Do I need a Marriage Contract?

Posted on By Louise Polcaro
prenuptial agreement,divorce,marriage

Do I need a Marriage Contract?

Newly-engaged couples often spend thousands of dollars and months planning the perfect wedding ceremony, but most do not spend sufficient time or energy reflecting on what is to come after the “I dos.” A marriage contract (also referred to as a prenuptial agreement) is an important part of the planning process, permitting couples to plan for a joint financial future and discuss their visions together, whether or not the marriage lasts. The binding effect of a marriage contract brings clarity and grants legal protection in the unfortunate event of a divorce.

What is a marriage contract?

A marriage contract is a legally binding contract generally entered into before marriage, although it can also be entered into after a couple is already married.  A marriage contract addresses legal claims over assets owned by each partner prior to marriage, as well as any property acquired during the marriage, in the event that the marriage ends in divorce or separation.

Is a marriage contract required?

There is no legal requirement in Canada for couples to enter into a marriage contract, although they are becoming increasingly popular. Historically, marriage contracts were primarily recommended for anyone who was wealthy. Opinion has shifted in recent years and most married couples are now advised to sign a marriage contract. If you intend to own property together, have income separate from your spouse, or choose to alter your career path to raise children, you may want to consider entering into a marriage contract.

A cohabitation agreement is similar to a marriage contract but is used by couples who are not married (i.e., are common law spouses). It can be used to ensure the fair treatment of each partner upon the breakdown of their relationship.

Myths about marriage contracts

Confusion surrounding marriage contracts has led to a series of popular misconceptions. In this article, we review some common myths about these agreements.

  1. Marriage contracts are only for the wealthy

Marriage contracts are important for everyone. Given high legal fees associated with divorce, the extreme stress surrounding separation, and increasing financial independence among Canadians, a marriage contract can be beneficial for most couples. In the event of divorce, having a plan for separation which was made during a period of good will and mutual trust will expedite the process, protect your assets, and save legal costs.

  1. Marriage contracts are not binding

Marriage contracts are generally enforceable in Canada, although typically, full financial disclosure and independent legal advice are required. Pursuant to provincial legislation, two people who are married or intend to marry normally have the authority to enter into a marriage contract. The agreement sets out their rights and obligations to one another during marriage, and in the event that the marriage ends. Typically, marriage contracts do not become enforceable until after the marriage has taken place.

  1. These agreements assume our marriage will end in separation and/or divorce

Creating a marriage contract provides a meaningful opportunity for couples to speak openly about their finances, wishes for taking care of children from prior relationships and taking care of one another. Arranging for a marriage contract is nothing more than a couple implementing safeguards in the event their marriage breaks down.

Couples do not enter into a marriage with the idea that it will end in divorce, but the reality is that divorce rates are high. Developing a marriage contract may actually strengthen the relationship as partners speak candidly about their plans for a future together.

For further information, or assistance in creating a marriage contract, please consult a TEP.

Marriage, divorce and the effect on Wills

Posted on By admin
divorce, will

Marriage, Divorce and the Effects on Wills

Marriage

In many jurisdictions in Canada, getting married automatically revokes any pre-existing Will created prior to the marriage. This means that the Will is cancelled out in its entirety unless one of several conditions are met. These conditions include:

  1. A declaration is in the Will indicating that it was made in contemplation of the marriage;
  2. An election is filed with the provincial Estate Registrar within one year of the testator’s death; or
  3. The Will is made in the exercise of a power of appointment dealing with property that would not form part of the property of the deceased if they died intestate.

Divorce and Separation

Unlike marriage, divorce does not revoke a Will – or at least, not the entire Will. In many jurisdictions, gifts or appointments made to former spouses by Will are automatically revoked if there is a subsequent divorce. In many ways, Wills are treated as though the former spouse has predeceased the person making the Will. However, these laws should not be relied on as a substitute for updating Wills for a number of reasons:

  1. A Will is not revoked by the separation of legally-married spouses prior to a formal divorce;
  2. There could be unintended consequences if there are no substitute beneficiaries, the shares left to them are uneven, or they are no longer appropriate; and
  3. Gifts made by Will to former common-law partners are not revoked by separation and must be updated by a new Will or codicil.

In addition, in most cases, separation from a common-law partner does not affect any beneficiary designations relating to assets such as RRSPs, TFSAs, or insurance policies. Given the extensive differences in legislative regulations, it is imperative to consult an estate specialist in the Province or Territory to ensure that wills are compliant with the jurisdiction of current residency.

Depending on the jurisdiction where you live, separating spouses may discover that their separation impacts their estate plan. For couples that are separating, this process provides an opportunity to reconsider your entire estate plan and make changes to reflect the new situation.

For legal advice regarding updating your Will due to a change in family circumstances, please consult a TEP.

I am getting remarried – will my children still inherit?

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remarriage

Many people are unaware that when a person gets married (or re-married), a Will is automatically revoked in several provinces. When preparing for a re-marriage, arrangements should be made to ensure that loved ones are provided for appropriately.

If a person dies without a valid Will, their estate will be distributed according to the rules of intestacy for the province in which they resided, which vary between provinces. In general, the rules direct that the spouse of the deceased automatically inherits an initial amount of the estate and all of their personal possessions (the “preferential share”).  Depending on the jurisdiction, the intestacy rules may not consider a common law spouse to be a spouse.

There are further rules on distribution if the estate is valued over the preferential share, depending on which of the deceased’s relatives are still alive. This would treat all children who are blood descendants of the deceased the same, but would not include step-children or others the deceased may have intended to include in the division of their property.

Accordingly, it is essential to arrange for a new Will as soon as practicable after getting re-married. A Will can also be made in anticipation of getting married, in which case it may be necessary to incorporate a clause providing that the Will is done in contemplation of marriage and will not be revoked by it.

Regardless of whether or not there is a valid Will on the date of death, anyone financially dependent on the deceased while they were alive may have a claim for part of the estate. Anyone seeking so-called “dependent’s relief” should obtain professional advice before proceeding with this type of claim.

Providing for your family

When contemplating marriage, testators may wish to ensure that children from their first marriage and their new spouse are provided for, in addition to making any provisions for step-children, if desired. One option is set up a trust in the Will which allows the second spouse to benefit from the testator’s assets during their lifetime, with the certainty that children will receive the assets later on. It is also a good idea to have a plan in place for if the second marriage results in separation or divorce. A prenuptial agreement will protect some assets for the testator’s children in the event that the relationship breaks down.

Home ownership

A deceased spouse may have rights in respect of a home, even where they are not on title, through either family law rules or dependent’s relief. However, in most jurisdictions they will not have full rights to inherit the home unless specified in the owner’s Will.  Accordingly, it is important to consider what is intended to be done with the home and to ensure those intentions are reflected in the Will and respect family law and dependent’s relief considerations.

Proper planning

Estate planning for blended families can be complex, and it is important to speak to a qualified advisor to make sure that pitfalls are avoided. With proper planning, the second spouse and children from both marriages will be protected and the testator can maintain control over how assets are distributed on death.

For additional information on estate planning after remarriage, please consult a TEP.