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The Nuances of Marital Agreements

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As a Winnipeg family lawyer, I am often asked.... "ahh what are those agreements that couples sign to protect themselves so that no one gets schooled if they break up"? The answer is, there are three different kinds of agreements: prenuptial agreements, cohabitation agreements and spousal agreements. Let me take a minute to explain the differences between these.

Prenuptial Agreement

A prenuptial agreement is what couples execute when they want to contemplate what will happen to their respective assets prior to getting married (in the event of a divorce). I am often asked: "what do you advise"? The truth is, there is no truth. Every couple must decide for themselves whether they want such an agreement in the first place, and if so, the terms thereof.

In certain instances a prenuptial agreement will only contemplate a limited number of items between the parties. For instance, a couple may not wish to enter into a prenuptial agreement, but one of them may be a shareholder in a family business that is worth several millions of dollars. In such a case, the couple can have the lawyer draw up a limited prenuptial agreement whereby the non-shareholder party will only be disentitled to shares in the corporation - and everything else will remain up for grabs in the event of a divorce.

Note that prenuptial agreements that disentitle non-shareholder spouses to shares in the family business often serve the dual function of putting the shareholder family members at ease that the corporation will always remain in the control of the family, irrespective of anyone's change of marital status.

Cohabitation Agreement

A cohabitation agreement, on the other hand, does not contemplate marital assets. Rather it contemplates the assets of couples who are living together, but not married. I always tell clients to strongly consider the option of a cohabitation agreement -- because the distinguishing factor [from a prenuptial agreement] is that the couple has not yet chosen to enter into the contract of marriage. Remember, they are still only living together, not married -- big difference.

I especially recommend the execution of a cohabitation agreement when one of the parties owns real property that the couple is living in together. According to Manitoba's Family Property Act, it takes 3 years for a couple living together to be considered common-law to the extent that one party's homestead rights vests in the other's property (entitling that party to equity in the property). Additionally, once homestead rights vest, the property-owning spouse will not be able to sell the property without the other's consent or release of homestead rights. You should note that the determination as to whether a couple meets the criteria to be considered common-law rests on the balance of a series of factors.

You should also be aware that under Manitoba's Family Maintenance Act, a couple that lives together for at least one year and has a baby within that year (or earlier, or later) will automatically be considered common-law. However, the Family Maintenance Act would only govern maintenance payments in such a scenario (I.E. entitlement to child support and spousal support) -- and not division of property. Therefore, while one party in this scenario may be entitled to - say - spousal support, they will have to defer to the Family Property Act (above) to learn whether they can walk away from the relationship with vested equity (or a loss of equity!) in the property they are living in.

On a side note, for those couples who want their common law relationship to be official from the start, they can register as a common law couple under Manitoba's Vital Statistics Act.

Finally, the terms of a cohabitation agreement can be drafted so that the agreement continues in effect even once the parties are married (if they ever do become married). In such a case, the cohabitation agreement will effectively turn into a prenuptial agreement. Clients tend to like cohabitation agreements drafted this way because it can save them time and money if they choose to get married down the road and wish to have a prenuptial agreement in place.

Spousal Agreements

This is the final relationship agreement that I will address in this article. A spousal agreement is drafted so that a couple can alter their property interests relative to one another throughout the course of the common-law relationship or marriage. That's right -- you read it correctly: couples can change already vested rights in one another's property once they are already considered common-law or married. Couples may wish to do this for a variety of reasons; one of which could simply be that they did not manage to enter into a prenuptial agreement before the wedding, because their lawyer was away on an unexpected 4-week surfing trip in Costa Rica... ahhh - the life of a lawyer (*yeah right).

Independent Legal Advice

Whether it be a prenuptial agreement, cohabitation agreement or a spousal agreement, always remember the importance of both parties obtaining independent legal advice. If both parties enter into these agreements understanding the terms they are agreeing to right off the bat, then in all likelihood the process will be fair and equal and the parties can move forward in ease.

Joshua Slayen is a Lawyer and Notary Public in Winnipeg. He has been admitted to the bar in Manitoba, Ontario and North Dakota. He can be contacted at JSlayen@LindenwoodsLaw.com or at 204-415-1045.