What is a prenuptial agreement?
When you think about getting married you may be swept away with the excitement of choosing the dream dress, picking beautiful bouquets, or finding the most sumptuous setting. But it is also important to take some time to think clearly and rationally about the intricacies of your future and how to safeguard your property and finances in the long term.
A prenuptial agreement is a contract drawn up between two people who are about to embark on marriage. The main purpose of the agreement is to outline guidelines, establish rules and determine parameters for separating any assets being brought into the legal union should the marriage end in divorce.
A prenuptial agreement is also referred to as a ‘prenup,’ ‘premarital agreement,’ or ‘antenuptial agreement’.
There is no denying that prenuptial agreements still have a stigma attached to them, but the truth is opting for a prenup doesn’t automatically set you on the road to marital malaise or divorce. In fact, prenuptial contracts date back over 2,000 years, with the first known versions being composed by the Ancient Egyptians on papyrus scrolls. Despite being around for over two millennia, prenups continue to have a bad rap with their overriding tones implying a lack of commitment or trust, the implication that you may think less of your spouse or have a lack of faith in the union. And whilst some still argue that they are unromantic, many experts assert that prenuptial agreements demonstrate shrewd financial foresight and faith in your own judgment.
Who should get a prenuptial agreement?
It is a common misconception that prenups are only for the hyper-wealthy and that such agreements only benefit the rich. Of course, they are not a prerequisite to all unions, but they can be worthwhile in a variety of circumstances.
Needless to say, only you and your future spouse can decide if a prenup would benefit your personal situation, but you may want to consider drafting one in any of the following instances:
- You are anticipating a large increase in salary, income, or inheritance.
- You have dependents, loved ones, or parents who require enhanced financial security.
- You have significant or valuable property, stocks or shares, savings, or real estate.
- You own or part-own a business or organization.
- You are significantly more affluent than your partner
Other reasons that you should consider a prenuptial agreement can include:
- Your desire to clarify financial entitlements and property distribution. Not doing so can result in unnecessary, expensive, and protracted disputes during the divorce process.
- Prenuptial contracts can be used as a form of protection from each other’s debts.
- A couple entering into marriage with children from earlier relationships can use a prenup to clarify what will happen to their property when they die. Without a premarital agreement, the surviving spouse might still have a claim to a large portion of their spouse’s property, which can result in a probate dispute.
What can be included in a prenuptial agreement?
With a third of marriages ending in divorce, an increasing number of couples are opting to sign prenuptial agreements. It is no great secret that the termination of any marriage can be tumultuous, costly, and emotionally draining and this is why an increasing number of couples are embarking on the prenup route. Doing so can help to expedite the dissolution process should the union end in divorce.
It is worth noting that there is no standardized or one-size-fits-all prenuptial contract. The agreement needs to be bespoke and tailored to suit the circumstances and specific needs of the couple involved. Moreover, because of the evolving nature of most relationships, it is important to consider future prospects such as investments, asset purchases, real estate, and pension entitlements; therefore, it is always worthwhile seeking expert advice where possible.
In addition, every state has its own laws on what can and cannot be included within the agreement. Therefore, it is essential that you check with an experienced professional to ensure your prenup is valid.
The 5 key provisions generally included within a prenuptial agreement include:
- To identify, divide, separate, or determine ownership of property
One of the main requirements following a divorce is for the couple to pinpoint and allocate property and belongings. With the use of a premarital agreement and following a martial union, property can be split into two groups: separate property and marital property.
Separate property refers to any assets a spouse owned before the marriage, or those which were obtained via gift or inheritance. Conversely, marital property references assets both spouses attained during the marriage.
Generally, there are two manners in which a court will divide marital property.
In a community property state, the court will commonly divide marital assets on an equal 50/50 basis with respect to the assets that were acquired during the marriage. In an equitable distribution state, the assets are split in a way that the judge deems as fair, based on factors predetermined by the state. This doesn’t always give rise to a 50/50 split and the outcome will depend on the individual circumstances of each specific case.
Obtaining a prenuptial agreement is a great way to circumvent difficult, expensive, and lengthy disputes over property in the event of divorce. Many boomer parents are asking their millennial children to sign a prenup prior to marriage for just this reason. The agreement can identify how a spouse’s separate property will be handled and include how you’ll divide any marital assets. If you wish to split marital property on a 50/50 basis, you can add this as a provision in your agreement instead of leaving it for a judge to decide during divorce proceedings.
- To identify, distribute and allocate ownership of marital debts
Within a prenuptial agreement, you can also specify how any outstanding debts will be handled in the event of divorce.
To do this, both parties are required to complete a full financial disclosure statement divulging all assets and debts before marriage. A copy of this disclosure should be included within the prenuptial agreement.
The agreement should then stipulate how separate and marital liabilities will be managed and how each debt will be dealt with.
This type of provision is integral if one party is entering the union with a significant amount of debt as it can safeguard their spouse from being accountable for these liabilities down the line. Please note that an agreement on any distribution of debt in a premarital agreement cannot protect you from creditors or bankruptcy proceedings.
- To determine spousal support in the event of marital dissolution or divorce
Spousal support, alimony, or maintenance refers to payments made by one spouse to another to equalize the financial resources of a divorcing couple.
It is not uncommon for one party to earn more than the other or for one spouse to stay home and raise children. Therefore, depending on the length of the marriage and the divorce laws of your particular state, one party may be entitled to a financial subsidy from the other.
In lieu of a prenuptial agreement a judge will make a ruling on spousal support. Alimony can either be short or long-term, and the amount paid will be at the judge’s discretion.
A prenuptial agreement that includes a spousal support provision is a major way to financially protect you in the event of a divorce. Should you earn more than your partner before the marriage, then you could add a clause to regulate spousal support payments.
However, it is important to keep in mind that all prenuptial conditions are still subject to a judge’s re-evaluation and could still be disregarded if deemed unfair or unreasonable.
- To set out special considerations for any children from a previous marriage or relationship
If either party is entering into a union with children from a previous marriage or relationship, then any prenuptial agreement should include specifications relating to property inheritance.
This means that the premarital agreement should detail how much of your estate your children can inherit in the event of your death. In a prenuptial contract, one or both parties can forego their right to claim a share of their spouse’s property at death, however, without detailing these provisions in the agreement it can lead to estate disputes, upset, and unnecessary added financial costs.
- To safeguard or guarantee that certain belongings remain in the family
If you have separate property, such as an heirloom or cherished item that you would like to remain within your direct family, then your spouse can agree that it will be the case following divorce. In addition, if you are yet to receive the inheritance or property and will do so at a later date then this provision can be included in the prenup explicitly cited under future gifts and inheritances.
What cannot be included within a prenuptial agreement?
Although prenuptial agreements can include provisions for property, debt allocation, alimony, and inheritance allowances, there are some critical legal issues that should not be referenced.
It is always best for families embarking on the divorce process to remain amicable and fair, especially when children are involved.
A prenuptial agreement cannot include any provisions pertaining to child custody, visitation rights, child support payments, or parenting time.
The parents are encouraged to work together and decide how best to manage these aspects, but a court will need to approve any decisions before they are put into effect.
The courts have final authority on how to allocate custody, support, and access and this will always be done based on the best interests of the child or children.
- Duties, tasks, and personal issues
When compiling a prenuptial agreement and allocating responsibilities and assets it may seem like a good time to establish duties, tasks, and roles within the pending marriage.
However, any clause relating to non-financial affairs is prohibited within a prenuptial agreement. This can include house tasks, whether a spouse can gain weight, who is responsible for washing the dishes, and more.
Incorporating these types of mandates within your prenuptial agreement is not legally binding and can, in some instances, invalidate your contract.
There is the possibility of drawing up a separate contract for personal issues alongside your prenuptial agreement, but you should be aware that the contents will not be legally enforceable, so if either party chooses to ignore these arrangements, then their spouse will not have any grounds for recourse.
When should both parties sign a prenuptial agreement?
The contract should be signed a minimum of 30 days before the wedding. Doing so ensures that the courts are less likely to question whether one of the parties was pressured or coerced into signing the agreement. Some states even have statutory requirements on the minimum length of time that should be left between the presentation and the signing of a prenuptial agreement.
The further in advance that both parties sign the document, the more evident that both have had sufficient time to consider and accept the contract.
Are there any requirements for making a prenuptial agreement valid and enforceable?
For a prenup to be binding and imposed by the courts, generally speaking, the following conditions must be met:
- The contract must be in writing, signed, and witnessed by a notary. Oral prenups are not accepted.
- Both parties must have disclosed all financial assets at the time the agreement was made, and in some states a waiver of this disclosure is permissible. But, this is a slippery slope. Evidence of hidden assets or liabilities can invalidate the contract.
- Each party must have had the opportunity to obtain independent legal advice.
- The agreement must not have been made under duress, pressure, or coercion.
- All provisions between the parties must be legally permissible.
- The prenup must be conscionable and fair. This definition can change dramatically depending on what state you are in.
What can invalidate a prenuptial agreement?
It is always important to seek independent legal advice and guidance before signing a prenuptial agreement if you are unsure of the terms you are agreeing to or rights you are signing away. Prenups are not always ironclad, and, on occasion, one party can have justifiable cause for the agreement being invalidated or annulled.
There are five main conditions that can lead to an agreement being revoked.
- The basics of the contract were not met
Often the enforceability of an agreement teeters on whether it was drafted, signed, and notarized. Omissions with respect to financial information, poor drafting, incorrect spelling can all result in the contract being invalidated.
- The parties did not have an opportunity to obtain independent legal representation
Most states merely require that the parties have the opportunity to obtain independent legal representation, but that parties may also decline such representation. Some states, like California for example, require that you obtain legal advice in order for certain provisions like a spousal support waiver to be valid.
- The prenup is fraudulent
For a prenuptial agreement to be valid in most states, both parties must fully disclose their assets prior to the contract being signed. Some states allow for a waiver of disclosure of assets, but even still, this is risky. If you can prove that your spouse was dishonest or did not fully disclose their assets, then there may be grounds for the contract to be annulled.
- There was a lack of mental capacity or evidence of coercion
Coercion and mental capacity can be very difficult to prove, and many states have varying interpretations of what it means to be pressured into an agreement. If you can demonstrate that you were unwell, had succumbed to the influence of drink or drugs, or lacked the mental capacity to understand the prenup when you signed it, then you could have grounds for the contract to be voided. Again, this is very difficult to do.
- The agreement is unconscionable
Preposterous or ludicrous demands and provisions held within the prenup can lead to the contract being deemed null and void. So, ensure that it is devoid of peculiar ultimatums or claims.
Does having a prenuptial agreement make the divorce process more straightforward?
If constructed and executed correctly, an effective prenup can help streamline the divorce process. Sometimes this means speeding up or circumventing the need for litigation entirely.
No one enters into a marriage wanting the worst to happen. In fact, the dream of your ‘happily ever after’ may not align with the reality of deciding how to deal with the fallout of a prospective divorce. The truth is that arranging a prenup gives you and your spouse the control, freedom, and power of safeguarding your futures.
If you want to chat with us or find out more information about drafting a prenup using our innovative, modern, and easy platform then now is the time to get in touch. Simply contact us at firstname.lastname@example.org.
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