Understanding cohabitation agreements and pre-nups
Dear Money Lady,
How do I get a prenup agreement without paying high lawyer fees?
This is a second marriage and I am very close to retirement, plus we both have government pensions. My partner has three adult kids and I have two. We both agree we should have something in writing. Thanks.
- Helen M.
HELLO HELEN.
This is a question I get often. It seems like people know it’s a good idea to have a prenup or co-hab agreement but they don’t want to spend the money to get one. My answer to this is – why not?
If you have assets: the car, the house, the cottage, and all your stuff, why do you want to risk all that you’ve worked for by not having a written understanding? Even if it costs you a couple of thousand dollars to get one, isn’t that money well spent, for both of you?
COHABITATION AGREEMENT
Let’s start with the easiest domestic contract and the least expensive: a cohabitation agreement.
Cohabitating partners have very few rights to property, when compared to married couples. Typically, the property you bring into the relationship, plus any increase in its value, usually continues to belong to you alone. This would include investment assets, registered accounts, real estate or chattels.
The main reason for drawing up a cohabitation agreement is to provide for a division of property if the relationship breaks down. The most straightforward way is to state that all property remains the separate property of each individual and to provide in the contract for a “separation of property regime.”
This means that all property, including the assets that are owned before cohabitation, plus any increases in value, and all property acquired during the relationship is owned strictly according to title.
This type of domestic agreement is very different to a marriage contract and not usually something that is ideal for partners long term. But that being said, cohabitation agreements are not as rigid as marriage prenups, they’re a lot less costly, and contracts can be crafted with a lot more freedom or creativity based on the particular conditions and circumstances that each party is in when they begin their union and plan a life together.
If you don’t have a lot of assets and you’re planning on just living together and not getting married, a co-habitation agreement is a good, less expensive option.
PRE-NUPS
Now let’s talk about pre-nups. This is a marriage contract that you typically enter into prior to the marriage, hence the term ‘pre’-nuptial. However, they can also be signed or amended at any time during the marriage. I personally have always recommend getting a marriage contract with older couples who bring any assets to the marriage.
Prenups are extremely beneficial for comprehensive estate planning, which always must include death succession, not just the possibility of a divorce.
To protect each other, you want your lawyer to be interested in what will happen in the event of one of you dying and you must have the new marriage contract and your new will “in sync.” The reason I say this is because marriage contracts can, and often do, override existing wills.
Marriage contracts can be limited in their scope and to be valid and enforceable, the spouses must have made full and complete disclosure of all their assets and the current values, including debts and liabilities.
You also want independent legal advice, so that the marriage contract is less vulnerable and can’t be challenged by family members after a death and set aside by the courts.
Remember, this is not a lack a love but rather a mutual understanding that you both agree, drafted with your lawyer and signed well in advance of your wedding date.
Good luck and best wishes.