These days, it seems we often read about high-profile couples who have entered into “domestic contracts” — also known as prenuptial agreements, cohabitation agreements or marital agreements.
The couple takes this step because one or both partners do not want the standard rules concerning family property, the family home, spousal support, and pension rights to apply to them. Instead, they establish a contract that specifies what each partner is entitled to in the event of a breakdown in the relationship and/or the death of one of the parties.
If you’re considering setting your own rules of engagement, here are some things you need to know about domestic contracts.
Who should consider a prenuptial agreement?
A “domestic contract” is usually recommended for a person who owns a business, has a large net worth inheritance they wish to protect, or is bringing a valuable family home or cottage into the relationship that would otherwise be shareable, by statutory rules, at the time of separation.
When is a domestic contract valid?
To be enforceable, domestic contracts should be in writing, signed by both parties, and witnessed. Each of the parties should have received independent legal advice. As well, each party must provide complete financial disclosure of assets and income. If the contract is a prenuptial agreement, it should be signed well in advance of the wedding day.
What can be included in the contract?
Generally, these contracts deal with property issues and support rights, although some jurisdictions allow partners to make an agreement regarding the education and moral training of a child. Only separation agreements can deal with child custody and access arrangements. Regardless of the type of agreement, it may be overturned by a court if it is found to be unconscionable or if the parties did not provide complete disclosure at the time the agreement was entered into.
For married couples, a domestic contract is the basis for “opting out” of statutory rules that would normally apply. But common-law couples may decide to establish a contract to “opt in” to statutory rules that in many jurisdictions may only apply to married partners. For example, a common-law couple living in a jurisdiction that divides “family property” only upon a breakdown of a marriage may wish to specify the equal division of “family property” in a contract, even though they are not married.
Be sure to get both legal and financial advice before entering into a domestic contract as each jurisdiction may have different rules and regulations.
J. Kevin Dobbelsteyn is a certified financial planner with Investors Group Financial Services Inc. His column appears every Wednesday.