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What is a Premarital or Prenuptial Agreement?
A Premarital Agreement, also known as a Prenuptial or Ante-Nuptial
Agreement, is a contract that two people sign prior to getting married.
Its purpose is to define their rights and benefits and to settle questions
of property division, alimony, and/or inheritance if the marriage ends
because of death, separation, or divorce. It allows the signers to protect
assets that they had acquired prior to the marriage. Without such an
agreement, current state law requirements will determine these matters.
An agreement simply allows the couple to follow their own rules, in as
much detail as they wish.
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Who uses prenuptial agreements?
The prenuptial (premarital) agreement is used largely by individuals who
are marrying for the second time and have assets from a previous marriage
which they want to preserve for their children from that marriage.
The other large category, probably because many people are marrying
later for the first time, includes individuals marrying for the first
time who have been in the work force for a period of time and have built
up assets that they do not want to lose in the event of a divorce.
In addition, some individuals may want prenuptial (premarital)
agreements to limit not only the distribution of assets, but also the
amount and duration of support that one party can receive from the other.
- High net worth individuals –
Persons with considerable cash, stocks, bonds, mutual funds certificates
of deposit or other investments.
- Property or business owners -
Persons with significant real property such as rental income property,
or persons who own sole proprietorships, partnerships, small businesses,
corporations or professional associations.
- Professionals - Persons with
professional degrees or licenses, because these are considered assets
that produce income.
- Investors - Persons with sizeable
savings in 401(k) plans, defined benefit retirement plans and
profit-sharing plans, or who want to safeguard inheritances and gifts.
- Persons with children of a former
marriage - Persons marrying for the second or third time may want to
guarantee that most of their assets are passed on to their children of a
former marriage in case of divorce or death.
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What can be agreed to in a Prenuptial
(premarital) Agreement?
Prenuptial agreements deal with property. Under a prenuptial
agreement, the engaged couple decides their individual
ownership rights to certain property and the distribution of that property
during their marriage and upon their separation, divorce or death. Parties
to a prenuptial agreement may contract with respect to:
- The rights and obligations of each
of the parties in any of the property of either or both of them whenever
and wherever acquired or located;
- Day-to-day practical matters like whether an automobile is jointly owned or establishment of a joint account for living expenses;
- The right to buy, sell, use, transfer, exchange, abandon, lease, consume, expend, assign, create a security interest in, mortgage, encumber, dispose of, or otherwise manage and control property;
- The disposition of property upon separation, marital dissolution, death, or the occurrence or nonoccurrence of any other event;
- The modification or elimination of spousal support;
- The making of a will, trust, or other arrangement to carry out the provisions of the agreement;
- The ownership rights and disposition of the death benefit from a life insurance policy;
- The choice of law governing the construction of the agreement; and
- Any other matter, including their personal rights and obligations, not in violation of public polity or a statute imposing a criminal penalty.
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Can I protect my children,
or my future children, in a prenuptial agreement?
You cannot waive rights to child support payments. Children, or future
children, cannot have their rights protected by a prenuptial agreement.
The Court will always make a decision concerning support, custody, and
visitation, depending on the best interests of the child at the time of
the divorce. Their parents, therefore, do not have the right to change that
by a contract such as a prenuptial agreement. There are other ways to
protect the rights of children, or of future children, such as through
inter vivos trusts, but these are not prenuptial agreements and are not
addressed here.
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Why is a prenuptial agreement a
good idea?
One in three of all first marriages end in divorce, as well as 50 percent
of second or third ones. A prenup is smart financial planning, since
marriage is not just an emotional and physical union - it's also a
financial union. A prenup and the discussions that go with it can help
ensure the financial well-being of the marriage. It is like an insurance
policy – you hope you won’t need it, but in a divorce it may help eliminate
some of the emotion that's naturally involved.
A fairly negotiated prenuptial agreement can provide some reassurance to
the wealthier spouse as to the extent of the financial impact of a divorce;
at the same time it gives the less wealthy spouse some guarantee of his
or her entitlement to a property distribution and/or maintenance upon a
divorce.
Couples without a prenuptial agreement will have their assets distributed
for them by the state if the marriage ends and they disagree about who
should get what. Without a prenup, assets could end up in the hands of
your spouse's children from a previous marriage instead of your own kids,
or they could go to a lazy mate who did nothing while you worked hard at a
business or profession that eventually became a big success.
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Is prenuptial agreement
under state’s divorce law?
Yes. When you sign a prenuptial agreement, you are giving
up rights you would normally have under your state’s divorce law.
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How much does a lawyer-prepared
prenuptial agreement cost?
Depending on your locale, you may expect to pay $700-800 for an
attorney-prepared prenuptial agreement. The cost of a prenuptial
(premarital) agreement is also based upon the complexity of the couples'
finances and the amount of negotiation necessary to reach an agreement.
There may be additional costs if it is necessary to hire an appraiser to
value a business, collectible property (such as art), or real estate
property.
If there is a time pressure to complete and sign the prenuptial
(premarital) agreement (such as a wedding date) your lawyer may charge a
higher hourly rate because more of the day-to-day resources of the law firm
will be devoted to your prenuptial (premarital) agreement. Attorneys who
draft and/or evaluate prenuptial (premarital) agreements typically request
an initial retainer and charge an hourly rate for their services.
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Who pays for the prenuptial agreement?
It is common for the wealthier person to pay the legal fees of both
parties. Even if your lawyer is paid for by your partner, your lawyer is
legally and ethically obligated to represent your interests. And the
wealthier person, who wants the prenuptial (premarital) agreement to be
enforceable in the future, will want you to be represented by your own
counsel.
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How long does it take
to draft and sign a prenuptial agreement?
The time needed to draft and sign a prenuptial (premarital) agreement
depends on the complexity of the couples' finances and the amount of
negotiation necessary for agreement.
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When is a prenuptial (premarital)
agreement enforceable?
The validity and enforceability of Premarital Agreements will be governed by state law,
and thus will vary from state to state.
A premarital agreement will generally be considered enforceable if:
- The rights and obligations of each
of the parties in any of the property of either or both of them whenever
and wherever acquired or located;
- it is in writing and signed by both parties before marriage;
- it is voluntary and not unconscionable (generally defined as one that is so one-sided and oppressive that no person in his or her right mind would sign it without duress, coercion, or fraud;
- there was an adequate disclosure of each person's financial information, or that disclosure was waived;
- the enforcement of the agreement would not essentially eliminate all of one party's marital rights;
- to avoid the appearance of coercion, the agreement was signed as early before the wedding as possible (a month or two);
- the agreement is "fair" and does not leave one of the parties destitute.
Avoid making demands that might seem frivolous, like requiring that your
spouse keep their hair cut a certain length dress a certain way. Frivolous
demands can lead to revocation of the entire agreement. Furthermore, a few
states such as California do not allow premarital agreements to modify or
eliminate the right of a spouse to receive court-ordered alimony at divorce.
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How does a judge decide whether to uphold the
prenuptial agreement?
A judge may conduct a trial on the issue, or may read sworn statements
concerning the agreement. Decisions are based on which side the judge
believes, as well as a consideration of the law.
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Does my prenuptial agreement
need to address "commingling" of separate and joint property?
Yes. In most marriages commingling of assets occurs, muddying the
water between his, hers and theirs. For example, if a person sells some of
his/her assets and uses the proceeds to help purchase community property
such as a home, dissecting ownership can be difficult and should be
addressed in the prenuptial (premarital) agreement.
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Does my prenup need to address
liability for debts incurred in connection with the ownership of separate
property before or after the marriage?
Yes.
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How common is divorce?
Divorce is common in the United States. In 1997, one out of every two
married couples got divorced. Divorce affects more than 3 million husbands,
wives and children every year. That’s nearly the same number of people that
are born annually. One in three of all first marriages end in divorce
along with 50 percent of second or third marriages.
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What is a good way to approach the subject of the
Prenuptial Agreement?
First, do it as early as possible. The mention of a prenup shouldn't come
as a surprise if you and your sweetheart have been open with each other as
the relationship became serious. Let your intended know you believe these
agreements are important and that you'd like to go over the topic."
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Could a prenuptial agreement
mean the parties don't trust each other?
Maybe, but a prenuptial (premarital) agreement usually is grounded in
realism rather than a lack of trust. For older couples who are marrying a
second time, the parties simply want to protect their children. Younger
couples may simply feel that a prenuptial (premarital) will save expense
later if the marriage does not work out.
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What is considered “separate”
assets vs. “marital” assets?
When a couple divorces in some states, each party keeps his or her separate
property (so long as it was maintained separately during the marriage and
not commingled with marital funds). If the parties have not reached an
agreement, the court divides the marital property in the proportion that
it deems "just" after considering all relevant factors.
If you entered the marriage with a house or investment portfolio or an
inheritance, and kept title to those assets separate during the marriage,
these assets will be considered your separate assets and not subject
to division. HOWEVER, the increase in value in those assets during the
marriage, as well as any assets purchased with income from your original
assets, will be considered marital property and subject to division upon
divorce.
Keep in mind as well, that income contributed during the marriage
to a retirement plan (such as a 401(k)) would be considered marital
property. Further, the increase in value of your retirement account
during the marriage is marital property. Consequently, upon divorce,
the court could grant your spouse certain rights to your retirement plan
account.
A prenuptial (premarital) agreement allows the engaged couple to alter
the definitions of “separate” and “marital” assets in order to protect
their assets and control distribution of assets upon death or divorce.
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