BMO Nesbitt Burns
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BMO Nesbitt Burns
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Prenups often have an uncomfortable reception. It can feel as though you are betting against your marriage and thus, the question of whether to prenup or not becomes inherently complicated. Protecting your personal and family wealth will be motivating factors, yet your partner may read it as a lack of commitment to the longevity of your relationship. As an experienced Financial Advisor, I have spoken with many clients on how a prenup can offer legal protection for the more vulnerable party and how it can save you valuable time and money spent arguing. Below I will debunk some of the most common misconceptions attached to prenups and attempt to help you understand why a prenup may be right for you, and your marriage.
First, what does a prenup cover?
A prenuptial agreement is a legal agreement between two married parties that outlines which assets belong to which party, and what will happen to these assets and any assets that the couple may accumulate together during their marriage, in the event of divorce. Your prenup may cover any, or all of
- How to equitably split finances
- Who maintains ownership of specific assets
- How to equitably divide a home
- How debt is distributed
- Financial support for a spouse that gave up their career to raise children
- Settlement agreements or alimony payments
- Inheritance rights for children of a previous marriage
There are a few common misconceptions surrounding prenups that often discourage individuals from creating one with their partner.
- Talking about divorce will cause divorce. This is a very real concern for many couples. In my opinion, creating a prenup has no impact on the status of your marriage. If anything, a prenup forces couples to disclose and discuss their assets right from the beginning which encourages an honest and open marriage.
- Prenups are only useful for marital planning. A prenup is also a valuable estate planning tool. As a parent, you may want to introduce the concept of a prenup to your child as early as possible. This approach will establish a prenup as a natural by-product of your family’s ethos surrounding money management and instills the value that protecting the family’s wealth is a shared responsibility amoung all family members.
- Prenups are only suitable for individuals with a great deal of personal wealth. This is an outdated assumption that is often coupled with the generalization that men are the majority initiators of prenups. As women are gaining increasing earning power and assets, they are seeking prenup agreements more than ever. Further, couples who have complicated assets such as small business ownership or real estate properties may want to ensure their protection, regardless of worth.
A prenup is something that is accessible and appropriate for everyone. However, there are certain financial situations in which protecting yourself with a prenup is a more pressing matter.
- You have significant assets. While you may want to share some of your accumulated wealth or property with your spouse, there may be assets you wish to keep protected in the event of divorce. For example, family property, estate, small business, RRSP, TFSA, RESP or inheritance.
- Your spouse has significant debt. If this is the case, you may enter into a prenup with specific provisions for handing of the debt should your marriage end in divorce. This will protect you from sharing your partner’s liability.
- You have dependents. If you have dependents, be it elderly parents, children, or a person with disability, you may want to protect your wealth so you can support these dependents now and in the future.
- You have fewer assets than your partner. If you become a mother or father and take time away from your career to take care of your children, you can protect yourself so that you are not left with limited personal wealth and a derailed career.