Good contracts make good unions

Is it a coincidence that marriage and money both begin with the letter M

I think not.

According to BMO Financial Group, 100,000 Canadians get divorced every year and 43% split before they get to their 50th anniversary. Apart from the emotional wreckage, the financial consequences are just as dire. Apart from legal bills, alimony or support payments, there are two households to maintain rather than one.

The divorce rate for second marriages is 70% and rises to 80% the third time round, says post-divorce coach Lee Block, author of .

BMO vice president Caroline Dabu said its research found “finances are definitely one of the leading causes of divorce.”

“Money is definitely an issue,” Mr. Block says. Divorce rates “went down when the economy crashed but as soon as it turned around, they went up.” The other two big contributors to marital splits are in-laws and children, she says. Even if money sparked the split, divorce leads to even more financial pressure: 70% of divorced women live below the poverty line.

BMO's research backs this up: in Canada, being divorced or widowed between ages 67 and 80 caused a decline in median income of up to 37%.

Seeing such scary statistics, young couples often choose a form of provisional marriage called living together or common-law. The marriage rate has fallen for 20 years nationally. In 2008, the last time Statistics Canada crunched the numbers, 147,788 couples tied the knot, down from 172,251 in 1991. Common-law is most popular in Quebec.

But just because a couple opts for the seemingly low-hassle alternative of living together, it doesn't mean the financial or legal consequences down the road will be less problematic than if they had married. That's why both partners should get legal advice about drawing up a cohabitation agreement.

This resembles a marriage contract or pre-nuptial agreement. Even if you get legally married, that in itself doesn't constitute a marriage contract. It's a separate legal document lawyers must draw up.

These spell out the rights and obligations arising out of a relationship and what happens if it doesn't work out or either party dies, says Kelly Rivard, vice-president and will and estates consultant for RBC Dominion Securities.

“The issue I see with couples living together is that because there is no big wedding day, they often do not fully consider the legal ramifications of their relationship,” Ms. Rivard says, “Sometimes they start out with the mindset that they are going to see how things go, then years later find themselves intertwined in a legal battle over their assets. The legal fees can be significant.”

In some provinces, the division of property after a break-up will be the same whether the couple is married or common-law. But that's not the case in every province, including Ontario. A cohabitation agreement can take a couple outside the default rules. A pre-nup [the term originated in the U.S. but has migrated here, BMO says] is especially advisable if one partner brings significant assets to the marriage, such as a house or ownership in a family business. The agreement may make it clear the poorer spouse is not entitled to anything, or what Ms. Rivard dubs “what's mine is mine and what's yours is yours.”

In Ontario, legally married spouses usually get credit for assets brought into the marriage, but there's a significant exception: if one spouse contributed cash to the marriage and the other a family home, if they're in the home when they separate, the one with the home loses credit for it.

Pre-nups or cohabitation agreements are more common in second marriages — the parties are older and more worldly wise than starry-eyed young first-timers who still believe love conquers all. Here, the 2003 romantic comedy Intolerable Cruelty comes to mind, where George Clooney plays a top divorce attorney who creates a bulletproof marriage contract called the Massey Pre-nup. (Well, perhaps not 100% foolproof, once he met his match in the character played by Catherine Zeta-Jones.)

Cohabitation agreements give common-law couples similar security as marriage contracts. Recent Supreme Court cases have awarded spouses settlement where a joint venture was found to exist. Rivard cites the example of one unmarried partner staying home to raise the kids while the other earns an income and builds wealth. In this case, under a break-up the courts may award a portion of that wealth to the stay-at-home partner.

Common-law couples also need to engage in estate planning and can make each other beneficiaries of wills, insurance policies and registered investments. Because as The Beatles once sang, albeit ungrammatically, “Your love gives me a thrill but your loving don't pay my bills.”