Can a Prenup Protect a Family Business or Inheritance in BC?

If you own a business, hold an interest in a family company, or expect an inheritance, it is natural to wonder what would happen to it if your relationship ended. Many people look to a prenup, hoping to keep that asset out of any division.

In British Columbia, the Family Law Act does allow spouses to make agreements about property and debt, but how well the agreement holds up depends on how it is made and what it says. This article explains the basics. It is general information, and anyone with significant assets should get legal advice before signing.

This article covers the law of British Columbia.

The starting point without an agreement

Under the Family Law Act, spouses are presumptively entitled to family property and responsible for family debt. On separation, each has a right to an undivided half interest in family property as a tenant in common. That rule is expressly subject to an agreement or order that provides otherwise.

Which of your assets count as family property in a particular case depends on the facts. That is exactly why people use agreements: to replace uncertainty with a clear plan that both of you have accepted.

What a property agreement can do

Section 92 lets spouses make agreements about the division of property and debt despite the property rules in Part 5, subject to the court's power to set them aside. Within that, the Act specifically contemplates several useful terms.

• Dividing family property or family debt equally or unequally.
• Excluding items that would otherwise be included, such as a business or a home.
• Including items that would not otherwise be included, such as an inheritance or a pre-marriage asset like a business interest.
• Valuing family property or family debt differently than the default valuation rules would.

Notice that an agreement can work in both directions. You might exclude a business from division, or you might agree that an inheritance will be shared. Both are choices the Act allows.

Making the agreement hold up

A written agreement is one in writing that is signed by all parties. The court's set-aside regime applies to a written agreement with the signature of each spouse witnessed by at least one other person, and the same person may witness both signatures. The Act does not require notarization, a commissioner or a lawyer's signature. An unwitnessed signed agreement is not automatically void, but it is not clearly within the protected regime.

A court may set aside or replace all or part of a witnessed agreement only if one of the listed circumstances existed when it was made. These are the areas where careful preparation helps most.

The Act also allows a challenge on other circumstances that would make a contract voidable under the common law. Legal advice is not a condition of validity under these sections, but the Province's guidance advises it.

Limits and special situations

Even if no listed circumstance existed, the Supreme Court may set aside or replace all or part of a property agreement that is significantly unfair. It looks at how long ago the agreement was made, whether the spouses intended certainty, and how much they relied on its terms. The court may also decline to act if it would not replace the agreement with an order substantially different from its terms.

Timing is flexible. Spouses who are already married may make a property agreement during the marriage, and it is subject to the same set-aside rules. For unmarried couples, the property rules apply only once they have lived in a marriage-like relationship for at least two years, and a written agreement can opt out of the default rules. Whether an agreement signed before you moved in together carries over after marriage depends on the facts and should be confirmed with a lawyer.

A prenup also cannot settle everything. Its parenting terms are not binding as such, and its child support terms are not binding as such either.

What to do next

• List the business interests, inheritances and pre-relationship assets you want to address.
• Gather financial records so full disclosure is possible on both sides.
• Decide whether each item should be excluded, included, shared or valued differently.
• Allow plenty of time before any wedding or move-in date.
• Have each signature witnessed and keep a copy each.
• Speak with a lawyer, ideally each of you separately, before signing.

Frequently asked questions