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Author, speaker, writer, researcher, consultant and president and founder of Headspring Consulting, Sandra Foster. (Deborah Baic/The Globe and Mail)
Author, speaker, writer, researcher, consultant and president and founder of Headspring Consulting, Sandra Foster. (Deborah Baic/The Globe and Mail)

Families

Before saying ‘I do,’ think about drafting a marriage contract Add to ...

They’ve been known to cover everything from infidelity to weight gain, but the real benefit of marriage contracts – prenups and postnups – is wealth management, financial experts say.

“A marriage contract is, in a way, a financial plan,” says Marlena Pospiech, senior manager at the Enterprise Wealth Planning Group at the Bank of Montreal.

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“Marriage is a partnership, and like in any other partnership, usually it is important to have some kind of an agreement.”

“The best way I’ve ever heard them described is that they’re like an insurance policy,” says Sandra Foster, a founder at Headspring Consulting Inc. and the author of a number of books about retirement and estate planning. “It’s protection. It’s not something you think you’re going to need, but statistics are statistics.”

Demographic changes are behind why legal experts say more couples are signing marriage contracts. Canadian women and men are marrying later, and the most recent census found that 12.6 per cent of families headed by a couple – whether common-law or married – are blended. As well, four in 10 marriages still end in divorce, even though the divorce rate is in decline, according to Statistics Canada.

In fact, marriage contracts are most common in second marriages, blended families or when one or both spouses have significant assets, says Kelly Rivard, vice-president and will and estate consultant at the Royal Bank of Canada’s Wealth Management group.

In other words, when there’s a lot of money at stake and/or complicated family relationships.

At their most basic, marriage contracts force couples “to have the conversation about money,” Ms. Foster says – about what they own and what they owe. Both parties are required to disclose all their assets and liabilities, and are advised to seek independent legal counsel.

“The majority [of marriage contracts] are related to financial issues of some sort,” she says. “Assets, debt, business support – anything that you don’t really want to end up in court to deal with, which can be really expensive – or that you don’t want to end up fighting publicly about.”

For someone entering a marriage who already has children, it’s also a way to protect what is given to those kids.

Ms. Rivard cites a classic example of that: A woman who owns a family business, retires and her children begin to operate it. When she marries again, she worries that if the business appreciates, her spouse could have the right to some of its value. But she would rather that the money go to her children instead.

Other examples could involve one spouse inheriting a substantial amount of money from his or her parents, or choosing to make sure his or her elderly parents receive financial help. In all these cases, marital agreements would lead to wealth being passed to people other than a spouse.

Ms. Rivard says marriage contracts also can be used to clarify who owns what asset, such as artwork or family heirlooms, as well as outlining support obligations.

But spouses can’t use marriage contracts to decide on who gets the matrimonial home or custody of the children, Ms. Foster points out. Custody is based on the best interests of the child, and, under family law, the matrimonial home is a special type of property that “you can’t bargain away.”

Ms. Pospiech says it’s important to note that marriage contracts are part of common law, which means Quebec has different rules. Family law varies depending on the province, so it’s important to do your research and get legal help.

All of the experts say that prenups are the best option – it’s easier to broach the subject and have the conversation before the wedding than after. Also, it helps when both spouses come into the marriage with significant assets – both are much more willing to want to have the conversation.

For Barbara Stewart, portfolio manager with Cumberland Private Wealth Management Inc., that conversation took place eight years ago when she got married. Ms. Stewart, who had no children, married a man who was divorced, paying support and had four children.

She says that many people entering later-in-life marriages are proud of whatever wealth they have accumulated, and would prefer to control their own money.

In her case, she says she told her husband-to-be, “My interest is in a long-term, loving relationship and not a financial relationship. I’ve worked long and hard to provide my nest egg and it’s providing me with a really strong sense of security. So my preference is to earn my own income and make my own financial decisions.”

He agreed, and they signed a marriage agreement outlining that.

“You know, we have the silly toothpaste arguments that every couple has, but we don’t argue about money. And I like that.”

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