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You don't buy car insurance because you plan to have a wreck. Nor do you buy health insurance because you are planning to get sick. Rather, they are plans for the "what if" scenario. It is the same with a Prenuptial Agreement. Preparing a Prenup, as they are called, doesn't mean you are planning to get divorced. It is, instead, a tool to identify what belongs to whom if the worst case scenario comes to bear: divorce.
What is a Prenuptial Agreement?
Prenuptial Agreements are contracts between two people planning to be married that map out how property, finances, and spousal support should be distributed if the couple divorces. Also called Premarital Agreements or "Antenuptial Agreements," meaning before nuptials, Prenups may reduce some of the financial and emotional turmoil associated with divorce by addressing some of the most difficult decisions in advance. More common among couples in which one partner has a great deal of assets or those who are facing their second or third marriages, prenups can clarify murky financial areas.
What it can do
Prenups can:
Protect your separate assets
Reinforce your estate plan
Define community and marital property
Reduce conflict and save money if you should divorce
Legitimize special agreements into which you and your spouse have entered
Set guidelines for future arrangements
Many states operate under the rule that every asset you acquire, every dollar you earn and every debt you amass during marriage is considered community property - that is, it belongs equally to both of you. However, if you want to change the rules for something specific, a Prenup can accomplish the task.
In California, Prenups carry a great deal of weight. In that state, couples can waive their rights to community property in the prenup and limit spousal support, among other things. California's registered domestic partners - or same-sex partners - also use prenups to keep their finances separate.
Sheltering one partner from the other's debt is another goal of a prenup. For example, a woman entering a marriage with considerable business debt may suggest a Prenup in order to protect her spouse from that liability.
What it cannot do
With all of its capabilities, Prenups cannot dictate custody in the case of a break-up. Specific issues affecting the welfare of children are left up to the courts.
Criteria for a Valid Prenup
In order for a U.S. Prenup to be valid, it must be:
In writing
Executed voluntarily
Involve full and fair disclosure at the time of execution
A prenuptial agreement is a document signed by two people prior to their wedding. The document outlines an agreement between the spouses dictating what will happen with property once the couple is married, in the event of a divorce, and/or in the event of a death of one of the spouses.
The most common reasons people seek out prenuptial agreements include scenarios where one person enters the marriage with significantly more assets than the other, one spouse wants to ensure that his or her children from a prior relationship get their fair share of assets, or one spouse enters the relationship with significantly more debt than the other. Having a prenuptial agreement can help with any of these scenarios.
Although prenuptial agreements are a relatively new invention in the legal world, most courts have begun upholding their validity if properly done. There are, however, certain scenarios in which prenuptial agreements have not been upheld. Namely, if the court feels that the agreement is completely unfair to one of the parties, if the court feels that one of the parties was coerced into signing it, or if the court feels that the agreement will increase the likelihood that the parties will get a divorce.
Generally speaking, prenuptial agreements address only issues related to money or property. They do not usually address chores that a spouse must carry out. So for example, a prenuptial agreement stating that the family car remains the property of only one of the spouses, would very likely be enforceable. A clause requiring that one of the spouses do laundry every week for the duration of the marriage would not.
One of the key components of prenuptial agreements is that they be made “in contemplation of marriage”. This means that each of the spouses needs to have signed the agreement when they knew the marriage was going to occur. Thus if a cohabitation agreement was signed without any reference to marriage, the terms of the agreement would very likely not be enforceable.
In order to be upheld as valid, a prenuptial agreement must have been signed without any coercion by the other spouse. Imagine that the chapel has been lined up and paid for, you've gone to the wedding rehearsal, your family has all flown into town for the occasion, and suddenly your spouse comes to you and says, “Sign this, or it's off!” Most courts have upheld that such a scenario is coercion. One spouse has been essentially forced into signing because they don't feel that they can cancel the wedding at such a late date. In other words, the longer the agreement is signed prior to the marriage, the better. In California you must sign a prenuptial agreement at least 7 days before the wedding.
Generally speaking, yes, although these documents are referred to as “post nuptial agreements” instead of prenuptial agreements. Obviously, both spouses would need to sign the document.
Generally speaking no. However, there are certain states in which you have to jump through a few extra hoops in order to make a prenuptial agreement valid if you have not spoken with an attorney. For example, in California the law requires that you speak with an attorney or sign a waiver, separate from the prenuptial agreement, that specifically waives your right to an attorney.
Planning a wedding is a joyful undertaking. While most couples focus on the ceremony itself, many are busy creating prenuptial agreements, also known as “prenups.” An offensive move? Maybe, but prenups are increasingly common among couples in which one person has a large estate or where one or both partners have been married previously.
Prenups or premarital agreements are entered into for a variety of reasons. They allow people to protect their assets prior to marriage by documenting property ownership, property division and alimony should they divorce. One of the often-overlooked facets of prenups is their ability not just to protect a person’s assets, but to limit a spouse’s exposure to the other’s liabilities.
Judges in the United States were not fond of prenuptial agreements when they were first introduced, because they saw them as interfering with what marriage stood for. But today they are recognized in all 50 states and the District of Columbia. States vary, however, in terms of how they carry out prenups. In California, for example, prenuptial agreements tend to carry a great deal of weight; couples can waive their rights to community property in the prenup and limit spousal support, among other things. California’s registered domestic partners – or same-sex partners – can also use prenups to keep their finances separate.
Elements of a Prenup
Prenups also determine whether assets and liabilities acquired during the marriage should be treated as separate property or as community property. Here are some property types to think about:
Personal earnings and money gained from property
Retirement plans and stock options gained during the marriage
Debt acquired by one spouse during the marriage
Timing is Everything
Prenuptial agreements or prenups must be created and executed in advance of a wedding, or else they may later be considered null and void. The concern is that once the agreement come into play, the judge may get the feeling that the decision to sign was coerced or entered into at the last minute.
“Generally, the earlier the prenup is executed, the better,” says Pollicino.
Couples who miss the boat on creating these agreements before they marry have another option: a postnuptial or post-marital agreement. It’s essentially the same type of legal document, just executed after marriage. Postnuptials are also used when one spouse’s financial picture changes significantly during the marriage, such as when one partner inherits a large estate. For those who want to accomplish the same thing but are unmarried, cohabitation agreements will do the trick.
For all the capabilities of prenuptial agreements, there are things that they cannot dictate. Custody rights and other decisions surrounding the treatment of children in the case of a divorce are left up to a judge’s discretion, as those decisions must be based on the child’s best interest.
Validity Test
When a couple divorces, they and their prenup go in front of a judge. If there is a question about the validity of the prenup, there are five elements that a judge will consider. The document must be:
In writing
Executed voluntarily
Created in an atmosphere of full and/or fair disclosure at the time of execution
Conscionable
Signed by both parties (not their attorneys) before a notary public
Prenups can be quite complicated, especially in situations in which both partners possess businesses, significant assets and/or liabilities. But they are helpful documents from the standpoint of creating other important legal documents. For example, a prenup can be used as guide to create a will, as it establishes boundaries for whose possessions are whose and one partner’s rights to the other’s property. And in the absence of a will, a prenuptial agreement can help guide the probate process.
The legal documents required for a prenup are easy enough to get. However, wading through the legalese is as confusing as navigating the Amazon without a map. Going through an online legal document preparation company offers customers a questionnaire that gathers the information needed. They offer support through FAQs, legal libraries and other prompts at times when questions typically arise.
Setup for a Let Down?
Some argue that prenuptial agreements are a setup for the worst-case scenario: divorce. But when and if divorce happens – and it happens all too often in our society – prenups can minimize the fighting and divisive splitting of property between two people. So, whether or not they’re harmful depends on your perspective.
On the other hand, when couples with considerable assets, property and/or liabilities divorce without a prenuptial agreement, their possessions, assets and liabilities are divided according to the whims of each state and the presiding judge. There are no guarantees which way things will go.
Prenups can also be structured to expire after a certain amount of time. Couples can build a “sunset clause” into the document, which makes the agreement void after the couple is married a certain number of years or after the birth of a child, for instance.
“It’s a way of testing the waters, if you will, before allowing one person’s assets to become community property,” says Pollicino finally.
When all is said and done, it makes sense for people with considerable assets and/or liabilities entering into a marriage to protect themselves from the unforeseeable with a prenuptial agreement. You never know what could happen in life – or in marriage. That’s why it’s imperative to prepare yourself with a prenup and prevent divorce court battles before they begin.
This article was contributed by Cecile Duhnke, marketing and communication manager with LegalACE, a Scottsdale, Ariz. legal document preparation firm. The information in this article should not be considered advice. For legal advice, please contact an attorney.
Postnuptial Agreements: Shoring Up Financial Boundaries After the Rice Has Been Thrown
Just like a prenuptial agreement, a postnup is a legal agreement between two married people that maps out who gets what should the union fall apart or a partner die. But unlike the prenup, the postnup is created after the wedding bells have rung.
enerally, postnups are designed to protect or shield one partner’s finances from the other, and to separate certain – if not all – assets and liabilities. They are especially common among couples in their second or third marriages, as family finances become increasingly complicated with time.
Objectives
Postnuptial agreements are generally designed to achieve these goals:
To identify property owned before marriage and to maintain its separate character during marriage;
To identify premarital debts and clarify the effect of payment with funds earned after marriage;
To minimize, establish or eliminate spousal maintenance upon divorce.
In the absence of a will, they can be used as guides for distributing property, assets and responsibility for liabilities.
“They are not always created as offensive measures,” says Adam Pollicino, chief executive officer of LegalACE, an online legal document preparation company. “They can also be used to protect a partner from debts and liabilities.”
In states with Community Property laws, each partner in a marriage owns 50 percent of all the property – as well as the debt – acquired during the marriage. That holds true even when one partner has nothing to do with accumulating it. Let’s say the wife is a surgeon and she gets sued for malpractice. Community property laws would make the husband’s assets vulnerable to seizure as a result of the lawsuit. Putting a postnup in place, however, can shield his assets from creditors by separating the couple’s assets, so that they would no longer be considered community property in a lawsuit.
In an era when most marriages still ends in divorce, postnupial agreements may serve as insurance policies against the nasty fights that result from the termination of a marriage. With a prenup, the couple has already agreed on who gets what when the marriage is over, so they have the potential to reduce bickering associated with dividing up possessions and money. Who the kids live with and custody arrangements, on the other hand, cannot be determined by postnups; only a judge can determine what is in the best interest of the children in a divorce situation.
“In a postnup, you can’t say that if you divorce, you’ll get the kids,” says Pollicino. “You may get them, but that decision has to be left to the judge.”
Considerations
Here are some of the things you and your spouse will have to discuss and collect in order to prepare a postnup:
Discuss all assets and debts of your relationships.
Discuss the current financial status of your relationship
Be open and honest about how your assumptions and expectations of how property would be handled in the case of death or divorce.
Review your postnup contract periodically
Postnups, like prenups, need to be amended from time to time. When one partner inherits money, a new child is born, or one partner’s new job significantly changes his or her financial profile: Couples with postnups should be prepared to update the document when any of these changes take place.
Legitimacy
Just as it has taken time for prenups to become familiar territory in the courts, so it is with postnups. Postnups are often viewed as extensions of prenups. As a result, many courts may view postnup agreements with a higher standard, scrutinizing them even more carefully than a prenup. One of the concerns with postnuptial agreements is that neither party has the same bargaining power as they had when they were each single. This can open the door to unethical behavior and pressuring can creep in. In order to be seen as legitimate, they must:
List all assets and liabilities
Be entered into voluntarily
Be entered into in a timely manner – not rushed
By the Book
Finances deemed separate in the details of a postnup should not be mixed in a joint account as time goes by. If they are, many judges would consider the postnup weak and possibly non-binding. If postnups are to remain strong and considered serious, they need to be followed to the letter by both partners in a marriage. Otherwise, why go through the process? Just get ready to say, “See you in court!”
Postnups go by a variety of names. Here are some of the other names that may be used:
Post marriage agreement
Marriage Agreement
Mid-Marriage Agreement
Postmarital Agreement
Post-Nuptial Agreement
Postnuptial Agreement
Postmarital Property Agreement
Marital Property Agreement
Cecile Duhnke is marketing communications manager with LegalACE.com, an online legal document preparation service based in Scottsdale, Ariz., which offers wills, corporation and LLC formation, trademarks and other legal documents. This article is meant for general information and should not be considered legal advice. If you need legal counsel, contact an attorney.
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