherit or earn a great deal of wealth in their lifetimes,” says Boutet. “It’s important for women with even a little bit of wealth, for example, a condo that they own prior to getting into the relationship, to be upfront with their partner early on.”

With or without a prenup, every married and common-law couple enters into an implied domestic agreement based on the provincial, territorial, and international family law legislation that applies to them. The details of each agreement will be different depending on the nature of the relationship and the location where the couple lives. Because of the complexities of these implied and signed agreements, it’s essential that a couple seek professional family law advice. For a prenup to be valid, Hoffstein explains, you must have full financial disclosure on both sides and both parties must engage independent legal advice. “Without these, you won’t have an agreement worth the paper it’s written on.”

If a prenup is something you’re considering, most experts agree that starting the conversation early is essential.

“Something I often struggle with is that people will phone me up three months before their wedding looking to begin the process of signing a prenuptial agreement,” says Hoffstein. “Most family lawyers won’t do it that close to the wedding because of a concern that it would be susceptible to assertions that the agreement was invalid and/or that there was undue influence being exerted on one party to sign quickly before the wedding. Start having these conversations as a couple when you think you might be in a serious relationship — and initiate the process with a lawyer at least 6 to 8 months prior to the wedding.”

While a postnuptial agreement — one that is signed after marriage — does exist, Hoffstein says it’s much harder to sign something once you’re wed, especially if there are already children in that relationship “Any couple that sits down to create a postnuptial agreement, is likely already unhappy, and it often puts a lot of pressure on the marriage,” she says.

Knowing how and when to broach the subject with your partner can be tricky. “Bring up the topic long before you need to,” advises Marshall. What she finds works well is to bring up an anecdote, someone else’s prenup story, for example, and gauge your partner’s reaction. “Keep the conversation going, notice where any reluctance may be coming from, and focus on hypotheticals before honing in on your own situation.”

Open, honest conversion is key to a healthy relationship. “I understand that people are afraid to bring it up, but I think it’s better to understand where your partner stands early on,” says Hoffstein. “Even if you’re madly in love, [if your partner] refuses to consider a marriage contract, that may be a red flag worth paying attention to.”

Getting sound advice is also critical. “When you start sharing your story with others, you’re going to get feedback,” Marshall says. “Always consider the source. Do they know what they’re talking about, or are they offering you their opinion that’s outside of their expertise?”

When it comes to determining what goes into a prenup, Boutet, who is a collaborative family lawyer, advises couples to not go overboard protecting their own money, because that could signal a desire for separation versus the desire to grow and build a family nest egg together. She recognizes that when it comes to second or third marriages, the desire for financial separation is often more clear-cut. Boutet says, “If you’re young, and it’s your first marriage, you want to build a life together. If you decide upfront you’re never going to share anything, it could make for a calculating relationship.” It’s about relationship management, she says. “I advise clients to work collaboratively with their lawyer and their partner to protect the things that make them nervous — a condo or shares in a family business, for example — and recognize that circumstances can change in the future and nothing is static.”

Domestic agreements can help set the stage for healthy and open discussions about money, financial management, shared goals, and commitments. “I find many couples feel relief when their partner brings up these important conversations, because many want to discuss finances, but just don’t know how,” says Marshall. “A good financial advisor can help a couple begin to navigate these spaces and feel comfortable and confident that they are on the same page.”

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