What is a prenuptial contract ("pre-nup")?
A pre-nup is a contract between a couple, who is going to marry, that outlines their legal rights and obligations, going forward, if their relationship ends. All relationships end at one point or another - either due to separation or death.
A cohabitation agreement is a contract between a couple who are living together or have plans on living together that outlines their legal rights and obligations even if there is no intention of marrying. Typically these are called "cohabs".
A post nuptial contract is also called a marriage contract and it sets out or alters your legal rights and obligations if a couple is already married. These contracts, by law, are different than pre-nups because once you marry you may, by law, obtain certain legal rights. By entering into a marriage contract you may be giving up these rights.
Sections 37 and 38 of the Matrimonial Property Act of Alberta are the provisions that govern prenuptial and marriage contracts. The Matrimonial Property Act does not apply to cohabiting common law parties but the considerations for a cohabitation agreement can be similar to those for a pre-nup.
Why should I enter into a pre-nup or cohab?
You and your assets are always better protected if you have a proper contract. In Alberta the Matrimonial Property Act codifies certain assets that may be exempt upon separation. However these exemptions are subject to uncertainty and are often areas where conflict occurs upon separation. It is prudent to protect your exempt (and other assets) in a contract to prevent potential losses or expensive litigation if the relationship ends.
There are some situations in which it is important to have a pre-nup or cohab:
- You are living with (or plan on living with) a common law partner. The law in Alberta regarding property division and common law spouses is complicated and unpredictable - you risk extensive litigation upon separation without a cohabitation contract in place.
- You are wealthier than your partner and you want to protect this. Wealth includes both assets and income. If you have more wealth, or make significantly more income than your partner, a contract can protect it.
- You want to remarry. When you remarry, your legal and financial concerns can be very different than in your first marriage. You may have children from a previous marriage, support obligations, and own a home or other considerable assets. A pre-nuptial contract can ensure your first and second families are taken care of pursuant to your wishes and one or the other is not prejudiced.
- You own part of a business or shares in a corporation. Without a contract, when your relationship ends, your partner could end up claiming a share of your business or corporation. Your business partners or other shareholders may not want this to happen. A pre-nup or cohab can ensure that your spouse does not become an unwanted partner in your business.
What is the process?
Soby Boyden Lenz LLP has a specific process to provide clients with pre-nups and cohabs involving the following:
- First you contact and make an appointment with one of our lawyers.
- At the meeting or prior to, you will need to fill out our detailed information questionnaire and provide us with both your financial disclosure and your partner's.
- Your lawyer drafts the contract based on your information and specific instructions.
- You receive a draft of the contract and review it extensively with your lawyer.
- Your lawyer forwards the contract to your partner (typically through their own lawyer) and deals with further changes if these are necessary.
- You sign the contract with your lawyer who witnesses the document and provides you with any additional legal advice require. Your lawyer attaches a certificate of independent legal advice to the contract.
- Your partner then signs the contract with his or her lawyer and receives independent legal advice and a certificate of their own.
- Your lawyer at Soby Boyden Lenz LLP is available along the way to answer all your questions and provide ongoing legal advice via telephone, in person meetings and/or email.
- Your lawyer will also communicate with your spouse's counsel throughout the process in order to finalize the terms of the contract.
What is the Cost of a pre-nup or cohab contract?
- The cost of the contract will depend on the complexity of your situation. These factors include the number of hours it will take for your lawyer to gather and review your information, to draft the document, and to provide you with legal advice throughout the process. In addition, your lawyer will need to provide the contract to your partner's counsel and deal with any proposed changes requested.
- The cost of such contracts will likely be much less than the cost of litigation upon separation should you separate without a contract.
- At Soby Boyden Lenz LLP all our lawyers practice family law exclusively. All of our lawyers work together as a team to ensure you receive the best possible legal advice and service available.
Are these contracts always enforceable?
The courts do not always find pre-nups and cohabs enforceable. They can be found invalid both on procedural and substantive grounds making the process of entering into your contract is just as important as what is contained in it.
Here are some of the main circumstances in which they will be found invalid:
- Lack of Independent Legal Advice. A pre-nup or cohab must be in writing, signed and witnessed and each party must receive independent legal advice (from their own lawyer). Both parties must be clearly aware of the nature and affect of the contract.
- Financial Disclosure. You and your partner will exchange full disclosure of your financial circumstances to the other prior to entering into these contracts. Financial disclosure must be detailed. It is not enough that your partner knows you own a TFSA; he or she must also know its value. The financial disclosure should be included as a schedule or appendix to your contract, outlining the values of all financial assets, debts and proof of income. Disclosure requirements can extend to potential inheritances or contingent assets if you wish to thoroughly protect them within the contract. Courts take the view that you cannot enter into a legally sound pre-nup or cohab without being privy to financial information. If disclosure is not exchanged your contract risks being invalidated by a judge.
- Duress or Coercion. Just like any other legal contract, if either party experiences duress or coercion to enter into the contract, the contract will become invalid. Interestingly, often pressure to sign a pre-nup does not stem from you or your partner but from his or her family, mother or father. You or your family should not put pressure on your partner to sign a pre-nup or cohab. In order to be considered valid the pre-nup must be signed voluntarily by both parties of their own free will and with separate independent legal advice.
- Invalid clauses. Certain things are not permitted in pre-nups and cohabs. The most important of these are clauses relating to child support and custody. Child support is considered the right of the child and not something that can be contracted out of (Snelgrove-Fowler v Fowler, 1993 CanLII 7189 (AB QB)).
In summary, pre-nups and cohabitation contracts are becoming increasingly more common. Entering into these contracts can be a sensitive subject and often not the most romantic to broach. However, these contracts greatly limit your risk of costly litigation should your relationship break down in the future.
If you have any further questions please do not hesitate to contact our firm at 403-262-0000.