Nov 082012
 

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I know this might be hard to believe, but I once had a girlfriend. I was all like “I love you” and she was all like “me too,” and it was probably kind of annoying for anyone who happened to be watching. At one point it was even starting to get pretty serious, which kind of surprised me, mostly because I am not a very appealing person. I was even thinking about popping the question at one point, which these days I only think about asking to Taylor Swift and maybe one of my internet girlfriends. Anyway, as I was thinking about popping the question, I decided I should go talk to a lawyer about prenups.

As I sat and ate lunch with him, my lawyer took something that I thought was incredibly simple and turned it into something that was much more complex than I realized. It came with more strings attached than a hookup with your friend’s hot sister. The rules were seemingly endless and, at least to me, fascinating. Let me demonstrate the most important one through a story.

(Note: there will be specific examples that only pertain to Alberta, the awesome province that gets to have me. The rules will probably be slightly different in your home province or state. The main principles should still apply though.)

Meet Jenny. She is a bikini model, and is pretty much an excuse to put a picture like this in a blog post.

(Edit: Image removed)

Jenny is a successful bikini model, she’s been to shoots in such exotic locations as Fiji, Australia, Greece, Los Angeles and her hometown, Taber, Alberta. She owns property in Las Vegas, New York and London, just because she can. Not only is she is a multi millionaire, but she was dating noted soccer superstud Lionel Messi, until he dumped her.

One night, on the rebound, Jenny met this guy.

Nice haircut

Obviously this guy has no chance with Jenny, except for one magical night in Vegas after Messi dumped her sorry ass. Jenny assumed she was no longer beautiful, so she sunk to levels so low that she was actually attracted to this guy. That sound you hear is him getting a… you know what, never mind.

After a fun night of whatever the kids do in Vegas, (I’m assuming they play arcade games and maybe watch a movie after) the new happy couple takes a trip up The Strip and decide to get married. The next morning they wake up in Jenny’s bed, and after unsuccessfully trying to have sex with her again, our protagonist leaves the apartment forever. Their divorce is a mere formality, right?

WRONG, BUCKO.

In Alberta, there is something called matrimonial property. It states that, if someone is married and ONLY ONE SPOUSE stays in a house during the marriage, both parties have the right to any proceeds of that property. Even though only one person may own the asset, the other spouse now magically has ownership rights to it.

This was introduced to protect women from husbands who decided to put all assets in his name, which was pretty common back in the day, probably because the wife was too busy baking pie to have a real job. She’d at least get a share of the house if he divorced her ass for the hot new babysitter.

Okay, you’re probably thinking, that’s no problem. We’ll just write that in the prenup and everyone will be on their way. I don’t need no half of no stinking house, because I have my own assets! I AM WOMAN, HEAR ME WHINE ABOUT ANOTHER GIRL’S OUTFIT ROAR.

WRONG AGAIN, BUCKO.

Here’s why. You cannot, even if both parties agree to it, write a contract that breaks the law. I mean, sure, you can write it, but no judge will ever enforce it. Now you can choose not to go after your half of the house, but only a moron would choose to leave any sort of significant equity on the table. And why would there be a prenup if there wasn’t a decent amount paid off on that house?

Here’s the other thing prenups don’t protect against, at least in Alberta – assets that are accumulated during the marriage.

If one spouse brings in $500k in assets to a marriage and uses only those assets to grow the couple’s net worth to $1.5M before a divorce, each spouse would be entitled to $500k in the transaction, no matter what the prenup says. There are a few examples (an upcoming inheritance being the most notable) where these rules don’t apply, but for the most part, assets accumulated during marriage are split 50/50, even if one spouse did all the work while the other sat around and did sweet bugger all.

Hey ladies, you gotta keep some cash just to yourself, just in case you get divorced, right? Knock yourself out, but hubs is entitled to half.

Hey ladies, you gotta contribute to your own RRSP and TFSA, just in case you end up like Tony Parker and Eva Longoria. Fine, but he gets half no matter who’s name is on the account.

The law is set up this way for a reason. Marriage is a partnership, where both members have to contribute somewhat evenly. If they don’t, bad things happen. As much as you’d like to believe it to be so, prenups don’t just magically erase everything financial that happened during a marriage.

If you get married, forget about this my assets and your assets crap. All a prenup does is protect someone who is bringing significant assets into a marriage. I could care less how people decide to handle their finances when they get married. But even if you don’t handle them like a team, the law protects each party fairly.

And to the ladies who read this piece who think I’m sexist, (read: all of you) just remember. For the most part, men are looking for a partner. They are not looking for a spineless automaton who just giggles and tries to look cute, nor are they looking for someone who cedes all control to them. If we think enough of you to marry you, then we want you in on our financial decisions. So please, unless you’ve bought significantly more assets into a marriage, stop with this “my” money crap.

Tell everyone, yo!

  25 Responses to “Prenups Are Not As Simple As You Think”

  1. This is really informative, thanks for the info!

  2. Times have changed, the system should change as well and the laws.

    Nelson you continue to put quality out in internetland for us. Why is it the people west of Manitoba seem to be the most practical?

  3. I wish I could forward this to every PF blogger chick out there talking about keeping a chunk of “her money” separate and apart, just in case of divorce.

    One other thing you didn’t really get into is spousal support. Woman can be on the hook just as easily these days, depending on the income disparity with their (ex)spouses. Equality and all that. Granted, in most cases of short-term marriages, spousal support isn’t an issue, but you never know.

    • That’s exactly what motivated this post, the amount of PF blogger chicks who LOOOOVVVVVEEEEE prenups and yet have no understanding of marital/divorce laws.

      You’re right about the spousal support. I know a guy who qualified for it, but didn’t take it for some reason. (Even though the girl cheated on him.)

  4. I would never get married without a pre-nup… just because I don’t want him taking my money ;)

    I think couples should a “his, hers, ours” set-up with their finances, and every couple can decide for themselves what’s covered by each category.

    All that said, I’m not sure if I want to get married. Seems like a lot of paperwork.

    • What if you both brought equal assets into a marriage? Would you still insist on a prenup? Wouldn’t it be kind of a waste in that situation?

      There’s also laws that apply if you live with a guy for longer than a year, but I really have no idea how they compare to divorce laws, so I didn’t include them in the post. Just a thought to those people who think they can automatically get around all this stuff by not getting married.

      • I’m more concerned with alimony/spousal support after the marriage disintigrates rather than who brings what into the union. At this point, I haven’t amassed a large amount of financial assets and I don’t expect anyone I date to have done so either (though I did have a fast fling with a man earning $200,000/yr. I imagine if that continued he would have demanded a prenup made of steel).

        Furthermore, because so much can change during a marriage like being laid-off/fired, taking time off to raise children, making a career change, one spouse earning more, etc. I don’t necessarily know if it’s fair to split everything 50-50 at the end even if you came in with equal amounts. Say I meet & marry someone now and we’re together for 10 years, but at the end of those 10 years I’ve made two significant career jumps and have been essentially shouldering the financial burden of our lifestyle, including large expenses like our home. Should everything be 50-50 if the real contribution was more like 70-30? I don’t expect any man to provide for me and I have no interest in providing for someone else either.

        Furthermore, people act weird during break-ups. Your partner can become a totally different person. It took over 6 months to get my stuff back from my ex after we broke up, including some very expensive paintings that were a gift from a friend of ours. Additionally, he did douchey things like kept Christmas gifts he had bought for me in the course of our relationship. It was really messy. Considering we had lived together for nearly 3 years of our 4 year relationship, technically would have each been entitled to half of each other’s stuff. However, we were both students and his parents own the condo we lived in so there was next to nothing to be divided. Nevertheless, I’m wary of sharing any large finances or material items with someone else.

        No one will behave rationally during a divorce. Assume the absolute worst then multiply that by 10 and make sure to drag it out over 1-2 years and that’s about what it will actually be like.

        • Alimony is determined by a calculator, which is based on the difference in earnings and the amount of time married. (Let’s ignore child support, which is determined by a different calculator, even though the two usually go hand in hand) So if you and hubs agree on a maximum of $500 per month in spousal support, and yet one of you is legally entitled to $1500 in support, (based on the calculator) one of you could very well be on the hook for all $1500, no matter what the prenup says. Again, the entitled spouse could very well honor the terms of the prenup but, as you said, breakups are messy.

          My understanding of divorce laws is even if one spouse contributes more financially, the other’s contributions are assumed to be in kind. As in, the lower income spouse is considered to contribute in other ways, which makes it difficult to convince a divorce judge things weren’t 50/50. Traditionally, the woman was usually in the lower income position, but these days more and more females are breadwinners. Like I responded to Adina’s comment above, I know a guy who qualified for spousal support from his ex-wife and he didn’t take it because it felt unmanly to take support from a woman.

  5. Ok. As one of the PF blogger chicks who has actually taken family/divorce law classes and has worked through multiple scenarios where I had to calculate what each couple can get in a divorce, I respectfully disagree.

    I don’t think that couples should have pre-nups because the man will take everything in the divorce or vice versa — I think that couples should have pre-nups for all the things that you mentioned: Assets acquired before marriage and inheritances. Yes, the house and car and bank accounts and pensions etc that increase in value after the marriage are fair gain to be split 50-50 — I get that, and it’s fair. The other stuff? Yeah, you can share it during the marriage but what if the unthinkable happens? What if you get divorced and then she wants some of your stocks? I don’t think that it’s fair that you have to give her anything, just because you’re anti-pre-nup. In your 500k in assets that grow to 1.5M scenario: With a pre-nup, she get 500k, without, she get 750k. That’s a huge difference!

    It’s a piece of damn paper, that costs a couple hundred dollars and protects you in case the worst case scenario happens.

    I’m not advocating that couples keep separate “me money” accounts or whatever the PF world is calling them but you can’t say that pre-nups aren’t useful.

    Also, I don’t know how it works in AB but in QC, no matter how long you live together, you are never considered married in the eyes of divorce law. That’s why the guy who owns Cirque de Soleil was able to kick his GF of 10(?) years out of their house with nothing.

    • I should clarify – I’m not opposed to prenups. I still think they’re a waste of time if both spouses enter into a marriage with no assets, but they are definitely an asset if you’re bringing in significantly more financially into a marriage.

      I just wanted to bust some of the myths surrounding them. They’re not as simple as just agree on everything and it’s all good.

  6. This is usually a subject i like to comment on but usually in a negative way so I refrained from doing so.
    There should be a way to eliminate “spite” from breakups. The only way to do that is set rules and showing one party or the other there is some light at the end of the long tunnel.

    When there is a break up both parties need to share the burdens of the break up equally. It makes no sense to me when people get settlements that allow them to continue a certain level of lifestyle by draining one party or the other for the next 20+ years.

    There should be a set scale and a yearly declining scale of payment that comes to zero after a period of 10 years (or other pre-determined fair time period) for the spousal portion of support. Child support is separate issue but again one should only be required to pay the minimum of what is required to raise them. You can volunteer more but it should be a set scale. During the 10 year period ample time is there for either party to go back to school educate themselves and try to up their own pay grade.

    The problem is you hear so many horror stories where one party or the other simply can’t have any kind of normal life after a divorce because of a totally one sided unfair settlement. This is the sad part. Then people play games and get coached by lawyers to do certain dubious things to gain favor of the courts to get a higher settlement that is not really deserved. That should be outlawed. Things didn’t work out, yea someone cheated, but it doesn’t mean you have to nail someone for it for the rest of their lives. Move on, think about your own life, and find happiness in your life with a new relationship in the future. (If that’s what you want).

    • In Alberta, alimony does go away after a while. It’s based on the amount of time married and the difference in income. So, if you’ve been married like a million years, alimony is going to continue forever (because forever isn’t really that long). If you’ve only been married a handful of years, then it goes away pretty quickly. So at least in my province, things are set up pretty well I’d say.

      Your last paragraph nails it. If more people just moved on and didn’t try to stick it to the other person, things would be much better.

  7. Phew. It’s a good thing we both have equal assets.

    That said, in Ontario, I did some quick digging on the laws here, and common-law couples don’t have the same rights as married folk.

    In our (my) case, I have no right to any property or assets he has in his name and vice versa. It is stated by the court it is my decision and his, to not get married and enjoy the “benefits” of marriage, therefore we each keep what we had before, and have to work it out.

    However if there was marriage and a prenup, I believe all the above you wrote applies.

    So maybe the best prenup is… to not get married. Stay common-law, and change your last name to fake a marriage, avoid the $30K price tag on a ceremony and all this hassle.

    If I recall correctly, BF told me a lot of people in France stay common-law. Or they get divorced after being married, but still live together because the tax rules change for divorced couples. The husband can claim tax credits against the child support he pays, even though he is still living with his ex-wife in the house with the kids, and the wife can claim credits of having to raise kids on her own, even still living with her ex-husband.

    Sneaky French.

    That said, the person you end up being with forever, should be fair. That is unfortunately not the case, as people change when divorce or separation enters the picture.

    I like Paul N’s idea about a scaled payment, as well as his note about it being an unfair settlement.

    Regardless, I think having kids is a bigger commitment than marriage, and it’s just a piece of paper anyway.

    • I agree with the whole not getting married thing. If it were only up to me, I’d just shack up with the girl and move on. I hope I can meet a girl who thinks the same thing.

      Good to know on the common law stuff. I didn’t do any research on that stuff because with the girl discussed in the post she made it clear it was marriage or nothing.

  8. Many of these comments touched on why I don’t believe that common law should exist. It forces you into a legal contract with another person that you may or may not want. If people wanted the protections and responsibilities of marriage they would get married — forcing it upon people is wrong/too interfering of the government (although I get see why they do it. Too many people were abusing the system by living together/having kids. It still doesn’t sit well with me…)

    • I agree, except for one thing. What if one spouse (for lack of a better term) hoards all the assets in their name, and then punts the other to the curb? There needs to be protection for the other spouse.

      Of course, you’d have to be a special kind of stupid to just let one member hoard the assets, especially if you were common-law.

  9. [...] Financial Uproar‘s very own Nelson wrote about prenups this week. Specifically, about why prenups are not as simple as you think. After an eye-opening chat with a lawyer, Nelson learned an important lesson: in a marriage, there [...]

  10. [...] Uproar from Financial Uproar presents Prenups are not as simple as you think, and says, “Curious about prenuptial agreements? They’re not quite as simple as [...]

  11. We don’t do prenups in France, unless very, very wealthy, but the spouses can chose to have all their assets separated, all in common, or common assets limited to what each one brought during marriage. Some married friends bought houses 30/70 because they didn’t make the same kind of money. In all case, it is important to talk about money before anything goes sour.

  12. [...] Financial Uproar: Prenups are not as simple as you think [...]

  13. [...] Financial Uproar - Prenups Are Not As Simple As You Think [...]

  14. So if I have more money AND I got my own house, and my fiancee is just going to move into it, with no money in his bank and no asset, even if we sign a prenup and he were to leave me, he’ll still take half of what I brought into the marriage?

    I have no issues of splitting the earnings or growth after marriage, that is if my house was worth $500k at the time of marriage, then it was worth $800k when we left each other, he gets 50/50 on the $300k…but i’ll have a big problem if he was entitled to 50/50 of the whole $800k

    or that if I had $50k in my bank, and it grew to $100k, he’s entitled to 50/50 of the incremental $50k, not the whole $100k

    ???

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