What is a Prenup Agreement, and Why Every Couple Needs One

Discussing a prenuptial agreement can be awkward. Meeting that special person you want to share your life with can be one of the greatest joys in life. Whether you’re considering common law or marriage, the last thing you want to think of is that the relationship could one day end – or worse – it could have a bitter finale, with a fight over assets and debts.

Signing a prenuptial agreement does not suggest you’re already planning to separate one day. When we buy a new car, the last thing we’re thinking is that it could be stolen, damaged or destroyed; but we realize that life can throw us surprises, so we insure it. Having a prenup in place provides a measure of insurance against a bitter breakup or unfair settlement. The very best time to put provisions in place to protect the interests of both parties is when you’re feeling loving and kind towards each other.

A prenup establishes clear rules for the division of assets and debts, and perhaps support, in the event of a separation or divorce. To many couples, these agreements provide a sense of security.

In Canada, prenuptial agreements are treated the same as marriage contracts and are governed by provincial laws. Asset allocation, spousal support, and debt are the key areas of concern addressed in prenuptial agreements.

What’s Unique About BC Prenup Agreements

Many Canadians assume that a prenup agreement is only for people planning to marry. However, the BC Family Law Act allows even those in common-law relationships to enter into prenup agreements. A common law relationship is an arrangement where you live with someone in a conjugal arrangement.

Prenup agreements are not exclusively about a relationship or marriage breakdown. The agreement can also detail how property will be treated and each spouse’s role during the relationship. That’s why BC courts always insist on the issue of fairness before enforcing a prenup agreement.

Why Everyone Needs a Prenup Agreement

Canada’s divorce rates have been on a steady rise in the past decade. In 2021, about 2.74 million people obtained a legal divorce and did not remarry. British Columbia is one of the provinces with the highest divorce rates, just slightly higher than the national average.

Divorce is not easy, and it may take time to recover from one. A prenup or marriage agreement is the best insurance for both parties to avoid anyone being on the losing side. Here are five specific reasons a prenup agreement would prove necessary :

To protect personal assets

If you possess a significant amount of assets, it’s only natural that you’ll want them protected. A prenup agreement allows you to plan for an equitable arrangement by stipulating how much your partner is to inherit and ring-fence what’s not theirs to claim.

The agreement will prevent unnecessary power struggles and provide a way out from contentious arguments if the marriage doesn’t work out.

To address major issues in a family-owned business

Even though it may be unthinkable to consider divorce, you’re strongly advised to discuss and enter a prenup agreement if you run a family business. This allows for an honest and upfront communication over the business ownership while you are still married.

The key reason for entering into a prenup agreement is to clarify what will happen with the business after separation. It will help protect each party’s ownership interests in the business and ultimately secure its continued operation.

To deal with any outstanding debts following a divorce

Prenup agreements have long been used to establish what would happen to assets brought into the marriage or acquired during the marriage. However, you can also utilize it to resolve any debt commitments acquired or brought into the marriage.

To protect your financial situation following a separation or divorce

Horror stories about people losing their homes or pension abound in British Columbia. While no one wants to imagine that a marriage can end in a bitter divorce, being on the wrong side of the separation can cost you your financial stability.

Some divorces may compel you into splitting your resources, including your investments and retirement funds. A prenup agreement can shield you from this, as well as the high legal fees incurred in a contentious divorce. It protects your interests to ensure a just settlement.

If you are expecting an inheritance, a prenup can protect inherited assets such as money in a savings account inherited from a relative, property deeded to you before marriage, or a beneficial interest in a trust created by a family member.

To get a formal agreement on prospective alimony challenges

Determining the amount of spousal support may be contentious and costly after a difficult divorce. You may be surprised by the amount of support you need to pay, especially if you earn more than your partner.

A prenup agreement provides the option of foregoing spousal support under the provisions of the Family Law Act. Instead, you can agree on a spousal support formula that doesn’t potentially create a situation of extreme hardship for you. You can also use this family agreement to plan for future parenting arrangements.

Why a BC court may invalidate your prenup agreement

There’s no law compelling any BC resident to sign a prenup agreement. However, you should consider it to forge open communication regarding important life issues before marriage or moving in together. You also need it to protect your financial interests if the marriage or relationship ends.

A good prenup agreement should be legally binding, with full disclosure of financial circumstances, key marriage goals, the chosen approach to parenting, a family business, inheritance or investments, debts, and many more considerations. However, your partner may want a divorce with valid grounds for revoking the prenup. Here are the top reasons a BC court will agree to such demands and declare a prenup invalid.

Unlawful terms in the agreement

You can include various stipulations in the prenup agreement as long as they are not illegal. For example, any clauses relating to child support and custody should adhere to the BC Family Law Act provisions.

Critical child support and custody decisions can only be made in the best interests of the child. In most cases, a court will stand with the provisions in the law, even if it means going against the prenup agreement.

Lack of legal representation

You need the advice of an experienced legal representative before executing any prenuptial agreement in BC. An independent family lawyer is best suited to avoid potential allegations of pressure if one party subsequently decides to question the agreement’s legitimacy.

A court will most likely invalidate a prenup agreement if legal requirements and concerns from both parties are not met. Signing the prenup while under the influence of drugs is also a valid ground to challenge its enforceability.

Fraud and dishonesty

A court can invalidate a prenup agreement if it finds that one of the parties was dishonest or made a false representation.

Each party must disclose their assets before signing a prenup agreement. If it is demonstrated that one party did not declare or undervalued their assets, the court has sufficient grounds to void the agreement.

Conditions that must be met for your prenup to be enforceable

Any prenup agreement signed under BC Family Law Act must meet the following criteria to be enforceable:

Financial transparency

A court may not enforce a prenup agreement if full financial disclosure is not made. You must accurately declare how much money you have and how much you earn. A BC court is also permitted under the law to invalidate ambiguous prenup agreements that lack proper representation of figures on the amount of money each spouse should keep.

Legal advice from a third party

Entering into a prenup agreement requires understanding your rights, obligations, and the consequences of signing the agreement. Each party must have their legal counsel. A court has the right to invalidate a prenup agreement if it is not based on independent legal counsel.

Fair negotiations

Each party must have adequate time to negotiate and examine the agreement’s details for it to be enforceable. A court can void any agreement if one spouse compels another to sign.

Legal compliance

A prenup agreement should be tailored to each couple’s specific circumstances. However, it must comply with the British Columbia Family Law Act and Divorce Act.

Summary of the advantages of having a BC prenup agreement

An ideal prenup agreement should be based on an open discussion and tailored towards a win-win situation for both parties. This allows for the couples to enjoy benefits such as:

Peace of mind

A prenup agreement brings peace of mind knowing that you’re protected by an agreement if the unexpected does happen, and your relationship deteriorates. It ensures that you’re on the same page with your partner concerning the relationship and financial plans.

You can customize it to meet your individual needs

Prenup agreements are customizable to the needs and circumstances of the couple. You get to decide how aspects of your life, such as children, property, and money, will be handled if separation or divorce occurs.

There is some protection from an ugly divorce

Having a prenup agreement will save you time and money in the long run if the relationship breaks down. It can make a divorce less contentious, facilitate a smoother settlement, and ensure a fair distribution of assets and debts.

Are prenup agreements meant for the wealthy?

A common misconception is that prenup agreements are there to protect the wealthy from gold-diggers. Prenups are a form of contract that can benefit all couples by outlining the rights and obligations to each other during and when their relationship ends.

In British Columbia, couples who are not married, but are planning to marry, can sign a prenup or marriage agreement. A cohabitation agreement is for common-law couples who seek financial security without getting married.

A cohabitation agreement can also be called “common law prenup” and is similar to a prenuptial agreement or marriage contract. It works the same way as a normal prenup in BC. The only difference is that common-law couples have different family law rights.

The takeaway

A prenup agreement does not mean the relationship is headed for divorce, or you intend to treat marriage as a business arrangement. It’s a form of insurance that affords each party the peace of mind knowing that you’re protected if the unlikely happens. Having a prenup agreement positively impacts the divorce process, especially if it’s prepared and signed by experienced family lawyers. Call Amir Ghorbani at Pax Law today to get started on drafting your prenup agreement.