Falling in love is a tale as old as time and despite high divorce rates, people still can’t help coupling up. And while love may not have changed, the circumstances of modern society have. Nowadays, people are marrying later or simply cohabitating – and are more likely to have assets of their own. Yet cohabitation agreements or marriage contracts are still sometimes viewed as the thorn in the otherwise rosy time of relationship bliss. In reality, these agreements (collectively called domestic agreements) are a practical way for couples to lay a solid foundation for their relationship, by clarifying their goals and expectations of each other – and their finances.
What do domestic agreements protect?
These agreements let you plan not only how your assets will be divided in the event of a separation, but also what should happen if one of you dies while you’re still together. As a couple, you may choose to keep your assets completely separate from each other, or agree to share only some assets in the event of separation. If you are part of a family enterprise, you may be inclined to keep your shares separate from your spouse, but agree to divide other assets, such as a home or savings.
If you will be purchasing a residence or a cottage together, but one of you makes a greater contribution to the purchasing price, the domestic agreement may divide that asset proportionately upon separation. For example, if Spouse A contributed 60% and Spouse B contributed 40%, Spouse A would be entitled to 60% of the value upon separation.
Domestic agreements also protect you in the likely event that one of you predeceases the other. The agreement can govern the right to occupy a residence that may be in your spouse’s name, the payment of the expenses related to that residence, and other cash flow issues that may result from his/her death. Some couples plan to keep all property separate if their relationship ends by a separation, but pass on certain assets to the other spouse if the relationship ends as a result of death. In some cases, trusts may be set up to distribute wealth to their children.
There are several ways to approach the negotiation of domestic agreements, and which method you choose often depends on factors including financial circumstance and personal choice.
Four ways of negotiating
1. The traditional model: Traditionally, one spouse instructs his/her lawyer to generate a first draft of the agreement, which is then given to the other spouse and their lawyer, thus starting a negotiation. This model works well for fairly simple financial situations.
This approach can backfire, however, if the first iteration of the agreement is too one-sided, or if you didn’t spend sufficient time discussing a balanced approach, as a couple, before the first draft of the agreement was completed. This can leave the spouse on the receiving end of the draft hurt and insulted by the proposal. Additionally, the ensuing back and forth between the lawyers is generally costlier than resolving issues face-to-face.
2. Collaborative negotiation: This is an emerging trend for negotiating domestic agreements. Before anything is drafted, you and your spouse/partner meet with your lawyers collectively to create the framework for your life together, and the contents of the domestic agreement. Only when both of you are satisfied with what has been discussed does the drafting begin.
An advantage of this model is that face-to-face discussions, with lawyers present, tend to be more balanced. Even if the agreement was requested by one spouse only, the involvement of all parties in the pre-drafting discussions tends to generate balanced agreements that both spouses can live with.
However, this method may not be useful for couples whose financial situation is very simple. Or, if you’ve already had several discussions about the contents of the agreement you may not need to review these issues with lawyers before the first draft is generated.
3. Mediation: With this method, both spouses provide their input during a respectfully facilitated discussion, after which a domestic agreement is drafted and each spouse receives independent legal advice.
However, couples often have differing levels of financial sophistication. If one spouse lacks the awareness to be able to properly advance their ideas, it’s advisable to consider involving lawyers in the mediation discussions rather than waiting until after the agreement has been drafted. Clients that select mediation rather than lawyer-assisted negotiation may resist because they fear that involving lawyers too early in the process could add a dimension of acrimony, so it will be up to the team to agree on the best time to involve them.
4. Co-mediation: This fairly new model involves two mediators/facilitators at the outset, and is particularly useful for older couples that wish to co-ordinate family law planning and estate planning for children from previous relationships.
A domestic agreement will address your wishes, as a couple, for how you want to organize your financial affairs in the event of a separation, or death during your relationship. Given the interplay between family and estate laws, families that have sizeable or complicated estates would be wise to involve both family lawyers and estate lawyers to mediate the terms of the domestic agreements, as well as an accountant or tax lawyer as necessary.
If your estate planning needs are fairly simple, you may not want to have the added cost of having the estate lawyer present during all of the discussions about the contents of the domestic agreement.
With thoughtful preparation, mutual respect and open communication, the negotiation of domestic agreements needn’t be viewed as a harbinger of romantic demise, but rather a productive tool that can lead to more secure, healthy relationships in the long run.
Family Law Lawyer, Mediator & Family Enterprise Advisor™, specializing in high-net-worth families and business owners.
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