When 23-year-old Torontonian Isabella Felippe got engaged to her high school sweetheart, Pedro, she didn’t expect a marriage contract to be part of the wedding planning.
But with Pedro poised to inherit significant family assets, his parents requested a pre-nuptial agreement — or pre-nup — before the couple tied the knot.
“At first I thought the whole idea of a pre-nup was a little bit unnecessary, but then it was something that was important for his family,” Felippe says. “And considering that we were so young when we got married, I can understand where that came from.”
The couple ultimately decided to create a pre-nup that reflected their mutual goals for the relationship.
The pre-nup — a legally binding contract outlining how a couple’s assets and debts will be divided if the marriage ends, either by divorce or death — is growing in popularity among generation Z, those born between 1997 and 2012, according to Statistics Canada. More than half (52 per cent) say they would want their partner to sign a pre-nup before marriage or entering a common-law relationship, compared with 31 per cent of Canadians across all age groups.
Younger generations have been hit hard by “housing prices, interest rates, the ongoing cost of living and disparity between what costs are and what people are actually making,” says Caitlin O’Garr, associate lawyer at Shulman & Partners LLP.
As a result of this economic storm, they’re increasingly focused on financial transparency and protecting their assets, she says.
Given the high cost of housing, many young adults are also receiving substantial financial gifts from their parents.
“When you’re accepting a large gift from loved ones, you might put a little more thought into risking their money, so to speak, than your own, and be more inclined to draft a contract and put some formal arrangement in place, either because you feel like you should or because your family has requested that you do that in the context of giving you that help,” O’Garr says.
The total cost of securing a pre-nup typically ranges from $3,000 to $5,000, which would include negotiation, financial disclosure, drafting the agreement with some revisions, and execution, O’Garr says.
Here’s what you need to know if you’re considering a pre-nup:
Tailor your pre-nup to your unique circumstances
A pre-nup — legally referred to in Ontario as a marriage contract — can help couples avoid default provincial rules that govern the division of assets and debt in the event of separation or divorce, says Nicole Ewing, principal of the Wealth Planning Office at TD Wealth. For common-law couples, a cohabitation agreement can serve a similar purpose.
It’s “an opportunity for people to define what their relationship will look like going in, to share their goals, to get on the same page and to define what the rules are going to be,” she adds.
“I like to say to everybody, you already have a pre-nup or a marriage contract, it’s just been written by the government for you. So this is your opportunity to say what works for you.”
Not all assets are treated equally
One key default rule, without a pre-nup in Ontario, is that the matrimonial home is considered an asset that’s divided equally upon divorce, Ewing says, even if one spouse brought that home into the marriage.
This differs from an investment portfolio built by one spouse before the marriage — this is considered a separate asset that can be kept after the divorce.
It’s important for couples to “understand that the assets they have are treated quite differently than they might expect,” Ewing says.
Thirty-three-year-old Logan Beatty, a resident of Saskatoon, Sask., cautions other Canadians to learn from his experience and get a pre-nup before marriage if they wish to keep family gifts or specific financial contributions to housing.
According to Beatty, he paid the entire $120,000 down payment on the first home he shared with his soon-to-be ex-spouse. The couple bought a larger house just over a year ago, but are now heading for divorce. Several months before his ex filed for divorce, Beatty received a $50,000 monetary gift from his father, which he says he used to pay down the mortgage on their new home. He now regrets not having a pre-nup to protect those financial contributions.
“I feel a bit guilty that half of that (gift) is now going to an ex-spouse,” Beatty says.
Express shared values
Felippe and her spouse also used their pre-nup to reinforce their shared values around lifelong commitment. As a deterrent to infidelity, they included a $200,000 penalty for cheating.
Infidelity clauses are generally not considered enforceable in Canada, says Ewing. (Felippe’s pre-nup was signed in Brazil).
“Our family laws do not assign blame or fault when determining a spouse’s entitlement to support or division of assets,” she says. “The courts have explicitly stated that marriage contracts are not intended to enforce personal obligations such as the duty to remain faithful, and an infidelity clause would likely be considered against public policy in Canada.”
“Nonetheless, while likely not enforceable, some people may include a clause like this as a means of communication with each other, expressing their values and expectations for the marriage.”
Seek independent legal counsel
Jeff McCartney, financial planner with Objective Financial Partners, recommends that if there’s a financial disparity between partners, the wealthier one should ensure the pre-nup is as fair as possible.
“The goal of a pre-nup should not be to cut someone out if something goes wrong,” he adds.
McCartney emphasizes that pre-nups must not be overly coercive or show signs of pressure, as this can affect their enforceability. If a court finds that one spouse signed under duress — or that there was a lack of full financial disclosure — the pre-nup could be considered invalid.
That’s one reason both parties should seek independent legal counsel, he adds.
A pre-nup might feel like a big deal in the lead-up to marriage, but once you’re happily married, it’s not something that typically comes up, Felippe says.
Her advice to those considering a pre-nup is to have open, ongoing conversations with your soon-to-be-spouse and make sure you’re on the same page.
If finances are a point of contention, then that’s something you need to consider before taking the next step, she adds.
