Prenuptial Agreements – Planning for the Future

A Helpful Guide to Creating Your Premarital Agreement Iussues Checklist

When couples fall in love and take their turn down the marriage aisle, the furthest thing from their minds is the thought of divorce and the division of assets. That's entirely understandable. Caught up in the excitement of starting a new life together it can be hard to envision a time when you might part, and go your separate ways. But the truth of the matter is, 40% to 50% of all marriages in the United States end in divorce; and part of planning for the future as a married couple is considering every eventuality, even the ones you might prefer not to think about. For many couples, that plan includes a prenuptial agreement.

What is a Prenuptial Agreement?

There's a common misconception about premarital agreements, and that is that they are a kind of legal weapon to be used by wealthy couples in a divorce proceeding. While high profile celebrity divorces may reinforce that idea, the truth is rather more prosaic.

prenup agreement

A prenuptial agreement is nothing more, or less, than a contract between two people. It specifies the assets and liabilities that each party brings to the marriage, and determines what each party's property rights will be throughout the marriage and should that marriage end in divorce. Prenuptial agreements can also come into play after the death of a spouse, ensuring that their property rights and interests continue to be protected following their demise.

In short, a prenuptial agreement is simply an alternative estate planning tool that can be used to protect the financial interests of the married couple and their heirs.

Is This the Right Answer for You?

Deciding whether or not a prenuptial agreement is right for you and your future spouse is a decision you need to make together. Every couple's financial situation is unique, and you should both talk frankly about your current circumstances, and how they may change following your marriage. Prenuptial agreements have much to offer, but they don't necessarily suit every couple. For some, the divorce and property laws of their state may be sufficient to their needs; and they may not consider a prenuptial agreement to be particular beneficial in their situation.

Couples who do opt for a prenuptial agreement usually do so for one or more of the following reasons. If any of these circumstances apply to you, or your future spouse, a prenup may be advisable.

You Are Significantly Wealthier than Your Partner – A prenuptial agreement can protect your existing wealth from becoming communal or marital property.

  • You Earn Significantly More than Your Partner – In most states, a prenup can be used to limit the amount of alimony that is payable following a divorce. It should be noted, however, that prenuptial agreements are subject to judicial review, and if a judge considers your alimony arrangements to be punitive they can can be overruled by the court.
  • You are Poorer than Your Partner – Prenuptial agreements aren't just about protecting the wealthy, they can also be used to protect the financially weaker partner, ensuring that they are properly compensated in the event of a divorce.
  • You are Remarrying – If you have children from a previous marriage, a prenuptial agreement will ensure that their property rights are protected. Inheritance laws tend to favor the current spouse, and without a valid prenup in place children from a previous marriage may not be provided for according to your wishes.
  • You Own a Business – If you own a business, in whole or in part, a prenuptial agreement can ensure that should your marriage end your spouse will not gain a controlling interest in that business. Share holders often require business partners to draft prenuptial agreements when they marry.
  • Your Partner Has Significant Debts – If you are marrying someone with a high debt profile, you may be held responsible for those debts should your marriage end. A prenuptial agreement will protect you from assuming the liabilities of your spouse.
  • You Plan to Quit Your Job to Raise Children – Quitting your job to raise a family can have a negative impact on your career trajectory and your earning potential. A prenuptial agreement will ensure that you are properly compensated for the years you have spent outside of the workforce.
  • Reinforcing Your Estate Plan – A prenuptial agreement can ensure that your estate plan is enforced, and that following your death your assets will be distributed according to your wishes and not the whims of the court or your surviving spouse.

What Can and Cannot Be Included

Now that you have a better idea of whether or not a prenuptial agreement is right for you, it's time to delve a little bit deeper and learn what can, and cannot, be included in your premarital contract. Again, many people mistakenly think of prenuptial agreements as a weapons to be used in a divorce proceeding. But there are strict rules about what can, and cannot, be included in a premarital agreement, and disregarding those rules can result in the contract being struck down should it be challenged in the courts.cake toppers on prenup

Items to Include

  • Separate and Marital Property – Each state has its own laws to distinguish between separate and communal property. Absent a prenuptial agreement, the court will follow those rules when dividing a couple's assets during their divorce proceedings. A valid prenuptial agreement specifies what will, and will not, be considered marital property, protecting each parties personal assets.
  • Saving and Spending Strategies – A prenuptial agreement should address the couple's future financial plans, including investment and retirement strategies. It should also cover how much income is to be paid into joint and/or separate bank accounts, and whether or not their will be any specific spending allowances.
  • Financial Obligations During the Marriage – A prenuptial agreement can be used to specify how the couple's household expenses will be managed, including who will be responsible for paying the bills and how much each party will contribute financially to the running of the household.
  • Debt Liability – Creditors can go after marital property even though only one spouse is the debtor. A prenuptial agreement can be used to protect the debt-free spouse from assuming the financial liabilities of the other.
  • Children from a Previous Marriage – A prenuptial agreement will ensure that the property rights of children from a previous marriage continue to be enforced.
  • Family Property – A prenuptial agreement can be used to protect family property (heirlooms, business shares, real estate, etc), ensuring that they remain in the birth family and do not pass to the family of the divorced spouse. Properly executed, a premarital agreement can help establish and protect the inheritance rights of your heirs.
  • Estate Plans – A valid prenuptial agreement ensures that both party's estate plans will be carried out according to their wishes, and cannot be altered by the surviving spouse. (It's worth noting here that a prenup is not a substitute for a will or trust, and can only be used to reinforce these documents.)
  • Property Distribution in a Divorce Proceeding – Again, every state has its own laws concerning the distribution of assets and properties during a divorce. A prenuptial agreement can bypass many of those laws, if the couple agrees ahead of time who will get what in the event of a divorce.
  • Alimony/Spousal Support – In some states prenuptial agreements can be used to determine the amount of spousal support that is due to either party. However, no state will enforce an alimony agreement that is deemed punitive, or that leaves the divorced spouse destitute.
  • State Laws Governing the Agreement – The contract should specify which state has jurisdiction over the prenuptial agreement. Otherwise, it will be the state in which the divorce is finalized and not the state in which the couple was married.

Items that Cannot be Included

  • Child Custody – A prenuptial agreement can not address child custody issues, including visitation, religious upbringing, and schooling. The court is charged with determining what is in the best interest of the children.
  • Child Support – Again, the court is charged with determining, and protecting, the best interests of the child, and a prenuptial agreement cannot include specific provisions for child support.
  • Forfeiture of Alimony Rights – This is the most commonly struck down provision in a prenuptial agreement, and most states prohibit any waiver of alimony rights.
  • Rules Concerning Personal Matters – Domestic affairs can not be addressed in a prenuptial agreement. For example, where to spend the holidays, who is responsible for what chores, which relatives are welcome to visit will all be struck down in a court of law. The purpose of any premarital agreement is to address financial issues, and anything else will be seen as frivolous and will be dismissed by the courts.
  • Anything Considered Illegal or Unfair – As with any contract, any provision in a prenuptial agreement that can be construed as supporting or encouraging illegal activity will be struck down. Similarly, any provisions that are deemed unfair, or not in the best interest of either party, will be dismissed and could result in the entire document being rendered invalid.
  • Lifestyle Clauses – The most popular lifestyle clause is, of course, the infidelity clause. While some states do allow prenuptial agreements to contain an infidelity clause, other states (California for example) dismiss them out of hand. Either way, infidelity clauses are notoriously difficult to enforce, and many judges are hesitant to rule on matters of fidelity when it comes to reviewing a prenuptial agreement. Other lifestyle clauses address whether or not the couple plans to have children, the couple's sexual habits, in-law visitation, and alcohol or drug abuse. As a general rule, these types of lifestyle clauses are considered frivolous, and many courts view them unfavorably when reviewing a prenuptial agreement. Most lawyers will discourage their clients from including these types of clauses in any premarital agreement.

What Can Invalidate Your Agreement?

While prenuptial agreements are considered binding legal contracts, they are not inviolate. Under certain conditions they can be dismissed by a court when challenged in a couple's divorce proceedings. A prenuptial agreement can be judged invalid under any of the following conditions:

  • The Agreement is Fraudulent – A prenuptial agreement requires that each party full discloses his or her assets. If either party undervalued their assets, or failed to disclose all of their assets, the agreement can be rendered invalid.
  • The Agreement was Signed Under Duress – If it can be proved that either party was forced to sign a prenuptial agreement against their will, or against their better interests, the contract can be rendered null and void.
  • Reduced Mental Capacity – If it can be proved that either party was forced to sign the contract while they were ill or under the influence of drugs, the prenuptial agreement can be rendered invalid.
  • Lack of Proper Legal Representation – If either party signed the agreement without benefit of legal counsel, the contract can be disputed and may be invalidated.
  • The Paperwork was Improperly Prepared or Filed – As with any legal contract, if the agreement was improperly prepared its provisions may be called into question. Similarly, if the document was not properly filed, it may be deemed as unenforceable.

This should illustrate just how important it is to carefully craft your prenuptial agreement, and to always rely on experienced legal advice when finalizing any marriage contracts.

The Importance of Expert Legal Advice

For a prenuptial agreement to be a binding legal contract, it needs to be prepared by a lawyer who is experienced in matrimonial law, and well versed in the laws governing marriage contracts in your state. Ideally, you should each have independent counsel, to ensure that both of your interests are represented fully and fairly. All prenuptial agreements are closely scrutinized by the courts, and the presence of independent counsel for each party is a good indication that the contract is fair, and that both parties have entered into the agreement in good faith and with adequate legal representation. Having separate lawyers also helps to avoid any misunderstandings or misapprehensions that can arise during the drafting process, ensuring that both of you will be satisfied and comfortable with the final agreement.

married couple with agreement

What to do Before You Seek Legal Advice

While retaining expert legal advice when drafting a prenuptial agreement is critical, you need to do some prep work before you bring the lawyers into the process. When it comes time to retain legal advice, you will want to have the essential terms of the contract worked out beforehand. Discuss the nature of your prenuptial agreement, frankly and openly, and put your interests and concerns down in writing. Many couples find it extremely helpful to refer to a prenuptial agreement checklist or worksheet to ensure that all of their concerns are adequately addressed. With that rough outline in hand, you will be better positioned to work with your lawyers to produce an agreement that is fair and balanced, and that can stand up to legal scrutiny.

How to Ask for a Prenuptial Agreement

Admittedly, discussing prenuptial agreements isn't particularly romantic, but it doesn't need to be confrontational either. As adults, you should be able to sit down and discuss your future together calmly and honestly. If you feel a prenuptial agreement is something you want to pursue, and are unsure how to broach the topic with your fiance, the following talking points should help make the conversation a little less uncomfortable.

  • Reconfirm Your Love and Commitment – Having a prenuptial agreement is no reflection on the love you hold for your fiance, or your long term commitment to the marriage. It is merely a matter of having financial matters settled between you, so that both of your futures are secure.
  • Protecting Both of Your Interests – Without a prenuptial agreement in place, you will both be subject to the marriage and property laws of your state and there's no guarantee that a judge will be fair and impartial to both of you should you divorce. A premarital contract protects you both.
  • Protecting Your Children – If you have children from a previous marriage, it is only natural that you should want to protect their interests and look after their needs. Similarly, as your new family grows you will want to protect their interests as well.
  • Sound Financial Planning – A prenuptial agreement is a sound estate management tool that can be used to protect the financial interests of you, your partner, and your children. You would be remiss if you were not planning for the future.
  • Professional Obligations – In some professional communities a prenuptial agreement is standard operating procedure. For example, if you are a partner in a law firm or a medical practice your associates may require you to have a valid prenuptial agreement in place.

Deciding you want a prenuptial agreement doesn't mean that you do not truly love your partner, or that you necessarily envision a day when you will want to leave them. Prenuptial agreements are nothing more than estate management tools designed to protect you and your spouse, and by extension your family, in the event of a divorce. For many couples, preparing a prenuptial agreement is simply another part of the wedding planning process, and is no more onerous than picking out a wedding venue or putting a down payment on a starter home.

If you or your partner think that a prenuptial agreement is the right choice for your financial future, discuss the pros and cons of the contract openly and honestly, and give yourselves plenty of time to craft a preliminary agreement. Be mindful of what can and cannot be included in the agreement, and when you're both ready to proceed be sure to retain experienced legal counsel to help you finalize and file the necessary documents. When it comes to the future nothing is ever guaranteed, but having a valid prenuptial agreement in place before you take your vows can give you both the peace of mind you need to embark on your new life together.