Getting hitched? Sign a marriage contract (and cover your assets)

Spring has sprung and love is in the air as wedding bells chime across the land. You've made all the necessary plans to make your big day a memorable one but through all that planning, did you stop to consider a prenuptial agreement?

Though the term itself isn't unfamiliar to most, prenuptial agreements aren't as common in Canada as they ought to be says Michael Cochrane, managing director and a family lawyer for Heydary Green PC in Toronto.

"We're probably seeing fewer than 10 to 20 per cent of marriages starting off with a marriage contract or prenup," he says. "I tell people … that you really need to look at a marriage contract as a financial planning document. It's not much different than a will or power-of-attorney.

"A marriage contract can be a complement to those other documents."

Who needs a prenup?

Such a contract can vary between young couples and those marrying a second or third time. For older couples entering into a second marriage, they're almost mandatory, he says. First time nuptials tend to have next to no assets.

"People that go into a subsequent marriage do one of two things: they're either protecting the property they've managed to salvage from their first divorce or they're protecting an estate they've received from a partner that passed away," he continues. "It's a whole different ballgame when you're talking about younger people getting married for the first time. Younger people typically … don't have anything other than student debt.

"But it's good to have a conversation about it and we call that a 'due diligence' conversation. You still need to know some things about the person you're about to marry."

For instance, you don't want to end up with what Cochrane refers to as a 'FTD': a financially transmitted disease. Even for someone slightly older that's marrying for the first time, it's wise to conduct financial due diligence.

"Let's say we're talking about someone in their 30s and they have nothing in the bank, they've had trouble with credit cards and had debt consolidation, you have to ask yourself 'what is going to make them perform differently once they get married?'" he asks.

Interestingly, stateside a 2010 survey conducted by the American Academy of Matrimonial Lawyers found 73 per cent of divorce lawyers say they saw a spike in prenuptial agreements over the previous five years.

Cochrane, who's authored two books entitled, "Do We Need A Marriage Contract?" and "Do We Need a Cohabitation Agreement?" (both Wiley, 2011), also says it's sensible to consider your partner's health before getting hitched.

"You should look at your partner's predisposition to disease and also look at mental health. I would say if you polled divorce lawyers in Canada and asked them what the No. 1 problem in marriages right now that surfaces during divorce, it's mental health," he says. "You should also look to see if your partner has any past criminal convictions."

Wise advice but not exactly the language of love. However, Cochrane says there's no scenario he can think of where a couple wouldn't benefit from a marriage contract.

"From a simple point of view, why don't you at least crystallize and recognize what each of you are bringing into this marriage? It's almost like making a financial baseline for your relationship," he says. "For everything after (your wedding day), you can craft your own kind of system."

Cohabitation agreements necessary?

On the subject of cohabitation agreements, they're essentially marriage contracts for common law couples but whereas prenuptial agreement rules are generally consistent nationwide, cohabitation agreements vary significantly by province. Cochrane notes by 2022, all of the couples in Canada will be 50 per cent common law.

"Common law rules are different in every province. You could be not common law in Ontario and move to B.C. and you are common law; or from Ontario to Nova Scotia and suddenly find out if you split up you've got rights and obligations that you didn't have in Ontario," he says.

Reflect on your financial goals together

Financial planning is an ongoing fact of life, says Ahmad Dajani, vice-president of Investments, GICs & Sales Tools at Scotiabank. It's crucial to identify what your collective goals are.

"As we plan on our future it's important to take the time to reflect on our goals. A financial plan is the first step in trying to materialize those dreams," he says. "As couples start to layout the costs and decisions they need to make, they'll need to make some tradeoff decisions and a financial advisor can help couples sort through the maze of options."

Dajani says Scotiabank's research shows 58 per cent of Canadians fancy a five-year plan. "It's simply bite-sized chunks of lifetime goals," he explains. "It's an opportunity for people to identify milestones and be able to plan for them. Five-year planning tends to keep people motivated with their saving habits and to keep them driving forward."

And he adds though it may not be the most romantic part of planning, it's important to remember that everyone has their own style when it comes to finances.

"Some are more comfortable with debt than others. Some may be a disciplined saver while the other is the complete opposite," he says. "How a couple manages their finances together is an important topic of discussion.

"Often times financial planning is thought of as supporting only large sums of money and it's a misconception. We support younger couples starting out or those that have accumulated financial wealth over time."

Of note, the Financial Consumer Agency of Canada also provides information on how prenuptial and cohabitation agreements can affect your finances.