Skip to main content

Changes to assets itemized in a post-nup may require changes to the agreement itself.Prostock-Studio/iStockPhoto / Getty Images

Sign up for the Globe Advisor weekly newsletter for professional financial advisors on our newsletter sign-up page. Get exclusive investment industry news and insights, the week’s top headlines, and what you and your clients need to know.

We’ve all heard of pre-nuptial agreements, often in the context of the rich and famous protecting the wealth they’ve accumulated before marriage. Post-nuptial agreements are less well known, but can be a useful way for married couples to define the division of assets, debts and income if a marriage breaks down.

Heather Fraese, managing partner with FC&Z Family Lawyers in Calgary, most commonly sees people arranging a post-nup under one of two circumstances. The first is early in a marriage when they planned to arrange a pre-nup but left it too close to the wedding date. If there’s no time for full disclosure or one party felt pressured to sign, the agreement may not stand up in court. The second is after several years, when cracks in the marriage have started to appear.

“More often when people approach me about a post-nup, it’s because they have an inkling that something is falling apart,” Ms. Fraese says. “I think it’s really smart [because] it allows them to just focus on the relationship and not have to worry about the unknowns of a separation.”

A post-nup can provide certainty about a possible future division of property, taking that off the table so couples can concentrate on resolving other issues. Also, agreeing on terms while relations are still reasonably amicable can be much easier than after a marriage has reached the point of requiring a separation agreement.

Ms. Fraese says that while a post-nup can be “as creative as you want,” even attempting to require specific behaviours or prospectively define spousal support provisions and parenting provisions, some terms may result in a court finding that a post-nup is unenforceable.

Courts consider carefully whether parties disclosed assets and debts fully and frankly and whether a post-nup leads to “unconscionable results.” For example, if someone waives spousal support rights.

Getting too specific in a post-nup can be an issue as well. For example, it may be reasonable to specify that each partner will maintain a separate bank account and pay their own credit cards from that account. However, Ms. Fraese says that explicitly requiring that a particular account pay for groceries and another account pay for the mortgage can make the agreement difficult to live with and “messy” in the event of divorce. A post-nup is more about providing a framework than micromanaging.

What advisors need to know

Ms. Fraese says advisors should review any post-nups (or pre-nups) clients have in place and check for tax efficiency because there are ways to structure a post-nup to improve a couple’s tax situation. If there are missed opportunities, an advisor can tell clients to speak with their lawyer about adjusting the agreement.

“A lot of the assets [advisors] are going to be dealing with do need to work hand in hand with a post-nuptial agreement if that agreement is making reference to specific assets,” says Deepa Tailor, founder and managing director of Tailor Law Professional Corp. in Mississauga.

Changes to assets itemized in a post-nup may require changes to the agreement itself. For example, if a couple sells a home listed in a post-nup, and then invests the proceeds in three different properties, the post-nup must be adjusted to reflect what’s happened.

“It depends on how specific the post-nuptial agreement is,” Ms. Tailor says.

“If you’re dealing with something like ‘interest from an investment that a couple jointly owns,’ then [the post-nup] in broad strokes can remain valid even if those individual investments change.”

In contrast, if the post-nuptial agreement is drafted in such a way that it makes reference to specific assets, then those assets would need to be updated through an amendment, she adds.

In general, Ms. Tailor says that post-nups should be revisited periodically and when a couple’s circumstances change – just like estate plans. Advisors can encourage regular reviews that help ensure the agreement remains relevant and continues to reflect a couple’s intentions.

She says one of the biggest advantages of having a post-nup, assuming it’s a well-drafted contract that won’t be overridden by a court of law, is confidence in the future.

“You can continue on with your marriage, never really looking at it if your marriage is strong,” Ms. Tailor says.

“But you have peace of mind knowing that your assets and other interests are protected because you’ve come to a meeting of the minds between both parties.”

How clarified intentions can help

Cathie Hurlburt, senior financial planner and chartered financial divorce specialist with Assante Financial Management Ltd. in Vancouver, has advised many clients with rocky marriages and has guided them through a divorce. She sees value in documenting conversations with financial implications in a legal document such as a post-nup.

“I’ve met couples who keep their money completely separate because one of them is a really big spender and the other person is a really big saver, and they have an agreement [that says] if this doesn’t work out, that debt is yours and I will never pay for that,” Ms. Hurlburt says.

She says having a post-nup in play doesn’t tend to complicate the financial planning process. It simply makes a couple’s intentions more transparent, which is very helpful for an advisor whose ultimate aim is to help clients meet their goals.

For more from Globe Advisor, visit our homepage.