A divorce is a long and complicated process. One of the steps in this unfortunate process is known as “equalization”. This is a calculation of the equity a couple accrued during the course of the marriage. For most, this equity is tied up in RRSP’s (Registered Retirement Savings Plan) or in the matrimonial home, but for entrepreneurs, this equity also includes the value built up in your business!

Your spouse may be entitled to up to 50% of the value of your business. That could have a significant impact on your business’s future, your partners, and employees.

The default assumption is that debt is shared between spouses. Creditors will not hesitate to come after your business assets if they need to call in a debt from you or your spouse.

It is becoming more and more common for business owners to seek a prenup (aka. marriage contract or cohabitation agreement). Similarly, business partners are requiring that their counterparts sign a prenup to protect themselves from the collateral damage of a messy divorce (smart thinking, right?).

2) It determines whether spousal support is on the table and, if so, how it will be determined.

Entrepreneurs frequently do not take straightforward salaries. We all have rather significant deductions and write-offs when it comes time to report our income to the CRA.

This creates an environment rich in possible conflict when it comes time to determine whether an entrepreneur should pay or receive support payments as a result of a separation.

Having a clear outline of how you pay yourself, what you routinely write off, and how you quantify your net disposable income can help you set parameters for how the question of support will be handled if the time comes.

It is also important to know that, in Ontario, while spouses can voluntarily waive their rights to spousal support – or vary their right to spousal support – parents cannot waive their children’s rights to child support.

When do you need a prenup?

You need a prenup to protect your business when:

1. You have a business; and
2. You are getting married, are married, or are cohabitating with someone

It is never too late to get a prenup. If a prenup is signed after marriage, or after you move in with a common-law spouse, we simply change the name to a “marriage contract” or a “cohabitation agreement”.

In fact, a prenup is not a “one and done” type document. As you, your partner and your business age and grow, your prenup will need to be amended, updated and modified. You should expect to at least read your prenup every 3-5 years to make sure it accurately reflects the current state of your relationship and your business.

How do I get a prenup?

The traditional way to get a prenup is for you and your partner each to choose your own lawyer and then let the lawyers negotiate the terms of your domestic contract for you.

This is one of the reasons why couples are uncomfortable getting a prenup – working with lawyers isn’t a particularly romantic option and most couples are afraid that the lawyers will create unnecessary conflict.

An alternative way to get a prenup is for you and your partner to go to a mediator together. The mediator can give you both all the legal information you need to make most of the decisions about what will be included in your prenup. Because the mediator can meet with both spouses, you and your partner can work through the process together. It is still important to bring the finished product to two separate lawyers afterwards to finalize the agreement into a legally binding domestic contract – but nearly 100% of the work can be done in advance of you and your partner receiving the legal advice portion of the agreement. The cost savings of that alone can be HUGE.

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