When newly in love, nobody likes having the “what if we break up” chat. But, it’s important. If you’ve got large assets, like a house or investment portfolio, or if you are planning to be a stay at home parent,  these talks are important to ensure that you and your personal finances are protected, just in case.

Domestic Contracts are popularly known as “prenups.” They are a contact that is written between two partners before entering into a common-law relationship or marriage. They allow couples to create their own financial arrangements in the event of a breakup or divorce so that each party feels protected. These contracts must be made in writing, signed by both parties and witnessed in order to make it count.

Cohabitation Agreement

A Cohabitation Agreement is a contact between two people who are living together, or thinking about living together, who aren’t married. The agreement should give instructions as to how to divvy up financial assets in the event of a break up.

Here are the two most common financially crappy things that happen in common-law break ups that could have been avoided by a cohabitation agreement.

1. One partner owns a home, with their name only on the deed and the other partner contributing financially for years by splitting the mortgage and bills. They break up. The partner whose name isn’t on the deed is left with nothing and wasn’t saving all those years because they were contributing to the house, renos etc. If this is you, or you’re thinking of going into this type of situation, get a piece of paper, a pen and a neighbour. Write down what happens financially if you guys break up. Figure it out now.

2. One partner pays down a significant loan for the other partner, then they break up. This also sucks. While this is a wonderful and smart financial decision for any household, if you pay it off and break up just after, that is less than awesome. There are no legal ramifications for getting your money back.

Protect yourself with a cohabitation agreement before you dole out the money.

Marriage Contracts

There is more legal protection for married couples than common law marriages. In a divorce, the family home and assets gathered during the marriage are legally obliged to be split – no matter what. A marriage contract allows you and your partner to decide how you want everything to be divided and opt out of the default rules of the place you live.

NOTE: The courts do have a right to over-rule a domestic contract if it is counter to legislation. For example, if one party has agreed to opt out of their ownership of the matrimonial home (say he or she owned it before the marriage and wants to hang onto that asset), the courts can order the assets be split and apportioned according to family law.  So prenups aren’t foolproof.


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