Domestic contracts are an important consideration for anyone in a family business or from a high net worth family that is planning on getting married or entering into a common law relationship. This topic is a very complex and emotional one and needs to be handled with expert advice and counsel.
Domestic contracts can cover a wide range of topics, but typically involve an agreement, made before or during the marriage or cohabitation, that decides what to do with assets, debts, and other marital obligations in the case of marriage or cohabitation breakdown. The two most popular forms of domestic contracts are prenuptial agreements or "prenups", and postnuptial agreements or "postnups".
In many cases, children of high net worth families are beneficiaries of family trusts, and shares of the family business may be transferred to them in the future. In the event of a marriage or cohabitation breakdown, the lack of a domestic contract will in most cases result in considerable adverse financial consequences.
It is a good idea to have a conversation with your children about the need for a potential domestic contract when they are considering marriage or cohabitation. This will allow them to better understand this topic and ensure the issue be brought up with their prospective spouse in the proper manner.
A prenuptial agreement is a domestic contract entered into prior to the marriage or cohabitation. The intent is that you and your spouse will enter the marriage with a clear understanding of the division of finances should the marriage or cohabitation end. There is a lot of flexibility in making the agreement, subject to some specific limitations. These limitations are that; the agreement must not be unconscionable to the other spouse, the agreement must honestly disclose all relevant information, and the spouse-to-be must have independent legal advice and counsel. If the prenuptial agreement does not violate these conditions, it has a much better chance that it will be upheld by a courts in the future.
A postnuptial agreement is a domestic contract entered after the date of marriage or coahabitation. The agreement is meant to settle financial issues that are present during the marriage or cohabitation. This need for this type of agreement may arise when the parents of a grown married child are planning to distribute assets to their children and prior to doing so they request that a domestic contract be entered into by their child and his/her spouse. As can be imagined, trying to implement a postnuptial agreement could result in some very difficult discussions between a married or common law couple.