FINANCIAL PLANNING
Prenups can provide a sense of safety and comfort Just the mention of prenuptial agreements is enough to put off many people, but for those entering a second marriage, a shareholder’s agreement or a family enterprise, prenuptials have become not only a necessary staple but a source of safety and comfort. BY SUSAN YELLIN
“A prenup is all about protecting the family wealth. But it’s not just financial. It’s also emotional.” — Phil Kriszenfeld
“A
prenup is all about protecting the family wealth,” says Phil Kriszenfeld, a business family advisor and mediator in Burlington, ON. “But it’s not just financial. It’s also emotional.” In fact, it can be so emotional that people clam up or give the potential mate the evil eye if a prenuptial agreement is even suggested. Those entering a first marriage often say they don’t need a prenuptial agreement, but those who have been through a marriage are sometimes adamant about getting one. Blair Corkum, a chartered financial divorce specialist in Charlottetown, P.E.I., says he’s seen the result of almost 40% of marriages that end in divorce. While splitting up can get messy in many situations, prenups have saved tens of thousands of dollars in legal fees and the parties generally know upfront what they’re getting when/if the marriage dissolves. “I do recommend prenups just to make life a lot easier should something happen down the road,” says Corkum. “My practice is to kind of roll into the topic with a financial planning angle which I think gives financial people a step up on lawyers. It plants the seed. I don’t know if the couple goes away and talks about it, but I try to influence a little bit.” (How prenuptial and cohabitation agreements are structured, what they’re called and what they can and not contain are the purview of provincial governments and can vary widely from one jurisdiction to another.) Corkum has come up with a next-best alternative to prenups by recommending a spousal RRSP for the higher-income earner to contribute to the spouse’s retirement. And he counsels people to ensure inheritances are kept separate from other assets, never put in joint name and identified separately so the money always stays with the beneficiary. If a client likes these ideas, then he takes the next step and mentions that a prenuptial might be a good idea for them. “There is no way we can force [prenuptial agreements] on people obviously, but I think we have a role and that is to raise the issue. I’m not sure we have that many opportunities to do that.” Shareholder agreements When it comes to a shareholder’s agreement, however, having a prenuptial agreement is almost de rigueur nowadays. Kriszenfeld gives the example of one of his clients who apparently loved the idea of being married, but wasn’t that keen on staying married. After one
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divorce, he’s found a new potential mate, but realizes that the last dissolution of his marriage was not only expensive, but intrusive and invasive. This time he realized the company he shared with his partners couldn’t go through the upheaval all over again and he needed to protect himself. The answer: make a prenuptial agreement a stipulation in the shareholder agreement. “We literally put it in the shareholder agreement that any unmarried partners at the time of signing or going forward, getting married again, must have a prenuptial agreement to the satisfaction of the corporation. They all agreed,” said Kriszenfeld. Should a partner not want to get a prenuptial agreement then the shareholder agreement stipulates that that person will have to sell their shares back to the corporation no later than the wedding day. “It’s a deal breaker. You have to have it,” he says. “I’ve yet to find a guy who loves a woman so much that he’ll give up his equity in his company to get married.” The advisor’s role Kriszenfeld suggests an advisor’s role can be an important coaching piece of advice – bringing up the subject of a prenup, especially when a business is involved and particularly if it’s a second marriage. When an outside third party with no vested interest raises the subject it’s an easier discussion to have especially when it’s in the context of the overall financial planning process. When it comes to larger family enterprises where there could be second and even third generations involved, Susan St. Amand always raises the subject of matrimonial contracts and co-habitation agreements and suggests that a young couple discuss it with a family lawyer. St. Amand, founder and president of Sirius Financial Services in Ottawa and a specialist in continuity planning for families, says it’s only fair that potential mates know what’s ahead for them. “When you have the rules of the game set out ahead of you and it’s disclosed exactly how the rules are to be played – whether it’s soccer, tennis or basketball – then you follow the rules. And when the ref says you’re offside, you’re offside. But at the end of the day you figure out what fair play is by following the rules of the game.” In family enterprises those rules are based on the values that have been discussed since the original company was established. Once in a while, St. Amand raises the question of whether those values still hold