Legalizing our love
August 9, 2017 2:13 PM Subscribe
We're a happy, communicative common-law couple, new homeowners, and planning to marry. We bring different assets and debts into the relationship. We'd like to draft a pre-nup that is actually FAIR, not just legal. Can you help us figure out what to consider? Details within.
We've been dating for 3.5 years, living together for 3, in Ontario, Canada (this makes us legally common-law). Planning to marry, already trying to get pregnant. We just bought a house in an appreciative housing market, with unequal financial contributions. Here are the basics:
Man:
Age 40, went back to university & graduated at 38.
Full-time job, earns $80K.
Savings: $0
Debt: $50K in student debt, consolidated on a line of credit (paying it down aggressively).
Frugal, excellent credit. Owns a used car (purchased in cash).
Man has an ok life insurance policy from work.
Woman:
Age 38, 18 years out of university.
Self-employed, earns about 50K (worst year was $20K, best was $90K)
There's a 50% possibility that Woman might land a big job that pays a lump of $100K.
Savings: $200K (will be spending about $160K in total on this house in the first year)
Debt: $0
Frugal, excellent credit. Owns a used car (gift from Man, purchased with cash).
Woman has a small life insurance policy as a guild member.
Finances:
House in Ontario, Canada was purchased for $570,000, with both names on title.
It's the first home purchase for each of us. Both plan to live there (nuptual home).
Woman paid the down payment ($120K). Man's income got us the mortgage.
Mortgage + insurance payments will be about $2200/month.
Woman will finance a modest renovation ($40K) to update a few things & create a basement apartment, which will then earn at least $1000/month (it's a good rental area & Woman has prior rental management experience, so trust that this rental income is a low estimate and pretty much guaranteed).
The remaining mortgage payment of ~$1200/month is less than we've paid in rent for the past couple years- so we're excited and confident it's manageable.
Overarching mindset:
I guess this may seem naive, but: we truly believe we are both committed to doing what's fair, more than what's strictly legal. If what's "legal" isn't "fair", we both think we wouldn't do it. For instance, if we split up next month, legally Man gets half the house, which obviously isn't "fair" since Man wouldn't have paid anything into the house- so Man wouldn't do that. We trust each other and both have proven personal histories of ethical behaviour around money & past breakups.
Questions:
Of course there are a million variables, but we're looking for simple conceptual ways to thumbnail what would be most fair in these scenarios, and any other we should consider.
1. What if we split up tomorrow? Woman is out $120K, Man is out $0K. Woman has taken all the financial risk on the house, but it's jointly in Man's name. How to protect Woman's investment?
2. How should we split our monthly mortgage payments to reflect Woman's greater investment?
We were thinking of a 70-30% payment split at first, and widen the split as Man's income increases, keeping track until each of our total contributions match (about 12 years). How to figure mortgage interest/principal into that calculation, and account for Woman's lost investment interest?
3. If Woman lands the $100K lump contract, she's allowed to lump-pay it into this mortgage, but she would probably prefer to keep that cash separate from the house and use it to replenish her savings... is that a good idea?
4. If we have kids & split up, it's likely that Woman would do 75% of the childcare and stay in house, & Man would rent or mortgage a second home & pay alimony. How do couples separate their finances & close out the house?
5. Say we buy a new house later, either keeping this house as an income property, or selling it. Later still, we split up. How to track the profit from first house through the sale of the second?
6. Other important situations we're not thinking of?
Adulting is hard, advice much appreciated.
Thank you!
We've been dating for 3.5 years, living together for 3, in Ontario, Canada (this makes us legally common-law). Planning to marry, already trying to get pregnant. We just bought a house in an appreciative housing market, with unequal financial contributions. Here are the basics:
Man:
Age 40, went back to university & graduated at 38.
Full-time job, earns $80K.
Savings: $0
Debt: $50K in student debt, consolidated on a line of credit (paying it down aggressively).
Frugal, excellent credit. Owns a used car (purchased in cash).
Man has an ok life insurance policy from work.
Woman:
Age 38, 18 years out of university.
Self-employed, earns about 50K (worst year was $20K, best was $90K)
There's a 50% possibility that Woman might land a big job that pays a lump of $100K.
Savings: $200K (will be spending about $160K in total on this house in the first year)
Debt: $0
Frugal, excellent credit. Owns a used car (gift from Man, purchased with cash).
Woman has a small life insurance policy as a guild member.
Finances:
House in Ontario, Canada was purchased for $570,000, with both names on title.
It's the first home purchase for each of us. Both plan to live there (nuptual home).
Woman paid the down payment ($120K). Man's income got us the mortgage.
Mortgage + insurance payments will be about $2200/month.
Woman will finance a modest renovation ($40K) to update a few things & create a basement apartment, which will then earn at least $1000/month (it's a good rental area & Woman has prior rental management experience, so trust that this rental income is a low estimate and pretty much guaranteed).
The remaining mortgage payment of ~$1200/month is less than we've paid in rent for the past couple years- so we're excited and confident it's manageable.
Overarching mindset:
I guess this may seem naive, but: we truly believe we are both committed to doing what's fair, more than what's strictly legal. If what's "legal" isn't "fair", we both think we wouldn't do it. For instance, if we split up next month, legally Man gets half the house, which obviously isn't "fair" since Man wouldn't have paid anything into the house- so Man wouldn't do that. We trust each other and both have proven personal histories of ethical behaviour around money & past breakups.
Questions:
Of course there are a million variables, but we're looking for simple conceptual ways to thumbnail what would be most fair in these scenarios, and any other we should consider.
1. What if we split up tomorrow? Woman is out $120K, Man is out $0K. Woman has taken all the financial risk on the house, but it's jointly in Man's name. How to protect Woman's investment?
2. How should we split our monthly mortgage payments to reflect Woman's greater investment?
We were thinking of a 70-30% payment split at first, and widen the split as Man's income increases, keeping track until each of our total contributions match (about 12 years). How to figure mortgage interest/principal into that calculation, and account for Woman's lost investment interest?
3. If Woman lands the $100K lump contract, she's allowed to lump-pay it into this mortgage, but she would probably prefer to keep that cash separate from the house and use it to replenish her savings... is that a good idea?
4. If we have kids & split up, it's likely that Woman would do 75% of the childcare and stay in house, & Man would rent or mortgage a second home & pay alimony. How do couples separate their finances & close out the house?
5. Say we buy a new house later, either keeping this house as an income property, or selling it. Later still, we split up. How to track the profit from first house through the sale of the second?
6. Other important situations we're not thinking of?
Adulting is hard, advice much appreciated.
Thank you!
In the spirit of your question, it might be relevant to offer that I'm an attorney who explicitly tells divorcing clients that the absolute last concern on their minds should be what's "fair." Forget about fair, I tell them. Life isn't fair. Law certainly isn't.
More importantly, I've never seen a divorcing couple that actually wants what's fair. Divorcing couples either want to move on with their lives, or they want to fight. Sure, I've met plenty who claimed to "only want what's fair," but that's always a lack of self-awareness. Those couples invariably reach the point where they're paying $3,000 in legal fees to determine who's responsible for paying a $200 school bill. Let's charitably presume their concepts of fairness are clouded by heartache, but whatever the motives in any given situation, the point holds: objective fairness gets jettisoned.
It's great that you're thinking about this stuff. Discussing these eventualities will help you to better plan your lives together. But maybe don't get too hung up on what's "fair," if for no other reason than that if you were actually in the situation you're envisioning, fairness wouldn't be your primary concern; even in the most amicable circumstance, you'd both need separation to grieve and to heal. Consider thinking about what's quick and easy and efficient.
posted by cribcage at 3:00 PM on August 9, 2017 [16 favorites]
More importantly, I've never seen a divorcing couple that actually wants what's fair. Divorcing couples either want to move on with their lives, or they want to fight. Sure, I've met plenty who claimed to "only want what's fair," but that's always a lack of self-awareness. Those couples invariably reach the point where they're paying $3,000 in legal fees to determine who's responsible for paying a $200 school bill. Let's charitably presume their concepts of fairness are clouded by heartache, but whatever the motives in any given situation, the point holds: objective fairness gets jettisoned.
It's great that you're thinking about this stuff. Discussing these eventualities will help you to better plan your lives together. But maybe don't get too hung up on what's "fair," if for no other reason than that if you were actually in the situation you're envisioning, fairness wouldn't be your primary concern; even in the most amicable circumstance, you'd both need separation to grieve and to heal. Consider thinking about what's quick and easy and efficient.
posted by cribcage at 3:00 PM on August 9, 2017 [16 favorites]
FYI, Canada generally doesn't honour pre-nups unless the marriage is of very short duration and already follows the guidelines set out. So, feel free to talk to a lawyer but realistically, you will be following whatever the law and guidelines say at the time of seperation.
posted by saucysault at 3:03 PM on August 9, 2017 [4 favorites]
posted by saucysault at 3:03 PM on August 9, 2017 [4 favorites]
Everyone pays their own pre-marriage personal debt. She gets her 160K (plus an interest rate equivalent to money market account) back out of the house if they should split up. The rest of the house debt and or profit is split evenly between the two.
As for who pays what into the mortgage, I don't think that should be in a pre-nup and it can be figured out based on decisions about how to split costs given unequal incomes and also decisions made about who does childcare of staying at home, etc. This will vary greatly depending on how everyone's career goes and also what decisions are made about childcare and domestic labor. I also think that the woman's possible 100K windfall should go into her retirement savings and not into the house.
posted by quince at 3:18 PM on August 9, 2017
As for who pays what into the mortgage, I don't think that should be in a pre-nup and it can be figured out based on decisions about how to split costs given unequal incomes and also decisions made about who does childcare of staying at home, etc. This will vary greatly depending on how everyone's career goes and also what decisions are made about childcare and domestic labor. I also think that the woman's possible 100K windfall should go into her retirement savings and not into the house.
posted by quince at 3:18 PM on August 9, 2017
Pretty sure a home you buy as a common law couple needs to be split 50/50 in Canada, regardless of who paid what. Source: when my partner and I bought in BC we were told to get separate council, who basically both told us this.
posted by Valancy Rachel at 4:20 PM on August 9, 2017
posted by Valancy Rachel at 4:20 PM on August 9, 2017
I believe saucysault is right that any prenup you write may not end up getting honored in the way you predict now anyway, so it is probably best to chat with a lawyer and get a realistic sense of what things you are even legally able to include or not include (and what is likely to ever end up getting enforced). Also keep in mind that if you do have kids, hopefully your goal will be doing what's best for the kids, rather than what's most "fair" for each spouse personally.
Also, and this is just my opinion, but I think if you go into a partnership -- and especially a partnership that is going to involve co-parenting -- fully and joyfully, it's best to start thinking about yourselves as one unit where both people are giving toward that partnership happily rather than trying to make a profit or get what's "fair" out of the situation. If you really think your partner is trying to cheat you or will someday try to cheat your child out of things, probably this is not a relationship that ought to end up in marriage?
Just thinking about my own marriage, there was an earlier time when I made much less money than my husband, and now I make a fair amount more than my husband. But the thing is, we both work equally hard at our jobs! Just because the market said I was worth less before and that I'm worth more now didn't actually make my contribution of working hard any less valuable -- I mean, why the heck would we think the market is a fair arbiter of who's worth more, anyway?! I'm currently pregnant, and my job offers paid leave while my husband's job only offers unpaid leave under FMLA. When he takes some unpaid time off to help care for our baby, is he really contributing less to our family than than the time I'll take off during which I am paid? Or how do you quantify housework? I used to do about 90% of the cooking, but since I became pregnant, my husband has started doing most of that out of necessity (thank you first trimester nausea and fatigue!). Is he contributing more to our relationship now than he used to? How does the "labor" of being pregnant and carrying a baby "count" in terms of fairness, because however many meals he cooks, honestly it is never going to be "fair" that I am the only person in our relationship who gets both the joys and serious struggles of being pregnant. I just feel like you can never equal these things out in a balance sheet, and trying to do so sort of kills joy and a sense of actually being in it together, as one team and one family trying to make it in the world. The true answer is, no relationship is 100% fair, but if you are focused on that over all other things, perhaps you should be reexamining the relationship rather than writing a prenup.
posted by rainbowbrite at 4:26 PM on August 9, 2017 [6 favorites]
Also, and this is just my opinion, but I think if you go into a partnership -- and especially a partnership that is going to involve co-parenting -- fully and joyfully, it's best to start thinking about yourselves as one unit where both people are giving toward that partnership happily rather than trying to make a profit or get what's "fair" out of the situation. If you really think your partner is trying to cheat you or will someday try to cheat your child out of things, probably this is not a relationship that ought to end up in marriage?
Just thinking about my own marriage, there was an earlier time when I made much less money than my husband, and now I make a fair amount more than my husband. But the thing is, we both work equally hard at our jobs! Just because the market said I was worth less before and that I'm worth more now didn't actually make my contribution of working hard any less valuable -- I mean, why the heck would we think the market is a fair arbiter of who's worth more, anyway?! I'm currently pregnant, and my job offers paid leave while my husband's job only offers unpaid leave under FMLA. When he takes some unpaid time off to help care for our baby, is he really contributing less to our family than than the time I'll take off during which I am paid? Or how do you quantify housework? I used to do about 90% of the cooking, but since I became pregnant, my husband has started doing most of that out of necessity (thank you first trimester nausea and fatigue!). Is he contributing more to our relationship now than he used to? How does the "labor" of being pregnant and carrying a baby "count" in terms of fairness, because however many meals he cooks, honestly it is never going to be "fair" that I am the only person in our relationship who gets both the joys and serious struggles of being pregnant. I just feel like you can never equal these things out in a balance sheet, and trying to do so sort of kills joy and a sense of actually being in it together, as one team and one family trying to make it in the world. The true answer is, no relationship is 100% fair, but if you are focused on that over all other things, perhaps you should be reexamining the relationship rather than writing a prenup.
posted by rainbowbrite at 4:26 PM on August 9, 2017 [6 favorites]
So the US is not Canada, but we got tremendous value out of the Nolo Press book on prenups, especially on the 3 different ways that marriage is perceived legally in the US and how we felt about each of those takes on the various different issues raised. This'll probably help immensely with the "Other important situations we're not thinking of" part of the question.
posted by straw at 4:40 PM on August 9, 2017
posted by straw at 4:40 PM on August 9, 2017
Ontario based Certified Financial Planner here. It's worth consulting a lawyer here. The advice from Americans re: prenup isn't very useful to you. Alimony and child support are set by law and judges are reluctant to modify what the law sets out without a good reason. "I came into the marriage with more assets" is not such a reason.
As soon as you put money into the matrimonial house, it becomes family property. You lose half of it if you split. You can't really get him to sign away his part of it in a prenup.
The good news is that the assets you come into the marriage with aren't part of net family property that gets split.
I can see your intuition is to treat the financial arrangements of your relationship like equity and debt in a business. This may start to seem unfair after a time. It might create awkward situations when it comes to things like vacations and spending money. I very rarely meet couples who arrange things this way. It's doable if you come up with an informal agreement and are handy with excel. But if you don't have an amicable split, such arrangements may not mean a whole lot.
I don't agree with the above poster who suggests that going into this partnership means thinking of yourselves at "one unit" financially. This strategy essentially involves you writing a big check to your partner on the day your house closes. Long enough down the road, combining finances totally is common and useful. But early on, you are coming into things with different assets. Understand your rights and that relationships can fail.
Keep your lump sum job payment separate. Your lawyer will be able to tell you if it can be kept separate from a marriage breakdown. If it arrives after you get married, i doubt it.
It may no longer be an appreciating housing market. Be prepared to stay put for a while.
If he gets a pension from work, part of that is yours if you split up
The general principal of division of assets in marriage breakdown is that the increase in your net worth is what is split.
A rental property is a part time job. Take both capital and Labour into account when you draw up your arrangement.
posted by thenormshow at 6:21 PM on August 9, 2017 [3 favorites]
As soon as you put money into the matrimonial house, it becomes family property. You lose half of it if you split. You can't really get him to sign away his part of it in a prenup.
The good news is that the assets you come into the marriage with aren't part of net family property that gets split.
I can see your intuition is to treat the financial arrangements of your relationship like equity and debt in a business. This may start to seem unfair after a time. It might create awkward situations when it comes to things like vacations and spending money. I very rarely meet couples who arrange things this way. It's doable if you come up with an informal agreement and are handy with excel. But if you don't have an amicable split, such arrangements may not mean a whole lot.
I don't agree with the above poster who suggests that going into this partnership means thinking of yourselves at "one unit" financially. This strategy essentially involves you writing a big check to your partner on the day your house closes. Long enough down the road, combining finances totally is common and useful. But early on, you are coming into things with different assets. Understand your rights and that relationships can fail.
Keep your lump sum job payment separate. Your lawyer will be able to tell you if it can be kept separate from a marriage breakdown. If it arrives after you get married, i doubt it.
It may no longer be an appreciating housing market. Be prepared to stay put for a while.
If he gets a pension from work, part of that is yours if you split up
The general principal of division of assets in marriage breakdown is that the increase in your net worth is what is split.
A rental property is a part time job. Take both capital and Labour into account when you draw up your arrangement.
posted by thenormshow at 6:21 PM on August 9, 2017 [3 favorites]
I am a divorced father. "Fair" is an interesting term. cribcage, a member who advises in divorces makes a great point about what may seem fair today and what happens during an actual divorce. You seem to be equating fairness with money. I think you should consider other things, especially emotional ones and ones that may involve future children. When I divorced, both of us were thinking along fairness and respect to each other lines. First, we tried mediation. Second, we tried what is called in NY, collaborative divorce. Third and final was each of us with new attorney fighting. For some, fair morphs into some concept along the lines of "winning". I am quite sure you can come up with various decisions about the financial aspect of what each brought to the marriage, what each other's contribution was in cash and in kind, etc. What happens a year from now when you buy a new car? Who pays and who gets it in a divorce?
I don't know the laws in Canada, but if what folks are saying up thread is true about a pre-nup only lasting in its initial form for a short period, I would write one that addresses what happens if you divorce in say the next 3-5 years and write up a separate paper that addresses more of the concepts you both pledge to adhere to in the event there is a divorce. Something along the lines of mutual respect, collaborative analysis and decision making, agreeing to never bring the kids into it, recognizes that contributions to the marriage can be both financial and in kind and/or emotional. I think agreeing beforehand to act in a timely manner is critical too. If you really do decide to divorce, do it so that it is not dragged out. cribcage is right about that. I think the law will address what it deems fair and appropriate. You two need to address being fair to each other under some trying circumstances.
posted by AugustWest at 6:46 PM on August 9, 2017 [1 favorite]
I don't know the laws in Canada, but if what folks are saying up thread is true about a pre-nup only lasting in its initial form for a short period, I would write one that addresses what happens if you divorce in say the next 3-5 years and write up a separate paper that addresses more of the concepts you both pledge to adhere to in the event there is a divorce. Something along the lines of mutual respect, collaborative analysis and decision making, agreeing to never bring the kids into it, recognizes that contributions to the marriage can be both financial and in kind and/or emotional. I think agreeing beforehand to act in a timely manner is critical too. If you really do decide to divorce, do it so that it is not dragged out. cribcage is right about that. I think the law will address what it deems fair and appropriate. You two need to address being fair to each other under some trying circumstances.
posted by AugustWest at 6:46 PM on August 9, 2017 [1 favorite]
If we have kids & split up, it's likely that Woman would do 75% of the childcare
This is written with such careful neutrality that I'm not sure how literal you're being here. but do not arrange your future child-rearing based on what is statistically likely for men and women in your position, and do not assign primary custody and all its attendant labor based on who has the bigger house or owns a house at all.
I mean it's possible you mean this in a highly individual and well thought-out way, like "likely" means you expect Woman to have a home office and be physically and practically able to look after Couple's joint children while working in a way that Man will not be able or willing to arrange, especially if it means his income would fall to the level of hers. but do not let likelihood determine this; make a plan based on what you both want, especially Woman, not on what will fall on her if nobody stops it.
same goes if you stay married forever.
posted by queenofbithynia at 6:58 PM on August 9, 2017 [1 favorite]
This is written with such careful neutrality that I'm not sure how literal you're being here. but do not arrange your future child-rearing based on what is statistically likely for men and women in your position, and do not assign primary custody and all its attendant labor based on who has the bigger house or owns a house at all.
I mean it's possible you mean this in a highly individual and well thought-out way, like "likely" means you expect Woman to have a home office and be physically and practically able to look after Couple's joint children while working in a way that Man will not be able or willing to arrange, especially if it means his income would fall to the level of hers. but do not let likelihood determine this; make a plan based on what you both want, especially Woman, not on what will fall on her if nobody stops it.
same goes if you stay married forever.
posted by queenofbithynia at 6:58 PM on August 9, 2017 [1 favorite]
This thread is closed to new comments.
Do not forget to value the labor that Woman will be doing if she plans to do 75% of the child care (and possibly more than her share of other unpaid work) during the marriage. Being strict about protecting each party's financial contribution- including future income- might not be truly fair if one party is going to be doing a bunch of unpaid work that isn't showing up on the balance sheet and accruing interest over the years.
posted by redorangeyellow at 2:37 PM on August 9, 2017 [3 favorites]