While it seems many celebrities and billionaire couples forego getting a prenuptial agreement, there are some very real reasons you shouldn’t. Kim Parlee talks to Nicole Ewing, Director, Tax and Estate Planning, at TD Wealth, about how prenups may actually strengthen a marriage as well as ensure your financial and legal interests are protected.
- We've been hearing an awful lot about very wealthy couples getting divorced without a prenup. It's been all over the headlines. So the question is, do you really need a prenup? Nicole Ewing is Director of Tax and Estate Planning at TD Wealth and she's here to answer that question on Ask MoneyTalk. All right, Nicole, the question was sent in, and here it is. Why should I get a prenup if the super wealthy don't need them?
- Well, we only hear about the things that make the news of course, right? So we have to assume that most of them have done careful planning, as should we. Ultimately, a prenup, or a marriage contract, or a cohabitation agreement-- ultimately it's a contract between two individuals allowing them to set out their rights and obligations to each other.
And if we take a step back, and we think, well, why do I need one, you already have one. And it's written by the government of the jurisdiction in which you live. There are statutes and legislation that says what will and won't happen in the case of marriage breakdown. And that might or might not meet your needs and be appropriate for you in your circumstances.
So a prenuptial agreement or a marriage contract is an opportunity for you and your spouse to write a contract that works for you and set out those rules and expectations. And it doesn't necessarily just have to deal with your finances. It can deal with the nature of your marriage as well. Gives you the opportunity to think through, do we want to take vacations on a regular basis and actually put that into the contract. Or I'm never shoveling snow again. I want snow removal written right into the contract.
But it's ultimately an opportunity, really, to explore some of the issues that we might be facing in our marriages before we're facing them and before we have the clouds of disagreement. So it's just a great opportunity to really think through, how do we want our marriage to be flowing for us?
- It's interesting because I think one of the most important things you said there, beyond the snow shoveling, is that the contract exists, right? It exists already. So you need to understand there are things in place that will have things happen a certain way. You need to get involved in it.
But I do know that a lot of people tend to think that one great way to end a marriage before it gets started is to actually bring up a prenup. So let me ask you this. How do you frame it so you don't hurt people's feelings?
- In my view, you're ultimately honoring your relationship. You are saying, I love you, and I care about you, and I care about your future. And I want you to feel secure and comfortable. I want you to have the peace of mind that whatever happens in the future, you are going to be provided for and that those decisions were made at a time when we had the utmost respect and care for each other.
And even if we simply want the rules of the province to apply because we like those, they work for us, they work, what happens if we move to a different jurisdiction and those rules no longer apply to us? So I'm in Ontario, and I moved to BC, where the rules are fundamentally different. And so it's just-- again it's an opportunity for certainty. And there's very few places where we can have that, but we can when we set out what we want to have happen in the course of our relationship.
And it also protects other people in our lives. So it can protect our parents. It can protect the inheritances that they leave to us. It can protect our children from previous relationships. It can protect our business partners. So it's an opportunity for-- really, for celebration to be making sure that we've structured something that works for all of the people that we care about and love and that we're not having these rules imposed on us that we might not even fully understand.
- And as well, I also really like the fact that you talk about that if you move, you could move to a different jurisdiction, like life changes. Things happen. Because I know a lot of people, when they think about a prenup, they may be starting off early in life and go, I don't have anything. I've got, like, debt. So why do I need a prenup?
- Well, if you have debt, even more important for your spouse to be aware of that, to have that informed consent. Because ultimately, what a prenuptial agreement does or the process of going through that, in order for it to be enforceable, we need to put all of our cards on the table. We need to show all of our assets, all of our liabilities, where do we stand currently.
And I think it's important for my partner to know if I have $50,000 of credit card debt that I haven't paid a payment on in two years, are they actually agreeing to enter into this relationship on the terms that they think they are? And really best to get in front of some of those issues and not be facing them one, two, or five years down the road.
So even though you may not have significant funds now, best to know exactly what the situation is, including debt, and to think about, again, protecting what you might have in the future. Because that might be a family inheritance, or we just don't know the circumstances that we're going to find ourselves. So let's dream a little bit and assume that we're going to be doing really, really well in the future, and what would we want to have happen then?
- I've only got about a minute, Nicole, but what if I've already missed the chance? I got married. I don't have a prenup. Now what?
- It's not too late. You do have the-- it's ultimately a contract. So you have the opportunity to do a postnuptial agreement if that's appropriate for you. We know that finances are a big stressor in relationships and is one of the leading causes of marital breakdown.
And so if putting together a postnuptial agreement where we address some of those issues head on, give the peace of mind, give the clarity, it may actually alleviate some of the stress of the relationship and potentially prevent some of that marital discord or breakdown. So never too late to reflect on your circumstances and put in place appropriate documentation for yourselves.
- I need to ask this one last question, and I've only got about 20 seconds. But you have a prenup, and you have a will. Which one matters more?
- Well, gosh. You can only give away what you have. And you can only give away what other people don't have rights to. And so a prenuptial agreement will take precedence over-- if I say I'm giving something away that I actually don't have ownership to, but I have an obligation to my spouse, the prenuptial agreement is going to, save for some really strange circumstances, is going to take precedence. So it's an incredibly powerful document.
And it's one that can't be changed. Where a will can be changed, I can go away and write a new will without my spouse knowing, the prenuptial agreement is going to always require both of our consent to make any adjustments to it. And you can make those adjustments if you need to in the future.
- Right, with consent and working with your partner. Nicole, always a pleasure. Thanks so much.
- Oh, my pleasure.
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