So, you want to protect your property from your spouse in the event of a divorce?
We are often asked the question about the validity of Pre-Nuptial Agreements, or agreements to protect the property of one spouse against the claim of another, in the event of marriage breakdown. The answer is clearly yes, but with several qualifiers. That is where it becomes interesting.
In order to be a valid and binding agreement, there are a number of requirements which must be met. Firstly, the agreement must follow contract law. That means that each party must be clearly identified, the agreement must be certain, and there must be something that each party gives up to make the deal. We call that in law “Consideration” Sometimes it is a dollar, or it could be something else. Secondly, it must be in writing, and must accurately specify the assets and liabilities of each of the parties. It must also give a fairly accurate account as to their values at the time of signing. Thirdly, each party must sign the agreement before a separate lawyer or as we say, with independent legal advice. Without independent legal advice, a written or oral agreement is only a factor to be taken into account by a future Court in assessing the right of one spouse to make a claim against the property of the other, in the event of marriage breakdown.
There are some big no-no’s. Don’t make your spouse sign such an agreement mere hours before the wedding. The Court might find that to place unfair pressure on the one signing so late and call it duress. Don’t hold back on the listing and valuation of the assets you want to protect—tell it all and be accurate and be detailed about it. Assets owned before marriage and still in existence at the time of a breakdown are exempt anyways, to extent of their value at the date of marriage or acquisition. The purpose of the Pre-nuptial Agreement is to protect those assets from any increase in the value of those assets. And further be aware that you can lose exempt status for assets that are later shared with a spouse, or cease to exist in one form or another.
If you didn’t do a Pre-Nuptial Agreement before you got married, not all is lost. The Alberta Court of Appeal has recently emphasized that the increase in value during a marriage of exempt property will not be automatically shared equally in the event of marriage breakdown where there is no Pre-Nuptial Agreement. It may well depend on the contribution made by the opposing spouse to the enhancement or preservation of that exempt property, whether they get to share in any increase in value.
It is essential to document what one owns at the date of marriage, what happened to that property during the marriage, and what contributions have been made to the property during the marriage by the opposing spouse. Don’t forget that spousal support issues can also be addressed in such an agreement.