Securing Your Wealth Before and During Marriage
The Role of Finances in Relationships and Divorce
Finances are usually at the heart of marital disagreements. Even in the most stable relationship, money can be a sensitive topic between couples. During a divorce or separation, the issue can foster more intense and acrimonious feelings, especially if you are dealing with high net-worth individuals.
Why You Should Discuss Finances Early in a Relationship
When couples typically start out, the expectation is that their relationship will last and potentially troubling conversations – such as whether to share individual wealth – may be glossed over. After all, why plan for a division of assets at the beginning of a relationship when the outlook seems so rosy?
While having that awkward money conversation at the beginning of the relationship might feel uncomfortable, it can be even more problematic if the union ends in bitterness. It may be much easier to agree on delicate financial issues when the relationship is still new and the couple is essentially on the same page than when the partnership has splintered.
Protecting Your Assets With Legal Agreements
It is important for those who have acquired significant wealth, own businesses or have inherited family assets to take steps to protect their interests. This can be done with a prenuptial or cohabitation agreement (depending on whether you are getting married or living common-law). It is also possible for those already married to agree to a postnuptial contract.
In BC, the division of property and debt for married spouses and those who have lived together in a marriage-like relationship for at least two years is governed by the Family Law Act (FLA). This legislation is intended to ensure all family property and debt is divided equally between the couple. Without some sort of prior agreement, you may lose some of the resources you believe are solely yours.
The team at Mills Family Law is dedicated to providing top-tier family law counsel. We offer advice on how to protect your high net-worth assets and help you draft effective pre- or postnuptial agreements. When it comes to finances, preparing for the worst while hoping for the best makes sense.
How Property is Divided in British Columbia
Like other Canadian provinces and territories, British Columbia has legislation to ensure family property is divided equally between spouses unless doing so would be significantly unfair.
That includes everything that is owned legally or beneficially by either spouse at the date of separation.
The FLA sets out two categories of property – family and excluded. Family property is everything that you or your spouse own individually or together on the date you separate. It does not matter whose name the family property is in; unless an exclusion applies, it must be divided equally.
What Counts as Family Property?
- The family home.
- RRSPs, investments and pensions.
- Bank accounts and insurance policies.
- Any business interests.
- The amount of any increase in the value of excluded property from when the relationship began.
What is Excluded Property?
- Property one spouse owned before the relationship began.
- Gifts and inheritances given to one spouse during the relationship.
- Various types of damage awards, insurance proceeds and trust property.
- Property held in trust.
It is important to note that if the value of excluded property increased during the relationship, that increase is considered family property and would be divided equally between the two partners.
Why High Net-Worth Individuals Face Unique Challenges
In a separation or divorce, high net-worth individuals may face more challenges when untangling financial entitlements because of the potentially large number of assets, shared business ownership and investments. That is why it is crucial to seek experienced and knowledgeable legal advice.
A prenup or cohab agreement clarifies the financial rights of both partners and can help avoid expensive court proceedings.
Why a Prenup is Essential
Having a frank, open discussion about finances can make some couples anxious. Talk of the need for a prenuptial agreement may even make some feel insecure about their relationship. But even in an amicable breakup, division of property can be challenging and divorce can be stressful enough.
A prenup can help clarify financial and property issues and is not reserved solely for the wealthy. They can also be useful for those starting off on their career path. Of course, high net-worth individuals should give serious consideration to entering into such an agreement.
You need a prenuptial agreement if you have significantly more wealth than your future spouse or if you have business interests or Investments and personal assets.
Ideally, a prenup or cohab is drafted before the relationship moves to marriage or cohabitation. The prenup or cohab should list all property and debt and set out each partner’s property rights should the relationship fail.
Careful consideration is required when crafting these documents to ensure their validity and enforceability. First, both partners must agree to a prenuptial or cohabitation agreement. If one person is coerced or feels undue pressure to sign, the contract may not be valid. In B.C., a prenup must also meet the test for fairness, which includes providing comprehensive financial disclosure. Avoiding undervaluing assets is critical. The agreement must also be reasonable, not overly favouring one person. If the court finds the contract is unfair, it could be struck and any assets split 50-50.
These agreements can cover such issues as how assets and debts are split, how spousal and child support is determined and how estates are divided. It is essential for both partners to get independent legal advice or risk the agreement being invalidated.
Protecting Assets After Marriage
If you have a prenup it is a good idea to have it reviewed at regular intervals to make sure it is protecting your assets and complies with the law. If you are married and don’t have a prenuptial agreement you can still take action to preserve for financial rights.
A postnuptial agreement is exactly what the name implies and is enforceable as long as it meets certain legal standards. A postnup can address issues arising from changes of circumstance, such as an inheritance received by one spouse, new property or businesses, or the addition of children.
These agreements can be drafted anytime after a couple gets married. While they are legally enforceable, they differ from prenups by the fact that before someone gets married, they have no legal obligations to their future partner. That is important because it means nobody is surrendering any rights when agreeing to a prenup.
However, after someone is married, they gain certain rights and obligations from their spouse. They also give their spouse certain legal rights in return. That means at least one person may have to surrender some of those legal rights when signing a postnup. Understanding exactly what you are giving up is in your own best interests.
B.C. Family Lawyers You Can Trust
The end of a relationship, whether marriage or cohabitation, can be stressful and there will be much to sort through and unexpected challenges to face. The complexities of property division can be overwhelming, which is why a prenuptial, postnuptial or cohabitation agreement could help ease the transition into the next stage of your life.
Dividing family property and debt at the end of a marriage or marriage-like relationship can be complicated but the team at Mills Family Law can help guide you and ensure your rights are respected.
We are experienced litigators who can represent clients at all levels of court in British Columbia to achieve results regardless of your dispute. Contact us today to see how we can serve you.
