Prenuptial agreements are written contracts between two people who are engaged. It is important for parties considering prenuptial agreements to have independent legal counsel and to negotiate these agreements, which can have a significant impact on their property rights for many years to come.
When a couple does not have a prenuptial agreement, the state law where they get divorced will dictate their property rights. States may be community property states in which all property and income earned during the marriage is presumed to be equal property of both spouses or equitable distribution states in which the divorce court determines a fair way to divide marital property. If the spouses do not have a prenuptial agreement, these default rules will be used. State laws absent a prenuptial agreement may determine what property is separate and what property is marital, how the value of property is determined, whether separate property has transformed into marital property, whether retirement accounts are divisible and other important aspects of a person’s property rights.
Role of Prenuptial Agreements
Prenuptial agreements help avoid the state default rules. They usually list the property that each spouse has and determines what the property rights will be during and after the marriage. Prenuptial agreements serve many important purposes. One critical function is that they clarify intended property rights. If a spouse wants to keep retirement accounts separate during the marriage, this information may be specified in a prenuptial agreement and can be binding on both parties. A prenuptial agreement may clarify a couple’s financial rights so that they both state how they want certain property rights to be delegated before they enter into marriage. A prenuptial agreement can help a couple determine their financial values and state how they intend to use money. It may include a specific budget and the duties of each spouse toward the financial health of the spouses.
Prenuptial agreements were historically used by wealthier individuals who wanted to protect the wealth that they had accumulated in case of divorce or death. However, today, prenuptial agreements are used for many reasons. For example, a person may have a business and may not want his or her future spouse to have a property interest in the business. A spouse may have children from a previous marriage that he or she wants to protect. The spouse may want to pass on separate property to his or her children while still making provisions to protect the surviving spouse. Without a prenuptial agreement, the spouse may have a right to a greater stake of the estate. Prenuptial agreements can also potentially shield a spouse from the other’s debt.
A prenuptial agreement can also help establish a plan on how to divide property in case of divorce. In this way, the parties can try to determine a fair division of property while not feeling the bitterness of going through a divorce. If the parties do later decide to be divorced, they already have a plan in place.
To ensure that a prenuptial agreement is valid, the parties must provide full financial disclosures to each other. Transparency is a key component to a prenuptial agreement. The parties should clearly indicate the nature of the property they each have, the property that they reasonably anticipate having and what the approximate value of this property is. Hiding assets can potentially invalidate a prenuptial agreement.
Another cornerstone of a valid prenuptial agreement is that the provisions are negotiated and set out in clear language. Courts do not want to see agreements that are clearly one-sided and favor one party well over the other. If either spouse writes the prenuptial agreement, the parties should ensure clear language throughout the document.
It is often in a person’s best interests to have an independent lawyer review it. The same lawyer should not represent both parties since there is an inherent conflict of interest in these matters. Some states require both spouses to have independent legal counsel while others require a waiver if the spouse chose not to have a lawyer independently review it. Additionally, a lawyer can advise a party about the content of the prenuptial agreement and ensure that he or she understands the ramifications of the agreement. This can often provide an additional opportunity to negotiate the terms of the prenuptial agreement. Before signing your prenuptial agreement, you may wish to have a lawyer review your agreement. He or she may bring up subjects that you had not considered that may have a significant impact on your life.