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A prenup is always a controversial topic to bring up when discussing marriage. It typically puts a damper on the excitement. It also brings forth issues of trust that might make your future spouse think you believe the marriage will not work out.

However, a prenup agreement is actually very practical. Proposing one brings up financial and property issues and concerns that you or your future spouse might hesitate to bring up otherwise.

That said, a prenup is not a requirement of marriage, so you can choose not to propose one if you feel uncomfortable about it. However, it is  strongly advised to get a prenup in Canada if you own a business, especially if you have partners. Without a prenup agreement, your ex-spouse can claim a part of the business’s income or assets, which can get messy. 

Prenups: How Do They Work?

A prenup agreement is essentially a legal contract entered into before marriage. Sometimes referred to as a marriage or domestic contract, the agreement will specify the obligations and rights of each spouse in case of separation, divorce, or annulment, and death.        

Like any contract, the terms are enforceable if they do not contravene federal, provincial, or territorial laws. In Ontario, for example, Section 52 of the Family Law Act states that a prenup or marriage contract may not limit the rights of either spouse to the marital home, parenting time, or decision-making responsibility for children of the marriage.

Most couples sign a prenup to protect from debt, provide for children from prior marriages, or avoid a messy divorce.   

However, a prenup is not ironclad. It can be revoked or overturned in part or whole under certain circumstances. Going back to the Family Law Act under Section 56, an Ontario court can set aside a prenup or portions of it if:

  • One or both parties failed to disclose all assets, debts, or other liabilities
  • One or both parties was unable to understand the nature or consequences of the prenup
  • One of the parties was coerced to sign the contract

However, to set aside the prenup, you need to apply to the court for an order. It would be advisable to get legal advice for a complete understanding of your options before doing so. For instance, Ontario has a two-year limitation period from discovery to set aside a contract, so time is not your friend. 

Can Divorce Put Your Business at Risk?  

Without a prenup agreement in place, provincial or territorial law will have the final say on the division of assets. In most cases, the court will consider real property, vehicles, and businesses as communal property and ensure that each spouse gets an equal share.

When it comes to a business, the court will calculate the value and divide the shares. This would give the non-owning spouse rights to interfere in the business. The business-owning spouse may choose to buy out the interest of the non-owning spouse to avoid. In either case, it can seriously affect business operations and cash flow and impair relationships with partners, clients, and employees. In other words, a divorce can close a business down.

How to Protect Businesses Using a Prenup in Canada

You can characterize your business as separate property in a prenup, essentially preventing your spouse from putting a claim on it as communal property. Also, include any appreciation of the business as part of your separate property in the prenup agreement. A prenup is so effective in mitigating business risk in a divorce that business partners require unmarried shareholders to get one.

You can also use a prenup to exclude gifts or inheritances received during the marriage from the communal property, unless it is the marital home or used to purchase or improve the matrimonial home. 

A prenup is also useful in protecting your assets if you are in a common-law relationship. Cohabiting spouses do not gain communal property under Canadian law. However, there are circumstances when a cohabiting spouse can gain rights to spousal support or constructive rights to the marital home. To avoid that, you can enter into a cohabitation agreement, which works similarly to a prenup agreement. 

Understanding Prenup, Postnup, and Cohabitation Agreement

Prenup A prenup agreement, also called marriage or domestic contract in Canada, is a legally binding contract entered into by spouses before marriage. The prenup specifies the rights of entitlement of each spouse in the event of a divorce, separation, annulment, or death.
Postnup A postnup agreement is a legally binding contract entered into by a couple after they get married. The postnup specifies the rights of entitlement of each spouse in the event of a divorce, separation, annulment, or death.
Cohabitation Agreement A cohabitation agreement is a domestic contract for cohabiting spouses, entered into before living together. It specifies the financial arrangement of the cohabiting spouses while they are together and the division of assets at the end of the relationship.

Are you looking for an excellent lawyer who can help you understand the importance of prenups and how to make one? Visit Lisa Gelman today to request a FREE consultation.


Pro Tip

Remember, there are a lot of loopholes when enforcing a prenup. That is why asking an excellent lawyer to draft your prenup will be a good idea.


How to Structure a Prenup

If you want to save money by writing your prenup yourself, you can do that. There are prenuptial agreement templates online you can use to make the initial draft of your domestic contract. However, you would still need to pay to get an Independent Legal Advice or ILA Certificate from a lawyer to make it enforceable. Still, you might be able to save a few dollars by doing that.

However, it would not be advisable to do that if you get a prenup for business purposes. You need to make sure there are no loopholes when protecting your business interests in case of divorce, particularly if you are not the sole owner.

A prenup for this purpose should include a provision that a shareholder’s spouse waives their interest in the business. It should also stipulate that any share transfer to said spouse requires the prior approval of all shareholders.

A prenup from a business person’s perspective is very different from a regular domestic contract. To ensure that you have a valid and enforceable prenup agreement for your business, ask Gelman & Associates to make it for you. If you are anywhere in Ontario and have any questions about prenups and how they can protect your business and other assets in case of a divorce, contact Gelman & Associates Family Law Lawyers.

FAQs on Prenups from a Businessperson’s Perspective

FAQs on Prenups from a Businessperson’s Perspective

Anyone who wants to get married should get a prenup. It will clarify their financial situation, prevent a messy divorce, give protection from debt, and provide for children from prior marriages upon their death.

That depends on the circumstances. The process of drafting the prenup typically takes two to three weeks. However, the process might take longer for couples with significant assets and debts, businesses, and children from prior marriages.

Yes, parties to a prenup agreement must have separate lawyers from different law firms to advise and draft the contract for them. The absence of independent legal counsel might invalidate the contract and make it unenforceable.

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