Prenuptial Agreements
Prenuptial agreements, also called premarital agreements or antenuptial agreements, are commonly referred to as prenups. They are contracts executed before the wedding by the two people getting married. After the wedding, the couple may draw up a postnuptial agreement if they wish. The contract has provisions for dividing property and support upon divorce, separation, or death.
If you have a prenuptial agreement and you are getting divorced, this chapter will help you whether you are trying to defend it or set it aside. If you don’t have a prenuptial agreement, read this chapter so you will know how to protect yourself with a prenuptial agreement the next time you get married.
Before 1968, American divorce courts viewed prenuptial agreements unfavorably, as being destructive to marriage, and refused to enforce many of them. Then, an appellate case out of Florida held that prenuptial agreements were in contemplation of marriage rather than in contemplation of divorce.
That was enough for the court to declare that they were not against public policy and therefore valid and enforceable. The popularity of prenuptial agreements bloomed as people became more realistic about marriage and divorce.
The Uniform Premarital Agreement Act (UPAA), providing for the enforcement of prenuptial agreements, has been adopted by twenty-six states and the District of Columbia in one form or another. Premarital agreements are permitted in the other states by statute or case law.
Why Don’t More People Have Prenuptial Agreements?
Most people don’t think they need, or could benefit from, a prenuptial agreement. A poll of Americans by Harris Interactive shows that:
- Twenty-eight percent believe prenuptial agreements make smart financial sense.
- Twenty-five percent think they are only for the rich and famous, not regular people.
- Nineteen percent think they are not needed when two people really love one another.
- Fifteen percent say a prenup dooms a marriage from the start.
On the other hand, forty-nine percent of divorced people believe prenuptial agreements make good financial sense.
Other studies have shown that while most people are aware of the fact that half of marriages end in divorce, only about ten percent believe it will happen to them.
You Already Have a Prenuptial Agreement
Your prenuptial agreement is already in writing. It is thousands of pages long. You probably won’t know the terms of it unless and until you get divorced. You agreed to it by getting married.
Where is it? It is in the family laws of your state and the cases interpreting those laws.
So while you may think your choice is between having or not having a prenuptial agreement, it is really between using the prenuptial agreement set forth inthe laws of your state or using a prenuptial agreement that you negotiate and write.
Most people contemplating marriage don’t think about divorce. Yet one in two marriages will end in divorce. Love sometimes makes people lose their commonsense. They think a prenuptial agreement will ruin the romance. After all, there is nothing very romantic about a prenuptial agreement. To some, it shows a lack of commitment to the marriage, which is supposed to be “Until death do us part.” To others, it may indicate a lack of trust that their partner will be fair and reasonable in the event of divorce.
But is it a bad thing to have an open and honest conversation with your partner about financial planning for your marriage? It may actually be beneficial to the relationship to explore your views on marriage, money, family, support, and property with one another. It may even make a divorce less likely. And if there is a divorce, the parties do not have to fight over the property and alimony because the terms are already agreed upon.
Tip The family law of your state will be your default prenuptial agreement if you don’t make one for yourself.
The Elements of a Prenuptial Agreement
Prenuptial agreements are valid and enforceable in all fifty states and the District of Columbia provided that all these conditions are met:
- there is full financial disclosure;
- there is no duress;
- the agreement is fair and there is no overreaching; and
- the agreement is in writing, signed by both parties and acknowledged before a notary public.
Both parties to a prenuptial agreement must make a full and complete financial disclosure. This requires a frank, complete, and truthful disclosure or actual knowledge of what rights are being given up by the agreement. The most practical way to do this is to attach documents showing each party’s assets, liabilities, and incomes. You can back this up with tax returns and statements if you wish.
The reason for this is that both parties must have full knowledge of the facts so they know what they are giving up and what they are getting.
Example: Jo and William met when she was forty and he was fifty. They had both been married before, so they decided to enter into a prenuptial agreement. Jo waived her right to alimony. But William had failed to disclose to Jo that he was worth $3 million because he wanted to leave it all to his daughter from a prior marriage. During the divorce proceedings, the truth came out about William’s net worth. Jo was able to contest the prenuptial agreement because she said she never would have waived alimony if there had been full disclosure.
The agreement should provide that the parties have made a full disclosure of their finances to one another, and it should be executed with full knowledge of this and should not have the potential to be invalidated for lack of financial disclosure.
You need sufficient time to negotiate and consider all the legal consequences of a prenuptial agreement. Consider this situation:
“What’s this?” says Fiona as she looks at the papers that Todd, her fiancé, has just handed her.
“Oh, that’s a prenup that my lawyer prepared,” says Todd matter-of-factly. “Just sign it on the last page.”
“Are you kidding?” cries Fiona. “It’s two weeks before the wedding. The invitations have gone out. I’ve bought my wedding dress. We’ve paid deposits for the caterer and reception. People have made travel plans and bought wedding gifts.”
“Well, my lawyer says I can’t get married without it,” says Todd.
“All right, I’m signing, but I’m not even reading it,” retorts Fiona.
This agreement can be contested on the basis that it was signed under duress being that Fiona signed it just so the wedding could go forward as planned. To have a valid prenuptial agreement, you have to begin negotiations far in advance of the wedding and include in the agreement that you have negotiated over an ample period of time so that neither of you feels pressured to sign. You must be able to show that both of you entered into it freely and voluntarily without duress.
Here’s another example from a recent case in New York. Elizabeth claimed that her husband, Peter, who controlled $20 million in real estate, fraudulently induced her to sign a prenuptial agreement four days before the wedding.
Elizabeth said that Peter threatened to call off the wedding if she didn’t sign. She said she felt coerced into signing against her will. Her father had already paid $40,000 for the reception when the prenup was presented to her.
She also told the court that Peter had promised he would tear up the prenup once they had children. They had three. Peter denied that he made any such promise. The Brooklyn Appellate Court threw out the prenup. The divorce proceeded without it.
Note You need to sign your prenup long before the wedding if you want it to hold up in court.
The court can set aside a prenuptial agreement that it considers to be too unfair. An agreement can be one-sided, but if one party gives up all rights and the other gives up none, the agreement will be subject to attack on grounds of fairness and inequity.
To test this, the court will look at what the agreement provides and compare this to what the law would provide in the absence of an agreement.
Some lopsided agreements can be saved by a sunset provision, whereby certain terms or the entire agreement end after a period of time during the marriage.
There are people who want to keep everything separate during the marriage, including their incomes and assets they will acquire. They may have a need for control or they may have been burned in a prior divorce. Marriage is a sharing of life, however, and people who share income and assets in creating a marital estate together seem to have a greater sense of purpose and satisfaction. Marriage is not only a physical and emotional union but a financial one as well.
The prenuptial agreement must be in writing. Oral prenups will not be enforced. It must be signed by the two parties to the marriage. Their lawyers cannot sign for them. And their signatures must be properly acknowledged by a notary public.
One attorney should not try to represent both sides to a prenuptial agreement. Each party needs to have his own independent lawyer.
If one party has an attorney draw the document and the other party does not have an attorney, like Jo above, the unrepresented party can attack the agreement in the future by saying, “I didn’t understand it. It was all legal talk. I just signed it without knowing what it said.”
You want to be able to prove that you both signed the agreement with full knowledge of its meaning and effect.
The Bulletproof Prenup
First, the bad news. There is no such thing as a bulletproof premarital agreement. This is a fantasy that clients have based on the movies and television shows. No one can guarantee your prenup will hold up in court or that some judge somewhere will not set it aside.
You can however, make it defensible by incorporating the elements of time, disclosure, voluntariness, and proper execution.
Tip No prenuptial agreement is bulletproof, but you can make it more likely to be upheld by the court with full financial disclosure, freedom from duress, fairness, and proper execution.
Why You Need a Prenup Before You Get Married Again
A prenuptial agreement can help you answer questions like these:
- How will any premarital real estate be paid for during the marriage, and what will happen to the proceeds on sale?
- What will happen to a business opened before the marriage or after the marriage?
- What alimony will be paid in the event of a divorce?
- How will premarital and postmarital retirement assets be divided in the event of a divorce?
- Will one party support the other in obtaining a professional degree?
- Are there children from prior marriages or parents who need to be taken care of?
- Which property will be identified as separate property and which will be identified as marital or community property?
- Which debt will be identified as separate debt and which will be identified as marital or community debt?
- How will we leave family property to one another and other family members?
- Who gets what in the case of a divorce?
- Who will handle the finances?
- How will we pay the family bills?
- Will we have joint accounts?
- Will we have a budget?
- How will we buy a house together?
- How will we pay for savings, college, insurance, and credit cards?
A prenup can bring clarity and security to your relationship. If you have more assets or income than your spouse-to-be, it will allow you to be assured they will be protected. On the other hand, it will let the other spouse-to-be to have some sense of financial security if things do not work out.
How to Bring Up the Subject
Bring up the subject of a prenuptial agreement as early as possible, preferably even before the engagement. Be honest and candid. Let your intended know that you would like to discuss a prenuptial agreement. Be considerate of the other person’s concerns and questions.
Be prepared for some give and take. You and your fiancé will not agree on everything. Allow plenty of time for discussion.
Although this is a touchy subject, and may even lead to an argument, it is a good test of the communication and conflict-resolution skills that you will need in a marriage.
Ideally, each of you will have a separate lawyer review the terms of your prenup and explain to you how they differ from the family law of your state so that you know what you are getting and what you are giving up.
It’s Your Marriage, Not the Lawyer’s
The legal system is adversarial. So, if you ask a lawyer to draft a prenuptial agreement, it is going to be one-sided in your favor. An alternative method is to sit down with your sweetheart and work out the basic provisions between the two of you. Prepare an outline or a memorandum and present that to the lawyer to put in a more formal agreement. The result will be a balanced and fair agreement.
What to Put in Your Prenup
The beginning of the prenup should refer to the UPAA or other laws of your state governing prenuptial agreements. There should be some recitation of the circumstances of the parties, such as age, health, prior marriages, children, occupations, income, and other personal information. There should be a clause providing for financial disclosure. The agreement should include an acknowledgment that both parties think it is fair and they are signing it voluntarily.
Next, the agreement will carefully define what property is to be considered the separate possession of each party. Then, it will set forth rules for how income and property acquired during the marriage are to be treated.
There are usually special provisions for waiving rights and benefits in qualified retirement plans as well as what happens to contributions made during the marriage. You may also wish to have specific provisions for a business, especially when both of you will be working in it.
You will probably both be contributing money to any real estate you own, so you will want to clarify how that would be handled in the event of separation, divorce, or death. The agreement will also address alimony, whether it is waived or provided for in the event of separation or divorce.
You can contract for life insurance and will provisions in a prenuptial agreement. You may also wish to have a sunset provision stating that the agreement, or parts of the agreement, will expire after a certain period of marriage. In Maine and a few other states, the agreement lapses by law upon the birth of a child unless it is renewed by the parties. Some states provide a sunset provision after a certain number of years by operation of law.
The law of the state where the parties get divorced is the law that will control the interpretation of the prenup. But you can change this by choosing to include in your agreement a provision as to which state law will apply.
Prenuptial agreements mostly deal with what will happen in the event of death or divorce. But they can also be used to set up how a couple will handle their finances during the marriage.
It is also possible to put nonfinancial provisions in a prenuptial agreement. These are called lifestyle clauses. A couple can agree on who does which household chores. They can provide for how much television watching is permitted. They can even say how many times a week they will have sex. You can set a weight limit. You can agree to a penalty for cheating.
Some couples find these provisions to be valuable. They view them as a mission statement for their marriage or an extension of their vows. Others find them negative, saying that a marriage with lifestyle clauses is doomed from the beginning.
How they would be enforced is another question. For example, would a court order an overweight spouse to lose ten pounds?
Tip You can include lifestyle clauses in your prenup, but it may be difficult to enforce them.
What a Prenup Cannot Do
A prenuptial agreement covers many issues, but as you will recall from the chapters on custody and child support, the court always retains jurisdiction on these issues. Thus, even if a couple agrees to certain provisions regarding children in a prenuptial agreement, those provisions would be void and unenforceable in court.
Keeping the Prenup Current
You may want to review your prenup from time to time to see if it is still current. There may be new events in your life and your marriage, like starting a business, or buying a house, for example.
You may have changed banks and accounts and added your spouse’s name to accounts that were formerly in your name.
It is possible for the parties to defeat the purpose of a prenup unintentionally by commingling separate and marital property if they do not keep those distinctions in mind.
Summary
We discussed different types of support and property division under the family laws of your state. These laws provide a template for how support will be determined and property will be divided if you get a divorce. You can change this template by a written prenuptial agreement. To be valid, the agreement must provide full financial disclosure, be fair and have no overreaching, and be signed without duress. Next, we’ll take a look at separation agreements.