In rocky marriage, a ‘no-divorce divorce’ could be the best way

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While there have been some notable high-net-worth divorces over the years, many wealthy couples feel pressured to stay together long after the marriage is over. Divorce can open a family’s private business to public scrutiny if they end up in family court, and tabloids love nothing more than to splash details of impropriety and settlement amounts across their headlines.

Add to this the complexity of determining and splitting marital assets when there are inheritances, trusts, intellectual property, family businesses and family offices involved.

Plus, couples can face pressure from their families not to divorce due to religious reasons or optics, making staying legally married (on paper) the more attractive choice. For such couples, an alternative to formal divorce is the no-divorce divorce, or a renegotiation of the marriage contract to reflect the changed relationship.

While couples can informally renegotiate the terms of their marriage whenever they want, many high-net-worth couples formalize the process using a postnuptial agreement, a type of marital contract. Like a prenuptial agreement, a postnuptial agreement, or “postnup,” outlines how assets would be distributed upon divorce or death and tends to hold up in court.

Many high-net-worth couples have postnuptial agreements in place, allowing them to live independent lives while enjoying the fruits of their collective labours.

Couples consider postnuptial agreements as an alternative to divorce for many reasons. Here are some of the key advantages:

1. Privacy. A major benefit of a postnup is privacy. The parties can work with their lawyers, mediators and arbitrators to negotiate whatever terms work for them. The only time the agreement will become public is if they end up litigating their divorce in court down their road or file the agreement with the courts to enforce the contents.
2. Calmer mindset. A major benefit of negotiating a document in advance of a divorce is that emotions are likely less heated. Participants are less likely to take a scorched-earth approach in an ongoing marriage than they are in a divorce. Marriage counsellors and mediators can also be engaged during the process to help the parties work through their issues.
3. Financial clarity. A postnup can clarify an asset split in cases where the lines between marital and separate property are less clear, as in the case of an inherited family business that expanded over the course of the marriage, or an inheritance or trust that provides most of a family’s income. A postnup can also serve as a guideline for family office professionals so they can manage the assets in anticipation of a future division.
4. Defined exit. Postnuptial agreements are written with an exit in mind, which can relieve a lot of pressure in the marriage. With the details of a divorce crystallized, the parties can get on with their busy lives.
5. Reduced conflict. Marital conflict arises from the constant renegotiation of expectations and boundaries. A postnup clarifies these matters, which can take stress out of the marriage. Some couples find their marriage improves as part of the post-nuptial process as they discover that their partner is more generous or supportive than they had feared.
6. Real property preservation. A major stressor in divorce is deciding what happens to real property, particularly if some of the homes have been in the family for generations or have sentimental value. With high-net-worth families it can be hard to determine which properties constitute the “matrimonial home,” the treatment of which is dictated by family law. A postnuptial agreement can allow a couple to retain access to all of their properties with clear rules and guidelines in place. The parties also don’t have to worry about having liquidity to buy each other out until they formally divorce.
7. Better co-parenting. While postnuptial agreements cannot restrict parenting time or access to children (courts set aside such attempts) they can help the couple set parenting intentions such as how to handle the transfer of assets to their children or divide holidays. This can reduce conflict and stress down the road.
8. Philanthropic clarity. If the parties have a foundation, a postnuptial agreement can define roles and gifting plans moving forward.

In Canada, postnuptial agreements can be set aside for a variety of reasons. They can also become public if one party decides to litigate the divorce in court.

To maximize the benefits of the no-divorce divorce, here are a few key tips:

• Independent legal advice is critical. If it appears that one party was coerced into signing, did not fully understand the agreement, or financials were not disclosed, the agreement can be set aside by the courts. The contract must not be seen as an attempt to circumvent the federal Divorce Act or a province’s family law act. If one party feels bullied, they are more likely to contest the divorce and the terms of the agreement. It’s key that both parties receive comparable independent legal advice and believe the agreement is fair.
• The document should not police behavior. Either party can unilaterally file for divorce at any time, so there is no need to include divorce triggers such as infidelity in the document. Any efforts to attach financial penalties to control a spouse’s behaviour can be seen as coercive control. It’s important to keep in mind that this document can become public if the parties end up in family court.
• Timing is key. It’s important to have the postnuptial conversation at a time when there is not a lot of drama in the marriage. The idea timing is tied to a financial event, like receiving an inheritance or changing the ownership structure of a family business, rather than an emotional one like during or after an affair.

A postnuptial agreement can delay the divorce process, reduce stress in the marriage and make the divorce process itself simple and discreet. Many high-net-worth couples have postnuptial agreements in place, allowing them to live independent lives while enjoying the fruits of their collective labours.

The no-divorce divorce is a well-kept secret, which is further proof of its value.

The author is not a lawyer and the information in this article is not a substitute for legal or financial advice. Please consult with a family lawyer with expertise in high-net-worth postnuptial agreements if you are contemplating such an arrangement.

Jen Lawrence, MBA, is a CDC Certified Divorce Coach®, CDC Divorce Transition and Recovery Coach™, Certified Divorce Specialist, and a Certified Divorce Financial Analyst® professional. She draws on 30 years of experience in corporate training, investment banking and management consulting. She’s the author of The Designed Divorce: How to Preserve Your Wealth and Peace of Mind in Divorce and Engage the Fox: A Business Fable About Thinking Critically and Motivating Your Team. In her private divorce coaching practice, she helps women facing high-net-worth divorce handle the process with elegance and ease. Based in Oakville, Ont., she works with clients across Canada and the U.S.

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