Prenuptial Agreements Explained
At its most basic, a prenuptial agreement (also referred to as a premarital agreement) is nothing more than a contract between prospective spouses that defines what happens with their assets if they divorce. The legal definition, however, is slightly different and much more nuanced. As defined by California Family Code Section 1612, a prenuptial agreement is "an agreement between prospective spouses made in contemplation of marriage." Although often associated with the wealthy or those with investments and real estate, prenuptial agreements are far more common than many people realize. They benefit not just the rich or the businessperson, but also those of more modest means who desire greater control of future assets and debts.
Under California law, a prenuptial agreement takes effect upon marriage . For this reason, the terms of the prenup must be considered prior to the marriage actually taking place, and the contract must be signed before the wedding ceremony. Simply put, if you are an engaged couple, and you have a prenuptial agreement, the provisions outlined in the agreement will only go into effect once you are married. Thus, if you are saving for a wedding, and you plan to use these funds for a honeymoon, or to cover other expenses, you have every right to do so—even if you have a prenuptial agreement in place.
While every relationship and situation is unique, generally speaking, here are the most common reasons for entering into a premarital contract:
As you can see, a prenuptial agreement has two primary purposes: to protect, and to plan.
Advantages of Inexpensive Prenups
Given that the thought of a prenuptial agreement can be uncomfortable, it is essential to understand the tangible benefits associated with an affordable prenup. First and foremost, this type of agreement can save significant amounts of money down the line. In other words, by setting financial expectations now, both parties can avoid protracted (and therefore costly) legal disputes in the future. Additionally, an affordable prenup encourages financial clarity, helping both people to get on the same page as far as their assets and liabilities are concerned. This is especially helpful for business owners; if you have started your own business or plan to in the future, it is in your best interests to protect your assets early on. Otherwise, you risk losing what is rightfully yours.
Finally, an affordable prenup can grant both parties the peace of mind necessary to fully commit to the marriage ahead. While it may feel awkward to discuss your financial situation with your partner, addressing this sensitive issue early can prevent hard feelings and lingering doubts later on.
Where to Get Cost-Effective Legal Help
Affordable legal services for preparing a prenuptial agreement can be found in a number of places, and even by folks who do not currently fall into a low income bracket. After all, people working hard to avoid such situations often find themselves in difficult marital straits, and it is these low income folks who are most vulnerable to low quality, high price divorce mills. Here are some tips about getting affordable legal services.
First, visit a local law school if there is one nearby. Students of a family law clinic will be interacting with licensed counsel, and the services offered will be essentially pro bono with respect to the fees. Second, check the local bar association website for names of local attorneys who will engage legal interns to help you prepare the document. A few younger lawyers may specialize in this area. Third, see if any of the legal aid or pro bono resources are available to you. In most states, prenuptial agreements are not a good fit for these services, but in some states like New York a prenuptial agreement really is just a contract, and pro bono legal services organizations may be able to have their legal fellows assist you in preparing a basic prenuptial agreement.
DIY Prenups: The Pros and Cons
A low-cost "do it yourself" prenuptial agreement is possible in some states. Forms may be readily available online or in various books or publications for little or no charge. However, there are potential risks associated with these documents which must be considered before choosing this option.
Pro. Saves Money. Saving on attorney fees is the primary reason many people cite for choosing to prepare a prenuptial agreement without any legal assistance. However, care should be taken not to underestimate the potential legal issues that may arise after execution of the agreement which could end up costing much more than simply paying an attorney for assistance at the outset.
Con. Reliance on Publishing Company or Online Resource. Unlike attorneys, publishing companies and online resources are in the business of selling forms and templates. These forms may be incomplete, confusing and inconsistent with state law. It is important to ensure compliance with state law requirements which may differ from one state to the next. If the agreement does not comply with all state law requirements, it may not be enforceable.
Con. Requirement of "fairness" of agreement. Some states require that fair disclosure be made by each party as to their property rights and financial obligations, if all parties do not have "full knowledge" of the value of all property rights and financial obligations. A failure to comply with the full disclosure or knowledge requirements may render a prenuptial agreement unenforceable.
Con. Risk of invalidity of chosen marital property regime. Some states automatically impose community property status on property acquired during marriage, unless the parties affirmatively opt out of the community property regime. If the required provisions are not included in the prenuptial agreement, a community property status will be imposed on all or a portion of property acquired during the marriage. The only recourse may be to set aside the agreement and then enforce the new default legal regime. Many prenuptial agreements attempt to divide the marital estate into separate property, separate debt and community property and debt however, if there are drafting errors, the entire agreement could be voided and result in both separate and community property being considered a "marital assets" with respect to its division between the two spouses. An attorney with experience in preparing prenuptial agreements can help to avoid these problems.
Con. Importance of procedural fairness. In addition to the potential increased risk of procedural unfairness, parties preparing their own prenuptial agreement without independent counsel may also be doing themselves a disservice in the event the parties divorce. In most jurisdictions, a prenuptial agreement may be set aside if it is established that the agreement was not entered into voluntarily. This is more likely to occur if both parties do not have the benefit of independent counsel at the time of the agreement execution.
Con. Allegations of waiver of rights due to lack of independent counsel. If both parties to a prenuptial agreement choose not to be represented by counsel, they may be alleging that the agreement was drafted without the benefit of professional legal advice. This may result in an assertion that the parties are precluded from waiver of any of their rights to spousal support. In many states, the right to spousal support may be waived by either party if the waiver is contained in a prenuptial agreement and then is signed by the parties with the benefit of independent counsel.
Important Clauses to Include in Your Prenup
When entering into the delicate and emotionally charged waters of negotiating a prenuptial agreement, the fundamental goals often get lost in the fray. First and foremost, the parties should consider what, if anything, they intend to do with any assets or debts acquired both before and during marriage. Specifically, questions to be answered include: 1. Which party gets what, and when? 2. Will premarital and marital assets be kept separate or will they be commingled? 3. Will appreciation on either party’s separate property be shared and, if so, to what extent? 4. Precisely how are debts going to be handled during the marriage, and in the event of a divorce? 5. In the event of a divorce, how should maintenance/alimony be calculated and for how long will payments continue? 6 . In the event of a divorce, to what extent will one spouse be entitled to post-divorce earnings or income of the other spouse? 7. When and under what circumstances will an award be made for attorney’s fees? 8. Will the parties agree to mediation prior to any litigation? If so, under what conditions? What will the standard of proof and burden of proof be in any such mediation? Quite naturally, certain facts about each party’s individual belongings, debts and/or incomes might be hard to pin down at the negotiation stage. The best approach is to provide to the greatest extent possible for the resolution of any issues related to those issues, and to then specifically refer back to the agreement in the event that the unknown subsequently becomes known.
How to Make Sure the Prenup Is Enforceable
The most meticulously drafted prenup can fail if it is not properly executed. First of all, certain states require that a prenup be entered into at least a specific number of days before the wedding; for example, in New Jersey, the law requires that the prenup be signed 7 days before the wedding. In addition, failure to follow any required formalities may render the agreement void as well. For example, in New Jersey and in some other states, the parties must sign each and every page and complete a detailed financial disclosure. In fact, many lawyers who draft prenups require the parties to prepare a detailed net worth statement or similar financial disclosure form.
Equally important, the court may look at the circumstances surrounding the execution of the agreement to determine whether it was entered into voluntarily and with full knowledge of the rights being waived. This is why it is so important that each party have independent counsel. There are cases in which one spouse asks the other "what do I need to do to get you to sign this prenup?" If that spouse is unable to consult with independent counsel, that person has no idea what rights are being surrendered.
Likewise, in cases in which the agreement has not been renegotiated or updated for many years, the same issues may arise if the law governing the distribution of marital assets and other rules related to divorce particularly change dramatically, as they have in some recent years. The very first thing to do in these cases is consult with an attorney experienced in this area to see if your agreement is already out-of-date.
Common Prenup Pitfalls
There are several common mistakes that people make when creating a prenuptial agreement. One of the fastest ways to lose the validity of your agreement is to simply omit something. Omissions can lead to a prenuptial agreement being thrown out by the court, so be meticulous about what you include in your agreement. In most cases, a prenuptial agreement is not written in stone, so as life changes and things happen , keep your attorney up to date on what is happening so that your agreement can be updated as needed.
Another mistake is signing an agreement when one party is under duress or is being forced to sign the agreement. If the agreement is signed under duress, it is unlikely that a court will uphold the agreement if it goes to trial. You should also take care to consult with an attorney on both sides of the matter so that no questions of coercion arise.
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