Do you take this prenuptial?

Second marriages, an inheritance from your grandmother, or sizeable retirement assets are a few of the many reasons more Canadians are signing on the prenuptial dotted line.

Prenuptial arrangements, while not yet the rage, are becoming more and more commonplace, explains Jim Stoffman, a Winnipeg-based lawyer with 40 years of family law experience. Since the Divorce Act was passed in 1977, Stoffman has noticed a consistent and persistent increase in the use of prenuptials among his clients.

“Prenups are becoming more common because society is becoming more aware of an individual’s rights,” says Stoffman. “And people are realizing that marriage is not a one-size-fits-all proposition.”

He believes that when you enter a relationship where one of you owns property or other assets, you should have a discussion about prenuptial agreements.

Most assets accumulated during the marriage (and in some provinces, after a certain period of time of cohabiting) are subject to division should a divorce occur. These assets must be split 50/50, either in value or in kind. While provincial laws govern property, it’s also subject to court scrutiny and can be divided with either a payment from one person to the other or through sale of the property and then division of the assets.

“Most people don’t realize that the division of property assets is legislated,” explains Wade Walters, a Victoria, B.C.-based planner. “People are marrying later, which means they are going into the [union] with RRSPs, assets, pensions and other investments that they consider ‘mine,’ but the court might not agree.”

The biggest problem, he says, is that while courts are only interested in dividing the assets and growth accrued during the marriage, you and your spouse may not have kept records of what you each owned before you got hitched.

“If a couple was married 10 or 12 years they probably didn’t keep documentation of who came into the marriage with what assets,” explains Walters. “Then, when the courts go to divide the estate, all assets — even those not accrued together — are thrown into the same pot. It’s very messy.”

Stoffman says, despite the negative impressions surrounding prenuptial agreements, people are turning to these arrangements because they provide an opportunity to talk about a taboo topic: money. From his perspective, prenuptial agreements are being used as “a way of making more informed decisions about their life.”

On many occasions, discussions prompted by a prenuptial agreement can lead to the dissolution of the relationship before the marriage even takes place, explains Stoffman.

Since money can sometimes make or break a marriage, you should talk about prenups with your potential spouse and your financial advisor. Sometimes you might be better off hammering out financial details before going to a lawyer, as the legal profession doesn’t always look at the long-term issues.

And, you and your spouse-to-be should have individual, independent representation. “This is the cornerstone of any good contract,” says Stoffman. Then he would ask you to think about the dissolution of the current relationship through a lens of a few stages — short term, medium term, long term and “till-death-do-you-part.”

By having discussions about assets and retirement plans and lifestyle choices — all prompted by the prenuptial dialogue — people have a better chance of a successful relationship,” says Stoffman. “It shows how well two people can negotiate, communicate and resolve tough issues that crop up in relationships.”

Under the law, all assets accrued over the course of the relationship need to be divided evenly. But this isn’t always easy in practice. Walters recalls one case where the husband of a divorcing couple received a portion of his salary in the form of stock options. “At the time of divorce, he wasn’t in a position to divest those shares. The question, then, became, how do you value those shares? Are the shares valued at market value? At the price he paid for them? Or are they valued when they are liquidated?”

In a divorce proceeding, these decisions are put into the court’s trust. “Assets get divided and people have to come to terms with downsizing and diminished borrowing power,” says Walters.

Stoffman believes for many couples, the prenuptial agreement is the first time they engage in a “me-versus-you type of discussion.”

However, he also believes that if you’re willing to talk about sensitive topics, you’ll also be capable of finding common ground. “People treat themselves and others in a much kinder manner” when dealing with difficult matters in a state of compassion and love, he says. “People are much more fair and generous regarding what will happen to their spouse during a separation when they are in love than when they are racing for the door.”

While Stoffman admits prenuptial agreements are not suitable for everyone, he’s still surprised more couples don’t consider them, particularly since Stats Can says more than one-third of marriages will end in divorce before the 30th anniversary.

“People don’t want life to be governed by a piece of paper — a manifesto — but a good prenuptial … provides protection to personal assets and yet considers the contribution of both parties.”

The best prenup is one that each party puts in a drawer and doesn’t look at or think about again,” says Stoffman. “The reality is you can always change it, if both [of you] agree, later on down the road.”