Avoid These 5 Mistakes With Your Prenuptial Agreements

Prenuptial Agreements can be easily set aside or cancelled if you do not follow strict rules that are laid out in family law legislation. Here are 5 common mistakes I as a BC family lawyer see people make in their prenuptial agreements which should be avoided at all costs:

Mistake #1: Not Knowing Just How Unfair Prenuptial Agreements Can be

Our BC Family Law allows prenuptial or marriage agreements to be unfair. People have the right to get into unfair agreements and opt out of the law. But if the agreement is too unfair, you’d be inviting all sorts of trouble and a judge reviewing the agreement to decide just how far the unfairness has gone.

An example of an unfair agreement that is perfectly fine is this: 

• You keep everything you brought in to the marriage and she keeps everything she brought in. Assets you buy during the marriage will be split based on your proportionate contributions. No spousal support is payable but child support will be paid based on income. At separation, you walk away with $2,000,000 and she walks away with $1,000,000. You have an income of $100,000 and she has an income of $75,000. In this situation, the asset split and no spousal support are unfair but within the realm of acceptable unfairness. 

An example of a SIGNIFICANTLY unfair agreement that can easily be set aside is this: 

• You keep everything under your name, she keeps anything under her name. At the time of separation, you are walking away with $10,000,000 and she is walking away with none. You have two kids. The agreement says you will pay child support but no spousal support. In this situation, you get $10,000,000 and walk away with no obligations than to pay child support. She walks away with nothing, no spousal support, 2 kids to take care of and some support for them. If your marriage was long (more than 10 years), you are almost guaranteed you will lose in court if you try to uphold the prenuptial agreement.

An unfair agreement that is acceptable can take many different shapes or forms. It is best to discuss your prenuptial agreement with a family lawyer to see whether it will pass the unfairness test. If it doesn’t, you may as well forget about doing a prenuptial agreement.

Mistake #2: Signing the Agreement the Day before Your Wedding

Prenuptial agreements can be easily cancelled if not enough time or attention was given to them. So if you and your spouse finalize an agreement within 1 week, without any negotiation or informed decision making because the wedding is 7 days away, you may as well forget about doing the prenuptial agreement altogether. Judges will set aside agreements that are rushed into because they want spouses to think about what they are getting into, form informed decisions and have a chance to show the agreement to their lawyers and understand the consequences of getting into the prenuptial agreements. Remember you can get into a prenuptial or marriage agreement at any time after your wedding and during your marriage so there is no point in rushing to have it finalized the day before your wedding. 

Mistake #3: The Amount of Detail of Your Financials

No agreement will be serious or truly enforceable unless you come into it with very clean hands and disclose everything you have.

More importantly:

• It is important to disclose the value of everything you have and to get the agreement of your spouse on that value.
• The prenuptial agreement also needs to state that no matter how much the value of your assets may go up, your spouse will waive any entitlement to the asset. So for example for real estate, the market can drive up the value substantially and your spouse can come back in the future and say they didn’t expect the value to go up by that much. It is therefore crucial that you have a legally appropriate clause in the agreement that waives entitlement no matter what the future value will be.
• the prenuptial agreement needs to stipulate future financials and assets that you may accumulate during your cohabitation or marriage. So you and your spouse need to expressly acknowledge that assets may be purchased during the marriage, and how those assets are to be divided at the time of separation.

Mistake #4: Not Specifying What Values to Use at the Time of Separation

Arguably the biggest mistake couples make in their prenuptial agreement is not specifying what values to use at the time of separation. This is because, under the Family Law Act, the value of assets is determined at the time of a settlement or the time of trial. So for example:

• You and your spouse have a prenuptial agreement that says you will keep 75% of the assets and she keeps 25%. At the time of separation, you have a house that is worth $2,000,000. It takes a year to reach a settlement on all issues arising from your marriage and by the time the final settlement is reached, the value of the home is now $3,000,000. At the time of separation, your spouse moved out of the family home and you paid for all of its expenses including mortgage and property taxes, and you lived in this home yourself. Your spouse can come back and ask for 25% of the $3,000,000 because the law allows them to and in fact supports them to ask for this. It is therefore crucial that you specify in the prenuptial agreement that the value of assets will be determined at the time of separation and not at the time of trial or settlement. 
• You will also need to specify how to determine the value as of the time of separation – sell the assets or get it appraised? Who gets to have the first right of buying it out? These are important things that need to be in the prenuptial agreement and you should speak with a family lawyer to learn how to best structure your prenuptial agreement to protect your rights if separation occurs in the future.

Mistake #5: Lack of Independent Legal Advice

If you and your spouse do not have a lawyer on each of your sides to provide independent legal advice and confirm your prenuptial agreement, you may as well not enter a prenuptial agreement because you will be guaranteed at the time of separation if there are any issues, your spouse can come back and say they had no idea what they were getting in to legally, did not have independent legal advice and the prenuptial agreement is as good as dead. And they will likely win.

Providing independent legal advice means you can have an agreement that will be as bulletproof as they get because:

1. The family lawyer will advise you of your rights and your spouse of her/his rights;
2. The family lawyer will draft or revise the agreement to make sure it complies with the laws of your province or estate and is enforceable; 
3. The family lawyer will input clauses that will protect you from all aspects of the past, present and future of your relationship or marriage;
4. The family lawyer will confirm providing independent legal advice for both you and your spouse and will keep notes of what was done and said so in the future no one can come back and say they misunderstood the agreement or didn’t know what they were getting in to.

So in summary:

Avoid These Mistakes in Prenuptial Agreements:

1. Having a significantly unfair prenuptial agreement;
2. Not having sufficient time to negotiate the prenuptial agreement;
3. Not disclosing the identity and value of your assets or finances;
4. Not specifying what values to use once you separate; and
5. Not having independent legal advice.

To find out how to best draft your prenuptial agreement, contact our award-winning family lawyers in Vancouver to set up an initial consultation or call 604-974-9529.