Before the Bells: Understanding Cohabitation and Prenuptial Agreements
By Camille Boyer, Calgary Family Lawyer
Entering into a committed relationship or preparing for marriage is an exciting time in one's life. However, along with the joy and anticipation, it is essential to address the practical and legal aspects that come with such unions. Cohabitation and marriage bring about legal rights and responsibilities, financial considerations, and the potential for unforeseen circumstances in the future.
Whether you're planning to move in together or preparing for a wedding, understanding the legalities and implications of cohabitation and prenuptial agreements is crucial. The following blog will clarify some of the most important points about these agreements and what they mean for you.
What is a cohabitation agreement, and why should I consider having one in Alberta?
A cohabitation agreement is a legal document that outlines the rights and responsibilities of individuals who are defined as Adult Interdependent Partners (“AIPs”) in Alberta. An AIP is similar to what many people refer to as “common law”, although the definition of AIP also includes married persons.
A cohabitation agreement is designed to address various issues that may arise during the relationship or in the event of separation, such as property division, financial matters, and support obligations.
Why should I get a cohabitation agreement?
Unfortunately, a pervasive and potentially harmful misconception exists that individuals living under 'common law' arrangements don't require such agreements due to their unmarried status. This is inaccurate and can lead to unforeseen legal complexities. Should a couple qualify as an AIP under the Adult Interdependent Relationships Act, whether married or not, their property and support rights are going to be the same or very similar to those of a married person. Therefore, avoiding marriage does not necessarily avoid the risks one would be aiming to avoid getting a prenup.
Here are some other reasons why you should consider having a cohabitation agreement in Alberta:
- Clarity and certainty: A cohabitation agreement allows you and your partner to clearly define your respective rights and obligations. It can provide certainty and peace of mind by establishing expectations and guidelines for various aspects of your relationship.
- Healthy relationships: Having discussions about finances and other matters is extremely important in a relationship. Too often, people avoid these uncomfortable topics until it is too late, and the couple is left fighting over money which is a leading cause of divorce. Establishing a clear agreement beforehand, outlining the expectations, guidelines, and respective rights and responsibilities within the relationship, often mitigates any potential power imbalance. It also serves as a preventive measure against contentious financial disputes between partners.
- Protection of assets: With a cohabitation agreement, you can protect your individual assets, including property, investments, and savings, by specifying how they will be divided in the event of separation or the end of the relationship. This can help prevent disputes and potential financial losses.
- Financial matters: A cohabitation agreement can address financial matters such as how expenses will be shared, how joint accounts will be managed, and how debts will be allocated. It can also outline provisions for financial support during the relationship or in the event of separation.
- Protecting business and professional assets: If you own a business or have professional assets, a cohabitation agreement can protect these assets from being subject to division or claims in the event of separation.
- Avoiding disputes and litigation: By clearly documenting your intentions and expectations in a legally binding agreement, you can minimize conflicts and reduce the likelihood of costly legal disputes if the relationship ends. It can provide a roadmap for resolving issues amicably.
- Tailored to your needs: A cohabitation agreement can be customized to reflect your specific circumstances and priorities. It allows you and your partner to negotiate and agree upon terms that suit your unique situation, rather than relying on default legal rules.
What is a prenuptial agreement, and how does it differ from a cohabitation agreement?
A prenuptial agreement, also known as a prenup, is a legal document that is entered into by a couple before they get married. It outlines the rights and obligations of each spouse during the marriage and in the event of separation, divorce, or death. A prenuptial agreement is created and signed before the couple gets married or enters into a civil partnership, whereas a cohabitation agreement is entered into by couples who are living together without being married, whether or not the couple actually intends to marry.
What can be included in a cohabitation or prenuptial agreement in Alberta?
Both cohabitation agreements and prenuptial agreements can address a wide range of matters and can be tailored to suit the specific needs and circumstances of the couple involved. Here are some key elements that can typically be included in a cohabitation or prenuptial agreement in Alberta:
- Property division: A prenuptial agreement can specify how property, assets, and debts acquired before and during the relationship will be divided in the event of separation, divorce, or death.
- Financial matters: Prenups can outline how financial matters will be managed during the relationship, including the allocation of expenses, handling of joint bank accounts, and managing debts.
- Spousal support: The prenuptial agreement can also address the issue of spousal support, including whether it will be paid, the amount, and the duration, if applicable.
- Inheritance and estate planning: Provisions regarding inheritance rights, the distribution of assets upon death, and any estate planning considerations, can also be included in any prenuptial agreement.
- Protection of business or professional assets: If one or both parties own a business or have professional assets, a prenuptial agreement can outline how these assets will be protected in the event of separation or divorce.
Dispute resolution: Prenuptial agreements can include provisions for alternative dispute resolution methods, such as mediation or arbitration, to resolve any conflicts that may arise.
What are the requirements for a cohabitation or prenuptial agreement to be valid in Alberta?
To be valid and enforceable in Alberta, both cohabitation agreements and prenuptial agreements must meet certain requirements. While it's important to consult with a family lawyer for specific guidance, here are some general requirements for the validity of these agreements in Alberta:
- Voluntary and informed consent: Both parties must enter into the agreement voluntarily and without any coercion or duress. They should both have a clear understanding of the terms and implications of the agreement.
- In writing: Cohabitation and prenuptial agreements must be in writing. Verbal cohabitation and prenuptial agreements are not enforceable.
- Full disclosure: Both parties must exchange full and honest disclosure of their assets, liabilities, income, and financial information. This is essential to ensure the agreement is enforceable. It also ensures that both parties have a complete understanding of each other's financial situation when entering into the agreement.
- Independent legal advice: Parties must obtain independent legal advice from separate lawyers. This helps ensure that each party's rights and interests are protected and that they have a clear understanding of the agreement's implications. This is a very important formal requirement of prenuptial and cohabitation agreements. Additional information about the requirement to receive independent legal advice can be found in our blog, Legal Advice for Family Law Agreements.
- No violation of public policy: The agreement should not contain provisions that violate public policy or are illegal.
Can I modify or amend a cohabitation or prenuptial agreement after it has been signed?
Typically, these agreements would contain a variation clause setting out the process to modify or amend the agreement. Most likely, such amendment or modification would require both parties to capture any agreed upon changes in an addendum or further agreement, witnessed and signed by the parties and their separate lawyers, with certificates of independent legal advice.
What happens if we don't have a cohabitation or prenuptial agreement in Alberta?
Couples who choose to forgo a prenup or cohabitation agreement may find the separation and divorce process extremely painful, drawn out, and expensive. Entering into these types of agreements, generally, make separation much easier and less conflictual as everything is clearly spelled out in the agreement. This is similar to a person who passes away with a will, versus passing away without one. The will is a roadmap for the division of that person’s assets to the beneficiaries, rather than leaving it to them to fight it out. With a cohabitation or prenuptial agreement, there generally isn’t much to fight about because the agreement sets out the financial and other aspects of separation for the parties.
What steps should I take if I want to create a cohabitation or prenuptial agreement in Alberta?
If you are considering creating a cohabitation or prenuptial agreement in Alberta, it's important to follow certain steps to ensure the process is smooth and the resulting agreement is valid and enforceable. Here are the general steps you should consider:
- Discuss the agreement: Start by having open and honest discussions with your partner about the need for a cohabitation or prenuptial agreement. Discuss your respective expectations, concerns, and goals. It's crucial to approach the conversation with transparency and mutual understanding.
- Seek independent legal advice: Each party must seek independent legal advice from separate family lawyers who are experienced in drafting cohabitation or prenuptial agreements. They can provide personalized guidance, explain the legal implications, and ensure that your rights and interests are protected.
- Full financial disclosure: Both parties must provide complete and accurate financial disclosure, including assets, liabilities, income, and any other relevant financial information. This disclosure is essential to ensure transparency, enforceability, and fairness in the agreement.
- Identify and prioritize key issues: Determine the specific issues you want to address in the agreement. This may include property division, spousal support, financial matters, and any other concerns particular to your situation. Clearly identifying and prioritizing these issues will help guide the drafting process.
- Negotiate and draft the agreement: Work with your respective lawyers to negotiate and draft the cohabitation or prenuptial agreement. The agreement should reflect the discussions, considerations, and agreements reached between you and your partner. Ensure that the agreement is comprehensive, clear, and aligned with your intentions and needs.
- Review and understand the agreement: Carefully review the drafted agreement and seek clarification on any provisions that you don't fully understand. It's crucial to have a clear understanding of the rights, obligations, and implications outlined in the agreement.
- Retain copies: Make sure to keep fully executed copies of the agreement for both parties. It's advisable to keep the original document in a secure location.
- Review and update: Periodically review the agreement to ensure it remains relevant and aligned with your current circumstances.
How much does it cost to draft a cohabitation or prenuptial agreement?
Should your circumstances be complex or necessitate preliminary negotiations before drafting can occur, the cost varies considerably. It hinges on a number of variables including the degree of complexity, the duration of the negotiations, the individual hourly rate of the lawyer you hire, and many other factors. However, if the parties are on the same page about what to include in the agreement and the situation is not overly complex, it is likely they will be able to take advantage of the flat-fee offered by Crossroads law for the drafting of these agreements.
The skilled team of legal professionals at Crossroads Law are deeply knowledgeable in the subtleties of cohabitation and prenuptial agreements. Whether you're cohabitating or preparing for a wedding, it's crucial to understand the legal nuances and implications involved. We are dedicated to safeguarding your interests at every turn. To delve deeper into how cohabitation and prenuptial agreements might impact your unique situation, schedule a complimentary 20-minute consultation with any one of our seasoned lawyers or mediators today!