A prenuptial agreement, otherwise known as a marriage contract in Ontario, could be a sensitive subject. Though here is what you need to know.
A prenuptial agreement may appear to be an unromantic start to what ought to be a happy occasion. However, they have evolved greatly since their inception, and they are rapidly gaining favour.
Now while no upcoming spouse desires to plan for a divorce, though divorce is a growing reality and in the off chance it happens, you'll want to be prepared. Just like you don't expect to use the airbags in your car, you may not expect to need a prenup, but like the airbags, a prenup is there and used to protect you in the unlikely chance you end up in a divorce.
Thus ensuring that your prenup is applicable and properly drafted for your circumstances and position, it will serve to help safeguard you and your assets.
What is a prenuptial agreement?
A prenuptial agreement is a written contract that a couple enters before marriage. It covers the allocation of assets in the event of a failing marriage that lead to divorce. And if planned and done properly and addressed early on, it can be a vital solution for managing the outcome.
A prenup or marriage contract may address a variety of marital concerns, including, property ownership or division, support responsibilities, the right to guide their children's education and moral upbringing, and any other subject pertaining to a potential divorce settlement.
A prenuptial agreement can also be an excellent approach to prevent court procedures and reduce the possible financial and emotional impact of a divorce on a marriage. In Canada, prenuptial agreements are governed by provincial law. In Ontario, premarital agreements are known as marriage contracts.
Eight reasons for having a prenup:
You want to safeguard your present assets (such as a house, investments, insurance policies, jewelry, or other monetary/sentimental value belongings) as well as future inheritances.
How to handle a large disparity in the worth of assets brought to the marriage by each partner.
You own or have a controlling interest in a company (especially a family business).
One (or both) partners brings a significant amount of debt into the partnership.
You want to keep your current estate plan in place so that your assets are distributed according to your intentions after you die.
One or both partners are divorced and/or have children who may be receiving financial assistance.
A prenuptial agreement may make divorce less acrimonious, allow a smoother settlement (which may result in cheaper legal bills), and assure equitable wealth distribution.
Divorce is a typical source of financial difficulty and bankruptcy, and it has the potential to jeopardize long-term financial health and stability.
Talk about it early; don’t wait too long before having the conversation.
Introducing the concept of a prenuptial agreement to the expected spouse isn’t all that easy. However, the first stage for highly wealthy people is to have an early discussion with their children about future expectations surrounding potential partners joining the family.
When families discuss prenuptial agreements early on, possibly even before the child has met their prospective spouse, the matter is less emotionally charged and more easily to be had. Noting that the emphasis should be on how a prenup might preserve the family wealth.
Make a list to help facilitate the conversation.
Begin with putting together a list of the familial assets and liabilities and review what are the musts to keep and protect. Then, with your potential spouse and legal counsel you should begin to chat about things candidly. This is to determine which assets will be retained individually and which will be considered marital property, and why. Fully state the assets and liabilities of each party. Determine how marital property will be acquired and named. Example being, will marital property be bought with marital funds? How will those assets be distributed in the event of a divorce? How will household costs be covered? How will debts before the marriage be handled? You should also speak to a financial advisor for help to better understand your assets and overall financial circumstances going into the process.
Common components of a prenup:
Separate and Shared Assets: Each spouse may choose which assets they'll keep in a divorce.
Separate and Joint Debts: To prevent burdening each other with obligations, keep debts separate. Specify how much each partner is accountable for if you have shared debt.
Children: A prenup cannot commonly contain child custody, visitation, or support for present or potential children.
Alimony/Spousal Support: This is optional in a prenup. Though topics like who will support whom? Payment amount, payment schedule? As well as support conditions. If you don't specify spousal support, courts will likely use provincial and federal legislation. They'll also examine divorce-related situations.
Inheritance Rights: When you marry, your spouse usually inherits half of your fortune. However, if you want to pass a set amount to another party, such as other family members, children, or a charity organization, you may establish a prenup to control their inheritance rights.
How Can Financial Advisors Assist Couples?
Analyzing each couple's financials in light of their existing situation and prospective agreement. Partners should discuss how their finances will change following marriage; this should be a collaborative effort with their financial advisor.
Here are some of the areas we start our review with clients:
How do you plan to handle your money? Will they be merged, separated, or a mix of the two?
What are your individual financial goals? Short-term and long-term, individual and collaborative?
What are your household's financial values and priorities?
What are the similarities and differences between your attitudes and opinions on money?
How can you collaborate in order to be partners in this financial journey?
In summary, preserving the family's wealth for future generations.
In the end, a prenuptial agreement is intended to preserve wealth, safeguard assets, and define the financial rights of both parties. It should define and explain the couple's financial circumstances and objectives with respect to separate property, inheritances, and eventual marital property.
In addition, the agreement should specify how assets will be split, if and how spousal support will be given, and how future earnings will be handled. This plan should describe the method and handling of certain assets, such as those put aside for children or those passed down through generations.
For anything this important, please consult professionals whether legal, accounting, and financial advisory.
Financial Advisor, Manulife Securities Incorporated
Life Insurance Advisor, Manulife Securities Insurance Inc.
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