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|The Myths and Realities of Marriage Contracts
By Michael G. Cochrane, LL.B.
Marriage contracts are not only hot topics at the cocktail parties of the rich and famous, they're also useful, binding, and becoming increasingly popular for Canadians. Let's look at a recent case, which clearly demonstrates the potential significance of a marriage contract. My client -- I'll call her "Mary" -- a middle-aged woman, had finally come to the realization that her marriage of 10 years was over. During a disastrous second honeymoon, the uneasy feelings she had been experiencing for the last five years had finally been confirmed.
Now she sat before me, with the financial guts of her marriage covering my desk. Actually, she had reason to be proud. Mary had worked hard, she had accumulated significant assets, including a nest egg from an inheritance. There was a home, a cottage, an investment portfolio, and quite a few other valuable items of personal property.
Her husband, on the other hand, had not been a saver. He had worked and he had spent -- and then he had retired. While he, too, had some retirement savings, his nest egg was certainly smaller than hers.
As we picked through the documents, receipts, and financial statements, I tried to think how to best break the news that things did not look promising. Mary's nest egg, which had been acquired during the course of the marriage, was probably going to be shared with her husband if they separated and divorced. There was no doubt, even on the basis of a preliminary calculation, that she was going to be writing her "soon-to-be- ex"a cheque for hundreds of thousands of dollars.
As I prepared to break the news, Mary pulled one last document out of her portfolio like the proverbial rabbit out of a magician's hat. "I'm not sure if this is of any importance,"she said, passing a well-folded, 15-page document across the desk. "What's this?"I asked. "It looks like it hasn't been opened since it was signed."I unfolded the crisp papers.
"This is the marriage contract we signed two weeks before we got married. My husband says it's not binding because things have changed so much,"came her reply. The tone of her voice suggested she had accepted his pronouncement at face value.
After a few moments of reading the contract, it became clear that Mary, with the assistance of a good lawyer, had signed a marriage contract that would save her more than $300,000 in her impending separation and divorce.
1. "MARRIAGE CONTRACTS ARE ONLY FOR THE RICH AND FAMOUS."
I don't think Mary would have considered herself rich or famous. Ten years ago, she was a woman about to marry for the first time. Her intended partner, though, had been married twice before. Her friends had not been entirely supportive of the union. One, in particular, urged her to speak with a lawyer about a marriage contract that would protect the assets she brought into this marriage.
The media often sensationalizes the stories of wealthy divorce. Certainly, many people want the inside scoop on the marriage contracts of people like Donald Trump, Ted Turner, and Madonna. The fact remains, though, that thousands of average Canadians sign marriage contracts and cohabitation agreements every year. The reasons for signing a contract usually have little to do with being rich or famous.
A marriage contract is an agreement signed before or after a wedding that provides a private and custom-made set of rules for dividing the couple's property should they separate and divorce or die. In fact, a marriage contract can overlap in many of its functions with a Will. A cohabitation agreement is essentially the same thing as a marriage contract, but it's designed for people who intend to live together -- or who are already living together -- who wish to set out some rules to govern any separation that they may experience. Marriage contracts and cohabitation agreements can also establish some rules and regulations for how the couple manage their day-to-day marriage, not just their separation.
To appreciate the function of a marriage contract, one must appreciate the consequences of marriage itself. In every province or state, the laws provide for a pooling of assets at the moment of marriage. The language of these laws varies a little from province to province, but the general result is the same: marriage creates an economic partnership, the fruits of which will be divided between the husband and the wife should they decide to separate and divorce. That general rule applies unless the couple agrees otherwise in a marriage contract. Provisions with respect to custody and access to children are another matter, but the marriage contract allows couples to opt out of the provincial law with respect to property.
So while the myth may be that these contracts are for the rich and famous, the reality is that any couple -- whether going into their first, second, or third marriage -- could benefit from a marriage contract. The same holds true for common-law couples.
2. "MARRIAGE CONTRACTS AREN'T BINDING."
Nothing could be further from the truth. A marriage contract, if drafted and signed properly, is as binding as any other legal contract.
In order to have a properly drafted and executed agreement, you must follow four simple rules:
There is no legal requirement that the parties obtain independent legal advice prior to signing the agreement, but it's certainly highly recommended. The fact that someone received independent legal advice is one of the key elements that reinforce the "bindingness"of the agreement. I encourage my clients to obtain independent legal advice on marriage contracts in order to avoid problems down the road, such as one party claiming: "I didn't know what I was signing," "I never had a chance to talk with a lawyer," or "If I'd known I was giving up my property rights, I would have never signed it."
In terms of financial disclosure, marriage contracts include a provision stating that each of the parties has made full financial disclosure to the other of all their debts, obligations, and assets. This, too, allows both parties to say that they went into the marriage and the contract with their eyes wide open.
While the myth may suggest that marriage contracts are not enforceable or binding, the reality is these documents, when properly prepared, are as binding as a lease, a mortgage, or an agreement to buy a house.
3. "MARRIAGE CONTRACTS ARE ONLY FOR PEOPLE WHO ARE ABOUT TO GET MARRIED."
The term "prenup"or "prenuptial agreement"is often used in place of "marriage contract."Every prenuptial agreement is a marriage contract, but not every marriage contract is a prenuptial agreement. Prenuptial means literally that it was signed before the marriage. After the marriage takes place, it is still possible for the couple to sign a marriage contract. Granted, there might be a little less leverage in the negotiations, but many contracts are still signed after marriage.
There remains a great deal of misunderstanding about the rights and responsibilities of common-law couples. There are no statutory property rights for common-law couples regardless of how long they have cohabited. If a couple live together for 10 or 15 or even 20 years, there is no law that states their property must be divided as if they were married. In fact, it is quite the contrary. There is a presumption that each person keeps the property that is in his or her name and property that was acquired jointly is divided in accordance with contributions to its acquisition. For precisely this reason, there can be quite a bit of confusion and acrimony when a common-law relationship breaks down. Division of property can become a "free-for-all,"with long and expensive arguments. For this reason, common-law couples should sign cohabitation agreements setting out their understandings about property that is acquired, and which would need to be dealt with should the relationship end.
So the reality is that marriage contracts can be, and often need to be, signed long after the marriage has taken place -- and they are also available for common-law couples.
4. "LAWYERS ARE TOO EXPENSIVE. LET'S SAVE ON COSTS BY SKIPPING THE LAWYER, OR BY USING THE SAME ONE."
There's no legal requirement that a couple must hire a lawyer to create a marriage contract. However, if they want to ensure that it's binding when it counts most, a lawyer's advice can make the contract bulletproof. And investing in quality legal advice now can pay huge dividends at a later date.
It's natural to assume that one lawyer can do the agreement for both parties, and it's also natural to want to keep the legal fees at an absolute minimum. However, one lawyer should not act for two people, since there's an inherent conflict of interest in advising them about their rights.
The best way to keep costs under control is for the couple to do as much work as possible in advance of seeing the lawyers. If you can assemble this information in advance, you'll be making very efficient use of your lawyer's time, which will help keep costs under control.
If the two of you have done your homework, one of your lawyers can take the lead in drafting an agreement that captures the consensus of the couple. Once the agreement is drafted, the other spouse can then take it to his/her own lawyer for independent legal advice to see if it achieves the goals he/she had in mind.
So while the myth is that lawyers should be avoided, the reality is that their advice can be what makes this contract enforceable.
5. "THESE AGREEMENTS ASSUME THAT WE WILL SEPARATE. THEY'RE A TURN-OFF -- EVEN DISCUSSING THEM SPOILS THE ROMANCE."
Like millions of other people, I was a big fan of Seinfeld and the crazy situations that Jerry, George, Elaine, and Kramer got themselves into over the years. One of my favorite episodes is the one in which Kramer convinces George that a sure-fire way to break off his engagement to Susan is, in a word, "Prenup!"George rushes off to their apartment and announces to Susan that he wants a prenuptial agreement. Her reaction? She bursts out laughing. "Prenup?"she says. "You haven't got anything!"She walks away, still laughing, and agrees to sign whatever he wants. George just sits there, wondering what the heck happened to his smart plan.
If this important conversation is not handled properly, it can spoil the romance and provoke a bitter argument. You must know what you're talking about before you even begin. Put yourself in your partner's shoes: imagine that you're sitting with a coffee and a newspaper when all of a sudden your fiance says, "You know, I think I want you to sign a marriage contract."What would flash through your mind?
So be sensitive, tactful, and leave yourselves plenty of time to discuss the purpose of the agreement. Pick a comfortable place and time when you won't be interrupted to have your discussions. Also, be aware of what's going on in your partner's life; try to choose a time when he or she isn't under the gun (personally or professionally), preferably several months before the wedding. I know of one case in which the bride was under terrible pressure to prepare for a presentation at an out-of-town conference and her mother was very ill with cancer. Her fiance asked her to sit down to review some of the key components of a marriage contract. She took one look at it and burst into tears. Her parents, she said, had been married for 45 years without a contract. Why did they need one?
Having a good marriage contract or cohabitation agreement can actually make both spouses feel more comfortable and secure in their relationship, which allows them to better enjoy the marriage or cohabitation. Look at these agreements as a possible way of strengthening the relationship rather than a way of undermining the romance. There are lots of documents that couples need to review: Wills, powers of attorney, agreements of purchase and sale and, in some cases, marriage contracts.
6. "WE HAVEN'T GOT ANYTHING, SO WE DON'T NEED A MARRIAGE CONTRACT."
It's easy for a couple to conclude in the early stages of their lives together that a marriage contract wouldn't be of any assistance. They may not have many issues today, but that doesn't mean they shouldn't think about the possibilities. It never hurts for a couple to sit down and do some financial projections about their expectations in the relationship. Where do they think their careers are going to lead? Where do they imagine they'll be living in 10 years? What are their plans with respect to children? Whose career will be interrupted in order to care for the children? How will that person be protected?
Remember, whether you have property or not, marriage creates rights and obligations for the lifetime of the union. Common-law cohabitation may not create property rights, but it does create the right of a person to claim spousal support after living together for the requisite number of years (this number changes from province to province).
Regardless of your age, station in life, or other considerations, it never hurts to think about the advantages and disadvantages of these agreements for your relationship.
7. "THESE AGREEMENTS DON'T APPLY TO SAME-SEX COUPLES."
Not so: same-sex couples do sign cohabitation agreements. As a result of a recent Supreme Court of Canada decision, same-sex couples are entitled to be treated the same way under our provincial family laws that common-law couples are treated. All the same rules that apply to common-law spouses now apply to same-sex couples in Canada.
8. "A MARRIAGE CONTRACT WOULD BE A GOOD WAY TO LOCK UP CUSTODY OF THE KIDS IF WE SHOULD EVER SEPARATE."
Our family laws specifically provide that marriage contracts and cohabitation agreements may not include provisions that attempt to govern custody and access of children in the event of separation and divorce. It's impossible for a couple to anticipate the best interests and needs of their children (who may not even be born yet) at the time they sign a marriage contract.
The law reserves to the court the right to throw any such provisions out and make orders based on what is in the best interests of the children at the time of the actual separation or divorce. The same is true for cohabitation agreements that attempt to predetermine custody and access.
This doesn't mean that these agreements can't contain provisions that affect children. In second or subsequent marriages, children sometimes come as part of the "package deal."It's quite acceptable to set out some rules and regulations or understanding about how the families will be blended. In one agreement, for example, a mother with children from a previous relationship wished to have a provision confirming the family's intention that the children would continue to be educated in the Catholic school system. This was important enough to her to have it confirmed in a contract.
As this example illustrates, marriage contracts and cohabitation agreements can provide couples with an opportunity to set out their understanding about the moral, educational, and religious upbringing of their children.
9. "THE COHABITATION AGREEMENT WE SIGNED WHILE LIVING COMMON-LAW WILL BE WIPED OUT IF WE GET MARRIED."
Dead wrong. A cohabitation agreement is automatically converted into a binding marriage contract if the couple gets married.
This is a good time to point out another shocker that many couples discover much too late: marriage revokes your Will. It's hard enough getting most people to sit down and actually make a Will: it would be a shame to see all of that work and the fees spent on lawyers wasted simply because someone didn't realize the consequences of their marriage. Make a note, if you're planning to get married, to review your Will and make sure it continues after the marriage. If you haven't yet made a Will, do so now. (For more on the topic of Wills, see "Life After Divorce" *lifeafterdivorceCAN.shtml*.)
10. "WE DON'T NEED TO THINK ABOUT THESE THINGS. WE HAVE A 'MAGIC FORMULA' THAT WILL KEEP US MARRIED FOR EVER."
Good relationships have very little to do with magic formulas. Certainly there are some couples (and I count my wife and I among them) who seem to be blessed in the way that they discover each other and continue in their relationship, but the fact remains that good relationships are based on some pretty concrete foundations.
In my view, there are three layers to a good relationship. Layer one, the foundation, is based on mature love. Mature love is comprised of at least 10 things: honesty, patience, the ability to take the long view, respect, balance in one's life, tolerance and forgiveness, room for growth, a sense of humor, loving gestures, and good old-fashioned elbow grease in working at a relationship.
We must add to that foundation a second layer of realistic expectations. Couples need to know that there will be challenges to their relationship. Typically, they come in the categories of money, children, relatives, careers, illness, and, unfortunately, the arrival of new people on the scene. Couples need to have realistic expectations in a marriage. This doesn't mean that you have to be cynical or jaded about people and life, but it does mean that you are aware that anything can happen. Anything.
Last, but not least, is the couple's ability to solve problems when they arise. Good problem-solvers have the ability to identify what the real problem is, determine exactly how it arose, then work together to solve it. Here are some tips regarding problem solving:
Assuming that both of you are on the same wave-length, you must commit yourselves to working on a problem together. I highly recommend the use of marriage courses that teach good problem-solving skills to couples who already have a mature love and realistic expectations; these skills will serve them throughout a long and happy marriage or common-law union.
Mediators and marriage contracts
Each of you should retain your own lawyer to advise you before you sign the contract. However, you might want to use the services of a mediator in the negotiation and discussion phase of the contents of an agreement.
A mediator is a neutral third party who works with the couple to reach a consensus on the contents of the agreement. The lawyers stay in the background to make sure that adequate disclosure is given and to ensure that their clients understand the actual contents and nature of the agreement. The mediator leads the couple through a series of questions and answers in an effort to reach a friendly consensus about strengthening the marriage or the relationship through the agreement.
In my experience, mediation is a safe and friendly way for a couple to have this discussion. Even though it means the involvement of another professional, it can actually reduce costs -- and stress. Mediators are also much more likely to keep the discussion on track than some tough, adversarial-type lawyers.
If you feel intimidated about the prospect of having this kind of discussion with your partner, a mediator (with the lawyers in the background) may be just the ticket.
As we've seen, there are many myths about marriage contracts and cohabitation agreements. The good news is that the average person who is prepared to take a few hours to devote to a little research and engage in some conversation with his or her spouse is quite capable of understanding this whole area of law. Marriage contracts and cohabitation agreements are not rocket science. They are simple but binding agreements that allow couples to set out a private set of rules that will govern their marriage and relationship.
This article has been edited and excerpted from Surviving Your Divorce: A Guide to Canadian Family Law by Michael G. Cochrane.
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