What is the purpose of a pre-nuptial agreement?

A pre-nuptial agreement is a contract that allows a couple intending to marry to govern the terms of their property division upon a future marital breakdown. A co-habitation agreement is a similar document used for couples in common-law arrangements.

Do I need a pre-nuptial?

Under the laws of British Columbia, all couples who marry are governed by the Family Relations Act (FRA) in dividing their assets on marital breakdown. The Act defines “family assets” as those things commonly used for a family purpose. The FRA requires an initial presumption of an equal split of all family assets. The Act provides that the presumption can be overturned by agreement or court order where an equal division would be unfair. To this end, the pre-nuptial agreement purports to record a couple’s agreement for unequal division of family assets prior to their marriage.

Pre-nuptial agreements are most appropriate for couples who have very different and/or significant financial means who desire or need to protect their holdings in the event of divorce. Pre-nuptial agreements are of no assistance where neither person has significant assets. (However, those married or in a common-law relationship, expecting to inherit a large estate should consult a family lawyer to determine the best options for holding these assets before they are received or as soon as possible thereafter. Similarly, estate planning is crucial for those with significant assets and should be addressed with your counsel before marriage – any Will written that does not contemplate your future marriage will be invalid upon the marriage!)

Pre-nuptials are most often advised for an individual of significant means or individuals with moderate means who wish to protect their assets for their children. For example, a previous spouse has died leaving their assets to their widow(er). The widow(er) then wishes to re-marry but continue to preserve the estate for their children.

Is there a disadvantage?

Pre-nuptials are not insurmountable. A court can choose to completely ignore the contents of the agreements is some circumstances. For this reason it is important to not only have your agreement drafted by a qualified lawyer, it is important that the other party receive independent legal advice regarding the nature and terms of the agreement.

Where something unusual or unforeseen that is financially disabling or devastating has occurred to one or both parties, a court will likely disregard a pre-nuptial agreement and seek to find its own fair result. For example, if the agreement was written to protect the husband’s assets, and during the marriage the wife developed a disease that affects her ability to earn income, a court will be more inclined to adjust or disregard the agreement. In the same situation where the wife’s disease was known at the time of signing, if the agreement was held to be generally fair, a court is less likely to interfere.

We have to pay two lawyers?

The key element that a court will seek in a prenuptial agreement is fairness. The best way to ensure fairness, comprehension and true understanding of the contract you are about to enter is for each side to have their own lawyer advising them of their best interests. (Note that in British Columbia, a lawyer cannot advocate for both sides of a family law issue.) One lawyer will take instructions and draft the pre-nuptial agreement. The second lawyer will provide their client “independent legal advice” regarding the contents of the agreement. This may result in one or both parties seeking further refinements to the agreement.

What if we can’t agree?

If you do not have an Agreement and you marry, should the marriage fail, you will be governed by the Family Relations Act with respect to your property division. Ideally, you will negotiate a settlement, however, should the division of assets be put before the courts, the court will be required to start with a presumption of an equal division of family assets. You will have to bring evidence before the court to show why all those things you commonly used for a family purpose shouldn’t be divided equally.

Is there any other way?

You can seek advice on how to take steps to prevent your assets from being included as “family assets”. However, this will be difficult in many cases and the court has authority to determine what constitutes a family asset in each situation.

I heard the Supreme Court of Canada made a recent decision affecting pre-nuptial agreements – what happened?

The recent case of Hartshorne v. Hartshorne dealt with the pre-nuptial agreement of two lawyers from British Columbia. It is a significant case because the court gave great weight to the terms of the couple’s pre-nuptial agreement. Both sides had independent legal advice and in their agreement, contemplated the circumstances that in fact existed on the breakdown of their marriage. This case showed the pendulum begin to swing away from judicial intervention and toward a greater respect of private agreements. The court held that where there is an agreement, it will first be applied as the presumptive entitlement. Then fairness will be considered. Fairness does not require all assets be split 50-50.

So how do I start the process?

Arrange an appointment to meet with a lawyer who practices family law. A list of your assets will allow your lawyer to fully advise you in drafting an agreement to present to your partner. It is wise to allow several weeks to complete the process and ideally signatures will have been in place well before your wedding day or cohabitation.