Options if you can’t afford a pre-nup

Congratulations: you’re engaged!

While you may be focused on snagging your wedding venue or booking your honeymoon destination, it’s easy to forget that when you and your spouse tie the knot, you’ll be opting into an intricate legal and financial framework.

That framework includes such things as tax filing privileges, estate rollovers, spousal immunity and—if the marriage breaks down—a default property division regime.

Simple Ontario Equalization Primer

• Determine a spouse’s net worth (assets minus debts) on the separation date (joint property is divided equally)*.
• Next, subtract excluded property (inheritances, gifts [not from spouse], life insurance payouts, certain personal injury settlements).
• Then, subtract that spouse’s net worth (assets minus debt) on the marriage date*.
• Result: a spouse’s net family property (NFP).

Finally, divide the difference between the two spouses’ NFPs by two to find out the equalization payment. The spouse with the higher NFP will owe the spouse with the lower NFP the equalization payment amount. So, if Spouse A’s NFP is $500,000 and Spouse B’s NFP is $150,000, Spouse A will owe Spouse B $175,000 ([$500,000 – $150,000]/2).

*cannot be a negative number

That regime, contrary to popular belief, is not “each spouse gets half.” Even in equalization provinces like Ontario, spouses share post-marriage net worth growth, not pre-marriage net worth (with exceptions for gifts and inheritances — check out the primer on this page).

If you disagree with the default method, your alternative is to draw up a marriage contract to override the default. Cindy Scharff, a family lawyer with Gelman & Associates, says a simple agreement usually starts at $2,000 per spouse.

If that’s too much, there are ways to save fees.

First, ask your advisor for your full financial picture as of your marriage date — that should be easy for your advisor to do, since it’s already part of his or her repertoire. This is an important number because in equalization provinces, the more you can prove you own on your marriage date, the lower the equalization payment you’d owe your ex (if your spouse’s net property is lower).

Second, you can save money by customizing agreements to focus on just one issue. “The narrower an agreement, the lower the cost,” Scharff says. So, if partners have contributed unequally to the matrimonial home purchase, for instance, their contract could state that each spouse is entitled to their portion in case of separation, but that the default regime applies to everything else.

If you’re already married but now want to opt out of the default regime, it’s also possible to create post-nuptial agreements. Again, you can customize the agreement to focus on one or two issues only.

Melissa Shin

Melissa is the editorial director of Advisor.ca and leads Newcom Media Inc.’s group of financial publications. She has been with the team since 2011 and been recognized by PMAC and CFA Society Toronto for her reporting. Reach her at mshin@newcom.ca. You may also call or text 416-847-8038 to provide a confidential tip.