A (smarter) happily ever after

You may be in love, but have you considered how your upcoming wedding will affect your finances?

A bride-to-be contacted Jennifer Jolly, an Ottawa-based lawyer, a week before her nuptials. The woman’s fiancé, who was also her employer, had handed her a marriage contract that would waive her spousal support if they separated.

The terms were particularly unfair, Jolly says, because the couple wanted to have children. “I told her we had to plan for what would happen if it didn’t work out. She’d lose her job, and she may have kids to support.”

The wedding was postponed while both parties negotiated. But there was a happy ending when the woman’s fiancé agreed to provide spousal support if they had children and then split. The couple got hitched.

To avoid such last-minute hassles, Jolly says, you and your fiancé should discuss and sign a contract before getting married.

Howard Feldman, a Toronto family lawyer, agrees. These marriage contracts, also called prenuptial agreements, are important because they protect both parties if unions end.

And when you draw one up, adds Feldman, it’s crucial you abide by the terms and keep it up to date.

“Sometimes people sign a contract and live completely contrary to it,” he says. “They shift assets back and forth as a result of tax issues, debt or just plain love. When the contract is triggered as a result of death or if the marriage falls apart, they’re shocked, and it causes many problems in court.”

Risk

Not having a marriage contract means you could lose wealth.

For instance, a contract could state you get the business and your spouse gets the house if you separate. But if, during the marriage, you sell the business, take the proceeds and pay off the house, your spouse would get a mortgage-free house upon separation, and you’d get nothing.

If this is your second or third marriage, you have more financial complications to consider, such as spousal support, kids, more assets and higher expenses. Your goal is to protect your home, while still providing for any children from previous unions.

Be aware that in Ontario, if you own a home and your spouse moves in, it is deemed the matrimonial home. If you don’t have a marriage contract, “the owner of the home loses the pre-marital deduction for the full value of the home on the date of marriage,” says Katherine Cooligan, partner, Estates and Trust Litigation, BLG. So on separation, the house is split 50/50 for full value, including whatever the original owner put into it.

“This is one of the major reasons people enter into a marriage contract,” she adds.

Let’s say you bought the house for $400,000. On marriage, it’s worth $600,000 and your husband moves in. On separation, it’s now worth $800,000. Without a marriage contract, the husband would get $400,000. But with a marriage contract, the husband would get $100,000 ($800,000 – $600,000 /2), assuming the contract only excludes the date of marriage value and not also the increase in value. The contract can do both.

This differs for common-law couples, who only share property if ownership is under both names.

Children are another complication. For instance, if you don’t plan to provide for your spouse’s children from a first marriage, and you and your spouse then split, you might still have to pay.

“Ontario law says if you’ve acted as a parent to the child, you may be obligated to support the child if there’s a question [the child] won’t be supported,” says Jolly.

While the courts examine situations like this on a case-by-case basis, one example of obligation could be whether a stepfather contributes to a child’s university tuition.

“So if you don’t intend to have a relationship with the child, put it in the contract—but there’s still a chance it might not hold up in court.”

Say “I do” to a marriage contract

The idea that your marriage might not work out seems ridiculous—you and your fiancé are in love. But you should discuss a marriage contract with your advisor as part of your financial plan.

Once you and your fiancé agree to negotiate and sign a contract, you must each have independent legal advice, and there must be complete disclosure of income and assets, says Jolly.

“If you aren’t disclosing a material asset, then the contract won’t be worth what it’s written on,” she says.

A court can set aside a contract that’s unconscionable, including if a significant asset wasn’t disclosed.

For instance, if the contract states one spouse is worth $100,000, but in fact her total worth is closer to $600,000, notes Jolly, it could be nullified.

And keep in mind a new marriage revokes a will, adds Feldman. So when you sign a prenup, update your will as well.