Why get a pre-nup? Here’s 10 reasons:
1. Customized Division
It can be helpful to reimagine the way we think about domestic agreements. People hope for the best and plan for the worst all the time. We all execute Wills, Powers of Attorney and Enduring Powers of Attorney, planning for death and incapacity. Why not plan for the over 50% likelihood that we may not have a single partner for our lifetimes? A prenuptial or cohabitation agreement is just another essential legal document regarding something we would rather not acknowledge.
Marriage is a legal contract and, although less formal, cohabitation also affords the parties significant legal rights. Like it or not, you are entering into a business relationship when you marry or cohabit. No prudent businessperson would enter into a business transaction where they did not have any advanced knowledge, certainty or control over its terms. A prenuptial or cohabitation agreement allows parties to specify the terms of their partnership.
A domestic contract allows parties to explore their expectations and discuss what is important to them up front. They have the opportunity to shape the contract that they are entering into, with or without knowledge of or consent to the terms.
It is important to take the stress and emotional turmoil out of the prenuptial or cohabitation agreement. It’s best to bring it up sooner, rather than later. Bringing up the topic early avoids the shock, emotional pressure and time compression often associated with these documents. This is especially important because these pressures could be used as arguments to have a prenuptial or cohabitation agreement set aside.
3. Save Money
Working out the terms of a prenuptial or cohabitation agreement jointly can ensure that one partner does not fear for their financial security or feel emotionally threatened. An amicable approach allows both parties to participate in the process and buy-in to the concept of a prenuptial or cohabitation agreement. When entering into a domestic contract parties are building an agreement, not winning an argument. Mediation or collaborative law are good forums for constructively developing a prenuptial or cohabitation agreement jointly.
4. Reduce Stress
A prenuptial or cohabitation agreement benefits both parties by providing certainty and circumventing exorbitant legal fees and extreme emotional strain often associated with separation. These contracts are generally not used to lock a spouse out of all financial gains afforded to the other party. It truly is an opportunity to protect both parties, to discuss and understand what each party expects from the relationship.
5. Protect Inheritance & Other Exemptions
All lawyers are not created equal. Some lawyers are more adversarial than others. Some are more aggressive and litigious than others. Be mindful of a lawyer’s reputation and the reason you are retaining counsel. Some lawyers are also not particularly experienced at drafting prenuptial and cohabitation agreements. They are difficult agreements to put together and you should be confident that the lawyer you retain has specific prenuptial agreement drafting experience.
6. Protect Income
Allow the document to be changed in the future by mutual agreement. Prenuptial and cohabitation agreements anticipate events that have not yet occurred. If the relationship does not unfold as anticipated, the agreement may not be appropriate in the actual circumstances that transpire and may need to be revised. Parties may end up having unplanned children, a spouse may become very involved in a business, parties may develop a company together or a spouse may end up staying out of the workforce for an extended period. An agreement should be sensitive to these possibilities but may also need to be revised in the future in the event of unanticipated circumstances.
7. Resolve Debt Issues
The Family Property Act does not specifically deal with debt. As such, if one party has a high debt load it is wise to resolve who will be responsible for what liabilities in the event of a relationship breakdown.
8. Second Relationships
You can use a prenuptial or cohabitation agreement to protect assets intended for children from a prior relationship.
9. Tax Planning
Some people use prenuptial, cohabitation or post marriage agreements as a tax planning tool. In the event of a breakdown in a relationship where the parties do not have a prenuptial or cohabitation agreement in place, the court will simply require the division of assets without concern about how to best effect a division from a tax planning perspective. A prenuptial, cohabitation or post marriage agreement allows parties to specify exactly how they wish to divide property in the event of a breakdown in their relationship. This allows them to take advantage of optimal division techniques that minimize the tax implications of the division of assets.
10. Mutual Expectations
Since a domestic contract involves a couple exploring their expectations and priorities up front, a prenuptial or cohabitation agreement allows a couple to get on the same page about financial rights and expectations as they enter into a relationship. It affords couples the opportunity to develop mutual perspectives by shaping and clearly defining the legal contract that they are entering into by marrying or cohabiting.