Understanding Interspousal Contracts for Family Property Planning
If you and your partner enter into a spousal relationship with valuable property that you would like to retain as your own, or ensure your children from a previous relationship inherit, you should consider signing an Interspousal Contract either prior to entering the spousal relationship or during the relationship. In Saskatchewan, The Family Property Act governs how property will be distributed between spouses in the event of a breakdown of the relationship. The general principle of the Act is that all family property, or its value, should be divided equally between the parties, subject to exceptions, exemptions, and equitable considerations contained in the Act. An Interspousal Contract can exempt certain family property from being equally divided by setting out who will continue to possess and own certain property upon a breakdown of the spousal relationship or the passing of either spouse.
Who is considered a spouse?
For family property purposes, your spouse can be either the person you are legally married to or the person you have continuously cohabited with in a spousal relationship for a period of at least two years. Whether you have cohabited as spouses for two years is a factual determination, and you should contact a lawyer if you are unsure whether your relationship might constitute a spousal relationship for the purposes of property division.
Either spouse is able to make an application for the division of family property after a separation. The Act requires that an application for family property division be made within two years from the date you and your spouse cease to cohabit. In the case of married spouses, either spouse may apply for a division of family property prior to being granted a divorce.
What is an Interspousal Contract?
An Interspousal Contract is a written agreement between two spouses that deals with possession, status, ownership, disposition, or distribution of family property, including future family property. The Contract can be entered into by you and your partner prior to commencing a spousal relationship, after you are already cohabiting, or after you have already been married. However, the Contract is unenforceable until you are married or begin cohabiting. The Contract may also be entered into by spouses after the spousal relationship has broken down to determine family property and other issues that would otherwise be decided by the Court. The focus of this handout is on those contracts entered prior to the breakdown of the spousal relationship, also sometimes referred to as Prenuptial Agreements or Cohabitation Agreements.
There are both formal and substantive requirements that must be satisfied to enter a valid Interspousal Contract. Each spouse will need to see their own separate lawyer to satisfy the formal requirements of a valid Interspousal Contract and be informed of their property rights.
The substantive requirements include that the contract not be unconscionable or grossly unfair to either party at the time the Contract was entered into. There is also a duty on both spouses to make full and honest disclosure of all property information prior to entering the Contract.
Pre-nuptial agreements can also address spousal support issues though that is an separate issue that will not be addressed herein.
What is family property?
Family property is all real and personal property that is owned by one or both spouses, or that either spouse has an interest in, at the time an application for a division of property is made. Family property may consist of the family home, income properties, furniture, vehicles, bank accounts, pensions, RRSPs, business interests, shares, collectible items, insurance policies, severance packages, retirement settlements, CPP benefits, inheritances, a trust to which you are a beneficiary, and standing or harvested crops, just to name some examples. Family property can also include increases in the value of property which you owned prior to the relationship and can include the entirety of your home even if owned prior to the relationship. Speak with a lawyer if you are unsure whether certain assets may be considered family property prior to agreeing to any Interspousal Contract.
What are the rights of each spouse upon a breakdown of the spousal relationship?
The Act requires that all family property, or its value, be distributed equally between the parties upon a breakdown of the relationship. This principle of equal division can be subject to exceptions, exemptions, and equitable considerations contained in the Act. An Interspousal Contract is one way to exempt property from being equally distributed.
Many people think a short spousal relationship or misconduct on the part of one of the parties will mean that the family property does not need to be equally divided. However, there are very few circumstances which are an exception to the principle of equal division or which provide for certain property to be exempted from equal division. Furthermore, the misconduct of either you or your spouse is not relevant in dividing your property unless such misconduct amounts to dissipation of family property or a substantial detriment to the financial standing of either spouse.
What can be determined in an Interspousal Contract?
Generally, an Interspousal Contract entered into prior to or during the spousal relationship will set out what family property will be exempt from distribution pursuant to the Act in the event your spousal relationship ends.Other matters that may be included in the Contract will depend on the wishes of the parties, but can include who will bear any tax liability from the sale of any family property, a release of rights in each other’s estate, an agreement as to who will take on certain debts, and a determination of how property acquired during the spousal relationship will be distributed. Each Interspousal Contract will be different depending on the intentions of the parties entering into the Contract.
What are the benefits of executing an Interspousal Contract prior to beginning the spousal relationship?
As previously mentioned, in the event your spousal relationship ends and either you or your spouse makes an application for a division of family property, the Act provides that all family property is to be divided equally amongst both you and your spouse, subject to any exceptions, exemptions, or equitable considerations. Therefore some benefits of entering an Interspousal Contract prior to beginning your spousal relationship are:
- Ensuring you will continue to possess property you have acquired prior to commencing the relationship and not having to share the value of that property, the increase in value over the relationship, or relinquish possession of that property, to your spouse in the event the spousal relationship ends;
- Obtaining certainty in how any future acquired family property will be divided or distributed when the relationship ends;
- Avoiding the time and cost of an agreement or court order for a division of property after the relationship ends;
- Having the ability to decide for yourself how to divide the family property, rather than having a court decide;
- Planning for your financial future as it pertains to your savings, pensions, RRSPs, investments, and other personal property that you are relying on for financial support now or in the future; and,
- Having the ability to decide whether your spouse will have rights to share in your estate or property after you die.
Can an Interspousal Contract be changed?
You and your spouse are able to amend and adjust your Interspousal Contract as you see fit. However, in order to do so, both parties will need to agree to all changes to the Contract and sign the amended Contract in front of their own lawyer. If you have an Interspousal Contract and would like to make changes to it, contact a lawyer to make the changes to ensure all requirements of the Act are satisfied.
Should you have any further questions in this regard, we encourage you to contact our Family Law team.