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Prenuptial Agreement

Prenuptial Agreement

A Prenuptial Agreement is a legally enforceable contract between a couple who are intending to get married. The agreement states in detail what happens to them after their marriage dissolves especially through divorce or death. While a Prenuptial Agreement will touch on several issues, the bulk of it is financial matters i.e. the allocation and attribution of property/income and debt.

In most divorce cases, the contentious issue is that of the division of property. Usually, courts either follow the equitable distribution where marital property is divided fairly among the two parties or use the community property distribution where all property owned after marriage is divided equally between both parties. Where neither of these situations would be ideal for a couple, it helps when they have a Prenuptial Agreement that spells out their own desired distribution.

A Prenuptial Agreement is also referred to as a Premarital Agreement, an Antenuptial Agreement, or simply, in short, a prenup. Other times the word ‘Agreement’ can be replaced with ‘Contract.’

This video gives an overview of what a prenuptial agreement entails and helps you decide if it is right for you.

People draw up Prenuptial Agreements because of various reasons;

  1. If they are remarrying and they have personal obligations and property from the previous marriage (s)
  2. If they have businesses/ investments that they would want to protect e.g. from losing control or interference from the other spouse. This reason is twofold since it can also protect marital property from being auctioned/lost as a result of miscalculated business mistakes.
  3. If they have children from another relationship and they want to safeguard their interests i.e their rights to inheritance or financial access to separate property/income
  4. If they know that the other spouse has a likelihood of big liabilities e.g. debts, a prenup can safeguard the other spouse.
  5. If they want to clearly define the financial responsibilities and rights of each spouse in the marriage.

What should be included in a Prenuptial Agreement?

  1. Personal details

This includes the names of the two parties entering the agreement and the date on which the agreement is drawn up.

  1. Property and debts

This section should include full disclosures on each spouse’s property, income, and debts. Property refers to any assets (real and cash) in the possession and control of a spouse. It may also refer to anticipated future gifts, inheritances, and heirlooms. Failure to fully declare on any assets or debts when drafting a prenup can lead to it being declared invalid. The same applies to when the property disclosed is gained from fraudulent activities.

Property disclosures also include separating what is individual property from marital property.

This provision should also outline how this property should be distributed in the event of marriage dissolution.

  1. Financial rights and obligations

A prenup can also include each spouse’s roles and responsibilities in the marriage. For example, they can state who will be managing what bills/expenses, how to manage their savings or contribution to a life insurance product, who pays for tax or mortgage or interest on a loan in case of a divorce, etc.

  1. Dependants

This applies especially to spouses with children/dependants from other relationships. It is good to have a provision detailing their rights to your financial property and inheritance in case of divorce or death.

  1. Rights to/Waiver of Alimony

Some Prenuptial agreements have a provision outline each spouse’s right to alimony or its waiver. However, this is not allowed by all state laws. It is important to check with your state laws if you intend to have this provision in your prenup.

  1. Extras

Additional clauses such as one permitting the modification of the prenup after signing can be included in the agreement. Rules surrounding this should also be set out e.g modification to only happen when in agreement by both parties, witnessed and signed.

  1. Signatures

A prenup is not complete without the signature of both parties, those of witnessed and or notarized. This section should also include the date of signing.

What should not be included

  1. Child custody

The law does not permit a child’s welfare, including custody, parental time, and child support to be predetermined in a prenup. This is because it is a matter of public policy, and the court wants what is best for the child.

  1. Verbal agreements

A prenup needs to be written down, signed, and witnessed/notarized for it to be enforceable. Any verbal agreements do not hold in a court of law.

  1. Illegal activities

Any illegal activities, whether present or anticipated should not be included in a Prenuptial Agreement. These may invalidate the whole agreement.

  1. Non-financial personal preferences

Personal preferences such as who does what house chores, weight goals, clothing, frequency of visits to the in-laws, or sexual relations should not be included in a prenup. These may make a court of law not take the agreement seriously when enforcing it.

However, it is good for a couple to have a discussion around their lifestyle and relationship preferences and arrive at private arrangements not to be included in the prenup.

Tips for writing a Valid  Prenuptial Agreement

  • A Prenuptial Agreement is considered valid if it is written and signed before a marriage. If a couple misses out on this window period and still want an agreement in place, they can draft a Postnuptial Agreement.
  • The validity of a prenup can also be challenged in a court of law if it is established that one party to the agreement signed it while under duress. This means that the timing of drawing up a prenup is of the essence when it is time to enforce the agreement. If it is drawn up too soon to the marriage date e.g two days prior, there is a high likelihood that one party was coerced into signing the prenup or they did not fully understand the implication of the agreement. Therefore, it is a good practice to start the discussion well in advance (shortly after your engagement) or six months before your wedding.
  • It is also very important for both parties to a prenup to seek independent legal assistance from separate legal attorneys. This helps ensure that they both get unbiased counsel. Also, it is common knowledge that one attorney cannot be in the defense of two opposing parties as it will be a conflict of interest.
  • A couple can solicit help from a premarital mediator who can guide them on a discussion about all sorts of marital matters including what to expect in the event of marriage dissolution. Once they agree on how they would want their matters handled, they can then draw up a prenup and present it to their separate attorneys for review.

The purpose of a premarital mediator is to help save on legal counsel hours, speed up the process as well as ensure each party is fully enlightened on their responsibilities and expectations.

  • It helps when a couple makes efforts to make the prenup as less stringent as possible. This will reduce the possibilities of it being unfair/selfish towards one party as well as make the discussion and process smooth through minimizing negative feelings or resentment.
  • A prenup is not meant to encourage divorce. When drawing it up, it is wise to avoid threatening or conditional language that may seem to promote separation or divorce.
  • When listing down the property owned, it is good to provide as much information as possible to comply with the requirement of full disclosure and to avoid any dispute as to what property is being referenced.

This short video explains the common mistake that peoplemake when drafiting a prenup. Remember any mistake can lead to a judge invalidating the whole agreement.

What are the advantages and disadvantages of having a Prenuptial Agreement?

Advantages

Encourages open dialogue

A prenup encourages open communication and trust between a couple in their relationship. Being totally open and having full disclosure on matters finances i.e. property/income, debts and other marital expectations that a couple has can be one of the best things to do before getting married and continue in the marriage too. The talk may seem disconcerting and awkward but it is an important thing to do even if it does not end up with a written Prenuptial Agreement.

Safeguards individual property and interests

A prenup helps in defining what is individual property separate from marital property. This can greatly help in safeguarding individual interests that might be greatly interfered with in the event of separation, divorce, or death. For example, a spouse may have their parents or children from another marriage occupying one of their properties. Without a clear distinction that the property is individual and not marital property, the parents and children stand a chance to lose when it's time for divorce or death. This is especially so in community property states.

Saves cost and time during a divorce

Let’s admit it, divorce cases cost a lot of time and money. Even in cases where the spouses agree with the legal issues presented to them, they are still legal fees and court costs that are incurred and continue accruing the longer the case takes to close. You will find in most instances a divorce case will prolong because along the way a couple continues disagreeing further on different matters.

Having a prenup can help iron out most of these issues making the divorce process smoother hence saving time and money.

A Prenuptial Agreement allows a separate definition of liabilities.

Prenups do not only outline the income and property owned by each spouse, they also list down any existing liabilities e.g debt and forecast on any future liabilities. In the agreement, a couple states how this should be handled. For example, if one spouse has an individual business and takes up an unnecessary loan that they default on if they had agreed in their prenup that each person bears their debt, then the other spouse is shielded from having to assume this liability.

Manage expectations

A prenup can set the tone on the direction and goals of your marriage since it encourages open communication, a couple can have foresight of their marital goals a couple of years later. Anticipating the financial successes and challenges that might happen along the way helps in managing the situation so that no surprise element might be a shock to the marriage.

Also, in the event of separation, divorce, or death, it is clear on what needs to be done. For example, a couple can agree that neither party should pay alimony. This is as clear as it can get so that in the event of a divorce, there is no party expecting alimony from the other.

A Prenuptial Agreement can be used as an asset planning tool

In some states, the law allows that in the event of the death of a spouse, the surviving spouse is entitled to at least 30% of the deceased property and has the first right to their marital home. This cannot be changed by the will but can be influenced by a prenup. It is, therefore, suitable for a spouse who has children from another marriage to safeguard their interest through a prenup in preparation for his/her demise. That way, the allocation or division can be according to his/her wishes.

Disadvantages

A Prenuptial Agreement is not conclusive

Some issues cannot be anticipated in a prenup. For example, a couple cannot decide on the future fate of their children. That is; matters custody, the definite amount in child support, or parenting time. A court of law does not allow the anticipation of child matters plus it usually wants what is best for the children at that time which might not be accurately forecasted.

Therefore, if a couple’s only interest is in the custody of their children if ever they divorce or separate, then a prenup might not be of much help.

It may seem too transactional

Some people may find a prenup too transactional. Since it mainly touches on financial matters, divorce, division of property, separation of debt, etc, which are not all rosy and romantic especially before marriage. A prenup discussion might seem like a romance buzzkill.

There is a probability of a Prenuptial Agreement being unfair/unbalanced.

In addition to outlining separate spousal property, a prenup anticipates future income, property, and liabilities. This future estimate might not always be correct especially if there is an unanticipated significant change in one party’s income or liability. This may make the initial agreement discussed unbalanced and unfair to the other party.

Costs

There are costs associated with a Prenuptial Agreement. These include legal fees which might be very significant. Considering there is a need to have separate independent attorneys, that may make the cumulative cost quite high. The average cost of having a complete Prenuptial Agreement is estimated to be $2,500 or more based on the complexity of the agreement.

Prenuptial Agreement FAQs

Are Prenuptial Agreements Valid in all States?

Yes. In the U.S, Premarital Agreements are valid and enforceable in all the states if prepared properly following the applicable state laws.
In fact, with the Uniform Premarital Agreement Act, there is uniformity in the application of state laws that touch on Premarital Agreements among different states. This means that a Prenuptial Agreement validly entered in one state should be enforceable in another state. This has helped a lot with relocations, couples owning different homes in different states, etc.

A Prenuptial Agreement is considered valid if;

  1. It is entered into before a marriage
  2. Is in writing and notarized/ witnessed. A Prenuptial Agreement cannot be enforced if it is orally agreed upon.
  3. Must not be one-sided or unfair to either party i.e unconscionable
  4. It is fair and has complete disclosure at the time of writing.
  5. It is planned out and signed voluntarily by both parties.

Does the law recognize a Prenuptial Agreement in Same-sex marriages?

Where the law permits same-sex marriages, then a Prenuptial agreement between a same-sex couple is enforceable. For example in the U.S, after the ruling in Obergefell v. Hodges which legalized same-sex marriages then all laws applicable to opposite-sex marriages are applicable too to same-sex marriages including Prenuptial Agreements.

Which is better, a Prenuptial Agreement or a Postnuptial Agreement?

First, the major difference between the two is the time in which they are written. A prenup is effected before marriage while a postnup is drafted after a couple has already married. They both indicate what should happen to a couple’s property once their marriage terminates. Most couples write down a postnup if they did not have the chance to write a prenup before getting married. While most marriage experts lean towards a prenup stating that it is better since it is uncomplicated (drafted before the couple has acquired property together) they are also quick to admit that a postnup is equally good and is better off than not having any agreement at all.

Do I need to be rich to get into a Prenuptial Agreement?

Unlike in popular opinion, prenups are not used by the rich only. In addition to dictating how your property will be distributed in the event of marriage dissolution or death, a prenup also protects you from acquiring your spouse’s debts e.g student loans, business loans, etc. We stated in this guide that a Prenuptial Agreement acts as a financial tool in your marriage. This means that a prenup can help prevent misuse of marital wealth by one spouse who goes ahead and acquires debts especially in community property states where both property and debt are distributed equally to the couple.

How long does it take to write a Prenuptial Agreement?

There is no definite timeline when it comes to writing a prenup. It all depends on the nature of communication and organization between a couple and their attorneys too. The ideal time to start writing a prenup is slightly after your engagement or no less than six months to your wedding.
Earlier on in this guide, we stated that a court can overturn a Prenuptial Agreement signed too close to a wedding date as it may signify coercion on one party.

Can a court of law nullify a Prenuptial Agreement?

Yes, a prenup can be overturned by a court of law. If a prenup is not written per applicable laws if the court establishes that the prenup was not written freely, if either or both of the parties did not fully disclose their property and if the terms of the prenup are unfairly one-sided. These are all common grounds for a court to nullify a prenup.

Can a prenuptial Agreement be modified at a later date?

Yes, it is possible to modify a prenup at a later date after it has been signed. Most common agreements include a clause that allows amendment after signing as long as both parties are agreeable to the modification and sign on it.

Is there a limit on the property that can be held separately in a prenup?

No there is no limitation as to what should be considered separate property in a prenup. All assets and debts before marriage are separate property and if a couple wants them remaining as such, there is no law preventing that.

Can I protect my 401(k) with a prenup?

If specified on the prenup that your expected 401(k) is separate property, then yes, it will be treated as such. This also implies that any contribution made towards 401(k) is also a separate responsibility.

Closing Thoughts

Statistics indicate that there is a 44% chance of most marriages ending up in a divorce. The rate is even higher for subsequent marriages - 67%. Divorce is not desirable as it is often messy and can prolong for quite a long period full of agony. Having a Prenuptial Agreement can help ease the process since both parties are already in agreement on what happens i.e who gets what. Even in the event divorce does not happen, it is equally good to have a Prenuptial Agreement since the death of either party is inevitable.

You should not shy away from having a Prenuptial Agreement discussion, having it does not always spell doom or call for divorce or show mistrust in your spouse. You can consider it as part of the many other plans and discussions you will have to make in your marriage.

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