Do you need a cohabitation agreement?

Question

I am over 50 and getting married soon. What would be your financial advice for someone like me? How can I make sure the assets I have before getting married stay with me and pass on to my own older children when I die or if I get divorced?

Answer

My advice? Call a family lawyer. Seriously.

A good family lawyer will be able to outline the issues and help write up an agreement that will protect both of you. It will be well worth the money to have peace of mind. And it will require that you and fiancé share your full financial information and talk through the big financial topics before you tie the knot. It may be an uncomfortable conversation, but well worth it.

Sign a marriage contract

Your concern that your children receive your assets can be handled by signing a marriage contract, or, if you are living in a common law relationship, through a cohabitation agreement. Michael Cochrane is a family lawyer with Heydary Green and the author of the book Do We Need a Marriage Contract? Understanding how a legal agreement can strengthen your life together. He says that in addition to a marriage contract you would draft “a set of complementary mutual wills in which the couple agrees that the surviving spouse will ensure that children from a previous marriage get all or a portion of the estate.”

Discuss before becoming common law

Your question relates specifically to getting married. But a lot of people don’t realize that they can become a common law couple just by living together for a certain period of time. “This is a shocker for most people,” says Cochrane. The rules differ depending on which province you live in, but as an example in Ontario you become common law if you’ve either been living with someone for three years or any period if you have a child together.

It is best to sort out your agreement before you become common law, just as it is best to sort things out before your wedding day.

Explore your options

Your plan is to leave everything to your kids upon your death—and that might be the best approach for you—but I would discuss all your options with your lawyer. For example, Cochrane says you could “give everything to your kids subject to the surviving spouse being able to remain in a certain home until they die. This is called a ‘life interest.’ ”

Review each others financial details

In addition to the legal work, I also recommend that you have full disclosure with each other in terms of your financial details. For example:

Assets: What do you have in terms of an investment portfolio? Will you have a pension to draw on in retirement?

Liabilities: How much do you owe on your mortgage, credit cards, and line of credit?

Income: What do you earn over the course of the year? Do you have any non-employment income?

Expenses? Does your income exceed your expenses?

Strengths and weaknesses: Your spouse is going to learn soon enough what your strengths and weaknesses are when it comes to money. You may as well have the discussion in advance to note any potential red flags.

I would also recommend that you talk through how you are going to manage your finances as a couple. Are you going to combine everything, combine nothing, or come up with your own hybrid version of things?

Don’t leave financial arrangements to chance

Whatever you do, don’t avoid this conversation and leave your financial arrangement to chance. As you can imagine, Cochrane has seen more than a few fights between the surviving spouse and the kids. Often in these cases there wasn’t a clear and comprehensive agreement in place.

He cites one case where, “the couple agreed to make mutual wills, with the last one surviving sharing with all the kids from both previous marriages.” However, one spouse ended up dying “and the survivor simply changed his will and left it all to his kids. The court ended up ordering his estate trustee to follow the original agreement even though it had not been written down.”

The moral of story, says Cochrane, “if they had done the marriage contract and the wills together they would have locked in the estate plan and everyone could relax.”

There can be enough stress in a marriage, whether you walk down the aisle fresh faced and naïve at 22 years old, or in your case, older and wiser at 50 plus. Do the work to have the tough conversations now and get an agreement in place that works for both of you. Then, relax.

About Bruce Sellery

Bruce Sellery is the CEO of Credit Canada, the country’s longest-standing non-profit credit counselling agency. He is a former MoneySense columnist.