Aprenuptial agreement is a legally binding contract that spells out how a couple’s assets would be divided in the event of divorce or death. If you did not sign a prenuptial agreement with your partner prior to getting married, you nonetheless have one: A one-size-fits-all standard “prenup” brought to you by your state legislature and local judges. In other words, in the absence of a prenup, you are at the mercy of state law in the event of divorce.
In recent years, the stigma surrounding prenups has started to dissipate as more and more career-minded couples are opting to have them—in other words, prenups are not just for the rich and famous anymore. There are several possible explanations for this phenomenon. First, almost half of all first marriages end in divorce, and the divorce rate on subsequent unions is even higher.
People are also delaying marriage until later in life, which means that by the time they marry, they have accumulated more assets. Finally, divorce laws are nebulous and judges have a tremendous amount of discretion in this highly subjective area. Thus, prenups enable couples to decide for themselves and write their own contract, thereby clarifying, modifying, and even overriding existing state laws.
In the absence of a prenup, courts make a distinction between marital property and separate property. Marital property includes all income and property acquired during the marriage by either spouse. This includes salaries and bonuses, real estate, business income, and assets in retirement plans. The method for dividing marital property depends on the state where you are getting divorced. If the divorce takes place in one of the nation’s nine “community property” states (including California, Texas, and Arizona) the property is usually split fifty-fifty. In the remaining 41 “equitable distribution” states, marital property is divided according to what a court deems “fair,” taking into account factors such as the length of the marriage and the existence of children.
Separate property includes assets owned by each spouse prior to the marriage, as well as inheritances received during the marriage. While you typically get to keep the original value of your separate property, many states require you to share the appreciation of the separate property with your spouse. For instance, your spouse may be entitled to part of the increased value of a house you brought into the marriage. Additionally if your business grew in value during the marriage, your spouse could be entitled to a portion of its new worth.
A prenup allows you to override state laws, keep finances separate, protect one or both spouses from the other’s debts, support an estate plan by agreeing to provide for children from prior marriages or to keep family property in the family, as well as define and clarify each person’s responsibilities after marriage or upon divorce.
A prenup can include a variety of provisions from financial to lifestyle. Examples of financial provisions include providing how pre-marital and post-marital debts will be paid, and determining the ownership of the marital residence and secondary homes in the event of death or divorce. They can also define rights or limits to alimony, maintenance, or spousal support. Examples of lifestyle or non-financial issues include career decisions and child rearing. However, it should be noted that such clauses are generally considered morally persuasive, rather than legally binding. Moreover, in a clause relating to child-rearing, the rights of the child cannot be adversely affected by provisions in a prenup and are always subject to judicial review in the “best interests of child.” Finally, violations of public policy, wherein one spouse would be left destitute by the prenup or an agreement to commit a criminal act cannot be covered by a prenup.
Most newly engaged couples avoid discussing the topic of a prenup because they are afraid that their fiance(e) will view them as doubting whether the marriage will last. While bringing up a prenup can be uncomfortable, once broached, it brings up many important issues, which are best discussed and agreed upon prior to marriage, bringing couples closer and ultimately strengthening their union.
In the event you have not made a prenup prior to your marriage, all is not lost. While a prenuptial agreement is between a prospective bride and groom and is entered into before marriage, a postnuptial agreement is an agreement between a husband and wife and is entered into after marriage. Similar to its cousin, a postnuptial agreement can vary widely, but commonly includes provisions for division of property and spousal support in the event of divorce, death of one of the spouses, or breakup of marriage.
One reason that a couple may want to enter into a postnup is to try to shore up a rocky marriage, for example when one spouse has been unfaithful and the aggrieved spouse seeks to protect his/her financial stake in a marriage Often times couples considering a divorce end up reconciled through a postnup. Postnups also arise for practical reasons such as when a couple goes through a major financial change where one spouse gets a significant promotion, a sizable income increase, or has started his or her own business.
Priyanka Wolan is an immigration attorney with Wolan Law. She can be reached at (323) 825-1653 or pwolan@wolanlaw.com. Her website is wolanlaw.com