Erin is a 63-year-old widow who just got engaged to her high school crush after reconnecting on Facebook — and she’s wondering if it makes sense to combine her finances with her soon-to-be husband.
Erin, who lives in Washington D.C., is also planning to sell her house and move back to the Midwest, where she grew up and where her fiancé currently resides.
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Her hesitation? Her fiancé is US$180,000 (C$250,000) in medical debt from what he says was a botched surgery. And while she already has significantly more money than her soon-to-be-husband, she’s also set to inherit between US$4 million to US$5 million (C$5.5 million to C$6.9 million) from her parents when they pass.
So she called into The Ramsey Show to ask for advice.
“This is one of the rare moments when I’m going to strongly recommend you walk in with a prenup,” said co-host Dr. John Delony — here’s why.
When to consider a prenup
Even if Erin’s fiancé is “totally on the up-and-up,” Delony said he might have a kid or a cousin who thinks they just won the lottery. And, if he’s not on the up-and-up and disappears after she inherits this money, “he’s going to take half of it.”
Erin can protect her finances with a prenuptial agreement, which is a legal contract between two people about to marry that addresses how they’ll divide their assets if the marriage ends in divorce or death.
In Canada, debt incurred while you’re married is generally divided equally upon separation or divorce — unless you have a prenup or legal agreement. You’re not typically responsible for debt that your spouse incurred before you were married.
A TD poll of Canadian adults found that more than half of Gen Z (52%) want their partner to sign a prenup (1) — regardless of whether they get married or enter a common-law relationship (in which case they’d sign a cohabitation agreement). The national average is still high at 31%, which is nearly one in three Canadians.
Read more: Here are 5 expenses that Canadians (almost) always overpay for — and very quickly regret. How many are hurting you?
While prenups were once associated with the ultra-wealthy, there are a few reasons why they might be more commonplace these days. First off, people are getting married later in life and, at that point, they may have built up more assets — and more debt.
A high number of marriages still end in divorce, despite the fact that Canada’s divorce rate is on the decline — falling from 79,000 in 1991 to 43,000 in 2020, according to a report by The Vanier Institute of the Family (2).
Similar to a prenup, a cohabitation agreement is a contract between partners in a common-law relationship.
These unions, which are most common in Quebec and Nunavut, come with their own set of complications.
While married couples are “eligible for spousal support, division of property in the case of separation and divorce, or inheritance in case of death,” according to the Vanier report, “the portrait is far more complex for people in common-law relationships.”
In the Yukon, Ontario, Quebec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador, “there is no legal obligation for the partners to divide their property as a married couple.”
That’s where a cohabitation agreement can help to protect your assets.
Do your due diligence
Delony told Erin she should do her due diligence, such as pulling each of their credit reports and walking through them together.
“What we typically see in a marriage is a mix of debts: yours, mine and ours; your existing and new debt, my existing and new debt, and joint debt accumulated since we married,” said J. Douglas Hoyes, a licensed insolvency trustee with Hoyes Michalos, in a blog post (3).
Some of his tips for dealing with marriage debt include discussing a repayment plan before combining finances, monitoring your credit report and avoiding joint bank accounts where one spouse has debt.
“Banks have a right of offset, meaning they can withdraw money from your account to pay debts owed to them,” he said.
He also suggests considering a prenuptial or cohabitation agreement.
Even if Erin isn’t responsible for her fiancé’s debt prior to their marriage, it would still have a major impact on her life. For example, she plans to buy a new house that her soon-to-be-husband will then move into, so she could end up footing the bill for everything.
It could also impact her down the road. While your credit report remains separate from your partner even after marriage, if you open a joint account, any late or missed payments could impact your credit score as well as your partner’s.
Before getting married, particularly if one person has significantly more assets than the other, it’s well worth a conversation with your financial advisor and a family law attorney about how to combine finances.
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Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
TD: Love or money? Half of Gen Z Canadians want a prenup (1); The Vanier Institute of the Family: Families Count (2); Hoyes & Michaelos: Am I Responsible for My Spouse’s Debt? (3)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.