What Is a Prenuptial Agreement?
A prenuptial agreement (prenup), also called a “premarital agreement”, is a contract that couples enter into before they get married. The goal of a prenuptial agreement is to each spouse’s property and financial rights and obligations if they choose to dissolve their marriage in the future.
It may seem strange to many to prepare for a divorce before a couple is even married. However, with about half of all first marriages in America ending in divorce, it may be wise to have a prenuptial agreement. If a marriage should end in divorce, the couple clearly understands what the financial consequences would be.
Prenuptial agreements are often used by people getting married for the second or third time, because the respective spouses may already have assets they want to guard for themselves or their heirs in the event of a divorce.
Generally, a prenuptial agreement deals with real estate assets, investments, retirement assets, bank accounts, and debt.
It is important to keep in mind that the custody of children of a marriage cannot be determined by a prenuptial agreement. This would be contrary to public policy. Child custody can be determined by an agreement at the time a couple divorces, and it would be reviewed by a judge to ensure that it is in the best interests of the child. Or, if the couple cannot agree on a child custody and visitation arrangement, they could litigate the issue in court when they get divorced.
Can I Protect My Ownership of My House with a Prenuptial Agreement?
If a person owns a house that they acquired before marriage and wishes to protect their sole ownership of the property in the event of a divorce, a prenuptial agreement is by all means the way to achieve this.
What Are the Benefits of a Prenuptial Agreement?
One of the main benefits of a prenuptial agreement is the identification of assets as community or separate property in those states that are community property states. In states that distribute property between spouses on the basis of equitable distribution, a person can also identify property as separate and not marital.
A person can ensure that they receive their separate property when the property is distributed in a divorce.
Of course, there are two kinds of states in the U.S., community property states and equitable distribution states. In a community property state, when a couple divorces, their property is characterized as community, i.e. acquired during the marriage, or separate, i.e. acquired before the marriage or during the marriage through inheritance.
In a community property state, the law mandates that all community property must be divided fifty-fifty between the spouses, and each spouse receives their separate property as theirs alone.
In an equitable division state, in a divorce all property acquired by the spouses during marriage may be characterized as marital property. Marital property is divided on the basis of what a court determines to be “equitable.”
This determination can become complex and depends in part on the relative financial situations of the spouses. There can also be separate property which can be given to one spouse alone. Again, the law of the state in which the parties get divorced would be applied by the court in deciding on distribution of marital assets.
A prenuptial agreement can clearly characterize all property, real estate and other assets, as well, e.g. retirement accounts and pensions, as community or marital or separate. It can provide for distribution of community and marital property and separate property as well.
How Does a Prenuptial Agreement Treat Real Estate?
A prenuptial agreement can deal with every aspect of real estate ownership in the event of a divorce. For example, the prenup can provide that the spouses should be reimbursed for their contributions to the down payment on a piece of property or that it should be divided according to each of the spouse’s differing contributions to the purchase price.
The spouses can agree not to sell a community or marital home but rather to allow one spouse to occupy it until the children reach the age of majority. Or they may want to retain it as an investment, rent it out and divide the rental income and the proceeds of a sale at some point in the future.
Of course, it is entirely possible that one spouse owns property as their separate property when they get married, but they want to give a half interest to their spouse. The donor spouse may want to execute a deed making the other spouse a joint tenant or tenant in common so the house passes to that spouse upon the death of the donor spouse. This could be made clear in their prenuptial agreement and then confirmed in a deed to the property.
One of the significant advantages of a prenuptial agreement is that the spouses can formulate their own plans and provide for a distribution of assets that meets their wishes rather than those of a court in the event of a divorce.
How Should My Prenuptial Agreement Be Drafted?
The requirements for a valid prenuptial agreement, i.e., one that courts will enforce, are the same as for any valid contract. Neither party wants to engage in intentional misrepresentation or subject their prospective spouse to duress in getting them to sign a prenuptial agreement, if for no other reason than that it could make the prenup invalid.
Rather, both parties want to make sure that everything is done with full disclosure of assets and debts and that their dealings are all above-board. It is best if each spouse has their own family law lawyer who is knowledgeable about prenups.
It is especially important to respect any particular state laws regarding prenups, e.g. whether there is a required period of time that must pass between presentation and signing or marriage. Respecting state laws of this type does not only protect a person’s prospective spouse. It protects the interests of both spouses by ensuring that their prenup is valid and will be enforced by a court if that becomes necessary.
What Are Some Common Provisions in Prenups?
As noted above, classification of property as separate or community or marital is a key issue in a prenuptial agreement. Specifying how assets and debt is to be divided in a divorce is also critical.
Whether one spouse would pay alimony to the other and for how long should be addressed. The parties can spell out what will happen to separate and marital assets after the marriage ends. For example, the parties may want to stress that certain assets are to remain separate after the marriage ends, e.g. a separate business.
Should Both Parties Have a Lawyer for Drafting a Prenup?
It is best if each prospective spouse has their own family law attorney representing them during negotiation and drafting of a prenuptial agreement. This ensures that the agreement is fair to both. It helps to assure a court in the future that may be asked to enforce the prenup that it was drafted in a way that was fair to both parties.
Some states have specific laws aimed at prenuptial agreements. For example, some states required that a certain period of time pass between the presentation of a prenup by one spouse to another and the signing of the agreement. This time period is designed to give the party who is presented with a prenup time to consult a lawyer.
Maryland is a state in which case law specifies certain protections for those who enter into prenups. Maryland courts require that prenups not be “overreaching.” Overreaching concerns lack of fairness in the circumstances of signing and unfairness in the provisions of the agreement.
Lack of fairness in the signing circumstances might involve one spouse presenting a prenup at a moment that is very close to the wedding. Or, the spouse who is presented with a prenup might ask their prospective spouse if they should talk to a lawyer about it. If the spouse who presents the prenup tells their prospective spouse that they do not have time and it is not necessary to consult a lawyer, that might indicate a lack of fairness in the circumstances of signing the prenup.
The facts of the case in which the Maryland appellate court found adequate “fairness” in the provisions of the prenup involved a case in which a husband with about $2 million in assets presented his prospective wife with a prenup. It provided that she would get alimony and a money settlement in the event of their divorce, while the husband would retain all of his assets. The wife owned nothing of substantial value.
The court found that providing her with alimony and a financial settlement was fair enough to avoid a finding of unfairness in the substance of the agreement.
Other states may have other requirements for prenups. Most states require each spouse to have their own lawyer review the document if it is to be enforced by a court. Of course, both spouses must sign the prenup. In some states it must be signed and notarized by a notary public. Again, a person entering into a prenup wants to make sure that it is valid according to the law in their state.
Do Courts Enforce Prenups?
Courts enforce prenups that are valid under the law of the state in which enforcement is sought. As noted above, a prenup must meet any special requirements for validity in the state in which a spouse wants to enforce it. Again, this is why a person who wants a valid prenup would seek the help of a knowledgeable family law attorney when they draft their prenup – to ensure that it is enforceable.
Are There Alternatives to Prenups?
There are alternatives to prenups. One step that can help is to create an estate plan. The estate plan can include a trusts and a will which make the bequests of property that the testator of the will, the person who makes the will, wants.
In addition to an estate plan, each spouse can keep their separate property separate during their marriage if that is their wish. They should make sure not to commingle separate property with marital property or the separate property of the other spouse. The spouse should keep separate property in their own name.
If they sell it, they would deposit the proceeds of the sale in a separate account in their name only. They would not use this account for any marital funds or transactions. If the funds are used for a purpose related to community property or marital purposes, the money could lose its characterization as separate property.
Co-ownership agreements, which are usually used by partners in ownership who are not married, could also be used for the purpose of clarifying the nature of co-ownership of property by a married couple.
Do I Need the Help of an Attorney for My Prenuptial Agreement?
If you own real estate or other significant assets, e.g. a business, that you have acquired before getting married, you want to have a prenuptial agreement that clearly expresses your wishes regarding that property in the event of a divorce.
This is especially true for real estate, which is the most significant asset that many people have. The best way to get the prenuptial agreement that works best for you is to consult a family law attorney who is experienced in drafting prenuptial agreements. LegalMatch.com can connect you to a lawyer who can inform you about all of your options and make sure your interests are protected.
