When to consider a cohabitation agreement or marriage contract

By Andrea Swabuk-Moe

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It is a stark yet undeniable fact that 40 per cent of marriages in Canada end in divorce. We tend not to think about that at the start of a relationship or after moving in together, planning a wedding or having children. But most couples should.

Divorce is a difficult process. As a family lawyer, I see the significant toll it takes on parents and children, even when the separation is amicable. The emotional and financial fallout from divorce can be devastating for a family.

Contracts protect assets

Cohabitation agreements or marriage contracts, sometimes referred to as prenups, can make the process of parting ways much smoother. Marriage agreements are contracts couples sign before or after they marry, while cohabitation agreements are utilized by couples who live together or plan to do so. In both cases, these types of agreements can help to protect individual assets, joint properties, corporate assets, trust interests, investments, Registered Retirement Savings Plans, pensions and life insurance policies. These contracts also often outline how debts will be handled in the event of a separation.

Under British Columbia’s Family Law Act, common law couples are treated the same as married couples when it comes to dividing property and assets after separation. If you have been living with your partner for two or more years, your assets and debts are treated the same as those of married couples.

Agreements can be tailored to a couple’s specific needs and circumstances to provide clear guidelines for how assets will be divided in the event of a separation. For example, given the Vancouver real estate market, it is common for younger adults to receive significant financial gifts or advances of their inheritance from their parents to purchase their first home. A cohabitation agreement can protect this gift from division. In another scenario, someone entering their second or third marriage is often more comfortable having a marriage contract to protect their property for the benefit of their children and estate.

Two things to bear in mind: You cannot contract out of child support and you will have to share any increase in equity or growth in property value including with respect to a home, rental property, stocks, etc., even if you owned it before marriage, unless a contract specifies differently.

Myths versus reality

There is a long list of misconceptions around cohabitation agreements and marriage contracts: they are not necessary unless at least one spouse is wealthy; signing a prenup means that you are destined to get divorced; you can wait until the eleventh hour to sign; when you are in love, you do not need one. None of this is true.

“For too long they have been considered unromantic and pessimistic; a document foisted on a bride by a man of means who cares more about his assets than her happiness,” writes Ginger Gentile in a recent Forbes article.

For many people, the decision to intertwine their lives is the most significant financial arrangement they will make. If you own property or expect to receive an inheritance, why not protect that? If you were entering into a business partnership that had a 40 per cent chance of failing, the vast majority of people would sign a contract to protect their interest. Unfortunately, the stigma around discussing and signing a marriage contract or cohabitation agreement continues to exist.

Conversation starters

Finances are often at the root of a marriage breakdown, which is one reason therapists recommend couples have frank and open conversations about money before walking down the aisle. Studies show that talking about these issues and addressing them before marriage is the best way to protect you and your future spouse from disappointment and acrimony later, should the marriage not work out.

Does working on this type of a legal contract with your partner make for awkward conversations? Sometimes, but it gives couples the chance to have open conversations about issues that will impact their future together.

Cohabitation agreements can play an important role in helping couples plan and commit to their future. Properly handled, they can make a relationship stronger.

Before you broach the topic

If you are thinking about asking your partner to sign a cohabitation agreement or marriage contract, it is important to get legal advice first. These types of discussions can be emotionally charged and may cause conflict, especially if you begin these conversations unprepared. A family lawyer can help you understand your rights and obligations and guide these types of conversations.

It is also important for both parties to get independent legal advice to ensure their interests are protected and that the contract remains enforceable.

If you want to learn more about cohabitation agreements or marriage contracts and to see if either is appropriate given your situation, I can be of assistance. At Hamilton Fabbro, we pride ourselves on providing clients with clear and practical advice to empower them to make their best decision.