MacKenzie Bezos and Melinda Gates Didn’t have a Prenup: Do You Need One?

The divorces of high-profile business couples Melinda and Bill Gates and MacKenzie and Jeff Bezos have made many speculate what the value of the ex-wives’ divorce settlements might be. While not the most pleasant contract to discuss with your future spouse as it implies eventual separation, a prenup will protect both parties in the worst-case-scenario of death or divorce. Let’s examine what a prenup is, as well as how, if, and when you might need one. 

What is a prenup?

A prenuptial agreement or prenup is a legally binding contract entered between spouses before marriage. It covers a variety of issues centred on property and asset protection in case of death or divorce. These may include incapacity, estate planning, student debt, and spousal support, as well as the division and attribution of income earned during a marriage.

When do you need a prenup? 

You should consider having a prenup if you and/or your future spouse have the following:

• Substantial assets;
• Expect substantial inheritances;
• Have business assets likely to increase substantially in value with minimal contribution from the non-propertied party;
• Have children from a previous marriage;
• Have had one or multiple previous divorces;
• Hold significant debt or plan to incur significant debt.

What should be included in a prenup? 

A prenup is an opportunity for both parties to embark on a healthy discussion about how they would like to handle a wide range of current, ongoing and future financial matters while they are together, and what they agree should happen if they later decide to separate or divorce. 

Decisions like whether they should have a joint bank account and how non-financial contributions to the success of a family business will be valued. A prenup gives you and your partner an opportunity to agree on what property is or will be exempt from future division. For example, without a prenup property that you acquired before marriage is going to be exempt from division, but with a prenup, you can define how income from that property will be treated, or how increases in the value of the property will be treated. 

Here is a list of matters that can be included in a prenup, although how much will be included or left for future decision-making is completely up to you:

• Marital Property:
  These are assets a spouse owns or acquires during their marriage. Marital property also includes income earned during a marriage. (Aside: Prenups can be vulnerable to contestation if parties do not manage their money during their relationships in accordance with the prenup.) How these assets are to be divided should be defined in a prenup.

• Property and Debts:
  Preparing a good prenup that will be enforced or upheld if and when there is a separation in the future requires both parties to provide full financial disclosure of the assets they own and the debts they owe. This may seem like a bother and an unnecessary expense but failing to provide full disclose almost guarantees that the agreement will not be worth much when you need it most.

• Alimony:
  Depending on the length of a marriage, a lower-earning spouse may be entitled to financial support from the other after divorce. This may include temporary or long-term payments, especially if one spouse prioritized raising children over their career. These terms can be specified in your prenup, otherwise but it is important to note that they may be harder to enforce the longer the relationship lasts and the more unanticipated life events happen.
• Previous Children:
  Inheritance considerations for children including those from previous marriages should be specified or at least considered, including the retainment of property or precious heirlooms within the family after divorce.

What cannot be included and disputed in a prenup?

There are a number of limitations as to what may be included in a prenup.  For example:

1. Terms regarding decision-making responsibility and parenting time regarding children are always subject to what a court considers to be in the children’s best interests
2. Child support cannot be less than what would be ordered by a court, because child support is regarded as a right belonging to the child and the child’s rights cannot be taken away or reduced if the child does not have their own independent legal representation;
3. Terms considered illegal or immoral, such as terms related to infidelity or adultery. are unenforceable in court. For example, you cannot include a clause that affects spousal support if a spouse commits adultery.  However, clauses terminating spousal support in the event of the recipient’s remarriage are common, although Fair Legal believes these clauses may be problematic in some situations.

Why should we seek independent legal advice before signing a prenup?

Your prenup will not hold in court if you and your spouse use the same lawyer to advise and represent you. A single lawyer or mediator can help you reach agreement, but separate and independent lawyers must review your prenup from your perspective to ensure it meets standard legal requirements, as well as make sure you both comprehend the terms of your prenup to avoid signing under duress. Everyone is free to sign an agreement that gives up rights they would otherwise have — their lawyer makes sure they understand what exactly they may be giving up and helps to make sure the prenup is drafted properly to give them what they are wanting in exchange for giving up those rights.

How much does a prenup cost? 

A good prenup is like an insurance policy that is customized to your specific needs and desires. Getting it done right is important, especially if there are substantial financial assets at stake, so you can expect to pay $5,000 or more. Therefore, we recommend a prenup only if you have substantial assets of at least $500,000 that need protecting.

Are there alternatives to a prenup?

For many years in Alberta, people have thought that one way to avoid having to divide your property after a separation is to just live together as common-law spouses and not get legally married. This was only partially true, and now it is no longer true at all. Property rights have been extended to Adult Interdependent Relationships (including common-law relationships) as well as to legal marriages. 

Family Trusts also get used by the relatives of one or both spouses as a way to keep property from ever being included in the couple’s family property in the event of a breakdown of the marriage.  If a family trust is going to be set up after the couple has decided to get married, or after the couple has started living together, then there may be a need for independent legal advice. Family Trusts are quite different than prenups, and challenging a Family Trust after a marriage breakdown can be very difficult and expensive to do.

Another alternative for the couple to be is to just hope for the best and leave it to be sorted out if there is a breakdown in your relationship. Negotiating a settlement at that point is still possible, but it is often more difficult, mostly for the same reasons that led to the breakdown in the relationship. If you cannot negotiate an out-of-court settlement, then the court may end up making decisions about your future financial life. In some cases, couples can find themselves tied together financially for many years, much to their surprise and dismay.

Summary

There is a lot to weigh-up and address when considering a prenup. If not drafted correctly or misunderstood by the parties that sign it, a prenuptial agreement can be nullified or deemed void, resulting in lengthy legal fees and court proceedings. Hiring the correct lawyer to help you through the process can save money and provide peace of mind. 

Calgary Prenup Lawyer Charles Fair 

Canada’s divorce and family laws are governed by federal and provincial laws. Family lawyers represent their clients in court and negotiate disputes between spouses and family members. Charles Fair has been practicing Divorce and Family Law for over 30 years. Fair Legal handles all types of divorce, custody and family legal matters to protect your children, property and you. Contact us at 1 (403) 239-2249 to schedule a confidential meeting with a member of our legal team.