Family Law: Prenuptial Agreements

Prenuptial Agreements

Planning a wedding can be one of the most exciting, yet challenging, events in one’s life.  During this treasured time, neither party wants to think about the possibility of the marriage failing, though nearly half of all marriages in the United States end in divorce. [i] 

It can be difficult for either party to bring up the topic of a prenuptial agreement. Still, the concern of potentially harming the romantic pre-marriage time period must be balanced against protecting each party’s assets.

Celebrities and high net worth individuals are the most frequent parties to prenuptial agreements. Prenuptial agreements allow them to protect their assets and to prevent highly publicized divorce proceedings.[ii] Still, prenuptial agreements can benefit people who are not rich or famous

            This presentation will discuss the benefits of prenuptial agreements, information that should go into determining whether to sign a prenup, which provisions should be included and the steps necessary to create an enforceable prenuptial agreement.

What is a prenuptial agreement?

A premarital, or prenuptial agreement, is an agreement entered into by two people who intend to marry. It sets forth the rights of each party to the property of the other in the event of divorce or death. [iii] It can also impact support rights and obligations, such as alimony, upon divorce.[iv]

While prenuptial agreements are sometimes associated with negative feelings, such as mistrust and lack of confidence in the marriage, they can also be viewed positively. The process of preparing to enter into the agreement is an opportunity for each party to better understand the finances of the other and to discuss other important issues related to the marriage.[v]  Additionally, both parties can achieve the peace of mind of knowing that once they enter the marriage, they will be protected if the union dissolves. Prenuptial agreements provide a roadmap that structures each party’s finances according to a mutually accepted and predetermined plan.[vi]

What to discuss before entering a prenuptial agreement

Since prenuptial agreements are centered around money and finances, it is important for each party to have a frank and honest conversation about debts and assets prior to entering a prenuptial agreement. The parties must address issues such as current property and debts, current and projected expenses, accounts with financial institutions, retirement plans, bills, financial goals, ownership in businesses, and credit ratings.[vii]

What can and can’t be written in a prenuptial agreement

According to the Uniform Premarital Agreement Act, which many states in the US have adopted, parties to a prenuptial agreement can contract with respect to:

(1)  The parties’ rights and obligations in property of either or both of them;

(2)  The right to sell, buy, or lease property;

(3)  The right to dispose of property upon separation, dissolution, death, or any event that can impact the marriage;

(4)  The creation, modification, or elimination of spousal support if the marriage terminates; and

(5)  The choice of law governing the prenuptial agreement

Parties writing a prenuptial agreement cannot contract for provisions regarding:

(1)  Child custody;

(2)  Child support;

(3)  Parental rights and duties, and/or visitation regarding the children of the marriage;

(4)  Foreclosure of rights to alimony

(5)  Non-financial matters. [viii]

Child custody cannot be contracted for in advance because the best interest of the child must always govern custody decisions, and these cannot be predicted in advance of the marriage. Visitation and parental rights and responsibilities cannot be contracted for similar reasons. Child support cannot be waived because child-support is primarily to benefit the children, and thus does not belong to the spouse. Alimony cannot be foreclosed upon because it may be necessary for the spouse to live a minimal basic lifestyle. Non-financial matters are beyond the scope of the purposes of prenuptial agreements.

Benefits of a prenuptial agreement

A prenuptial agreement ensures asset protection in case of divorce and protection for the assets that the spouse brings into the marriage or expects to acquire from outside sources during the marriage. For example, if one party expects a substantial inheritance or a large increase in salary, but does not want half of that to be vulnerable in the event of a divorce, the prenuptial agreement allows that party to get married without having to worry. 

A prenuptial agreement can also limit liability and protect one partner from the other partner’s potential creditors. [ix]

A third benefit is that a valid prenuptial agreement puts the decision of asset allocation in the hands of the couple and out of the hands of the court. [x]  When parties divorce without a prenuptial agreement in place, the laws of the state in which they live will control the division of assets.  Normally, a judge or jury will determine the allocation of property without much input from the parties on how their possessions will be divided. The prenuptial agreement swings the balance of power back to the couple.

What makes a prenuptial agreement enforceable?

            For a prenuptial agreement to be enforceable, many states require that the following four elements be satisfied:

(1)  Both parties voluntarily entering into the agreement;

(2)  Both parties sign the contract and have it witnessed and notarized;

(3)  Both parties make a full and fair disclosure of their financial worth; and

(4)  Both parties include fair and reasonable economic provisions

To satisfy the third element, each party should bring a detailed list and description of their assets, debts, income, and planned future gifts. To satisfy the fourth element and ensure that the prenuptial agreement is fair and reasonable, each party should review the prenuptial agreement’s provisions with their respective attorneys. It is more likely that a court will consider a prenuptial agreement enforceable if each party is represented by counsel and both have their attorneys review the prenuptial agreement prior to signing. Having one attorney represent both sides represents a potential conflict of interest and should be avoided.

Bringing up the topic of a premarital agreement does not have to be a frightening subject.  Couples on the verge of marrying should not view prenuptial agreements as inherently hostile or contentious.  These agreements can be valuable to both parties. By entering a prenuptial agreement, a couple will have demonstrated a high level of commitment and will have discussed topics that are vital to the success of any marriage.