As though the Ten Commandments weren’t enough!
Seriously though, more and more people are drawing up prenuptial agreements before they marry. It has become fashionable, but for others who have specific ideas of how their married life is going to be, it’s an indispensable tool.
“Just to avoid any problems should we…you know…split up.”
Ah yes, of course. Splitting up is hard to do. What’s even harder is splitting up the assets after we’ve exchanged expletives and broke the wedding goblets in disgust.
So who gets what?
Pre-nuptial Agreements - General Idea
What is a pre-nuptial agreement? What purpose does it serve? Is it absolutely necessary?
A pre-nuptial agreement is a contract that two people sign before they get married or before they enter into a civil union. It’s been nicknamed “prenup” or “prenupt.” In a humorous kind of way, a prenup serves a useful purpose: “with a prenup, I don’t end up bankrupt.” It prevents one from bankruptcy because there’s the chance that the spouse – through a clever lawyer – might take the other spouse to the cleaner’s.
A pre-nuptial agreement is therefore a contract that outlines how property will be divided between husband and wife should they divorce; it also settles the issue of spousal support when the marriage is dissolved.
You have two kinds of pre-nuptial agreements: the first is a marriage contract and the second is a co-habitation agreement. The first is designed for people who intend to get married, and the second is for people who will live together.
A pre-nuptial agreement may settle property rights but it definitely won’t be of use when deciding future child custody rights. This is an element you’ll need to consider when drawing up a pre-nuptial agreement. It can decide certain questions, but will not be the end-all and be-all of questions relating to marriage and divorce and the gamut of consequences arising from divorce or separation. Besides, it is the judge who has the final word. If he doesn’t like the contents of your pre-nuptial agreement, it’s as good as a Mickey Mouse contract.
Prenups are not just for the rich. Modest income couples are learning that a prenup isn’t a bad idea. The need for such an agreement becomes more pronounced when both spouses have children from their previous marriages; the prenup then clearly outlines division of property so that the children are not deprived of their rights when the surviving spouse lays claim to the assets of the marriage.
Children or not, wealthy or not, a pre-nuptial agreement may come in handy. At least it will define a spouse’s rights and financial obligations during and after the marriage. It will also protect spouses from each other’s debts. To a certain and limited extent, a pre-nuptial agreement can also set up alimony provisions, but some states frown upon pre-nuptial agreements that have an alimony clause in it, and a divorce judge will certainly scrutinize it. Incorporating the alimony issue into a pre-nuptial agreement can also be a tricky affair, especially if the judge discovers that the prenup was drawn up with one spouse not having a lawyer present when it was signed.
Pre-nuptial Agreements - Essentials
There are components that make up a valid pre-nuptial agreement. These are:
- It must be in writing – none of the states will accept a verbal pre-nuptial agreement;
- It must have the voluntary agreement and signature of both spouses;
- It must carry full or fair disclosure at the time it is executed;
- It must not be unconscionable – this means that one spouse, as a result of his better bargaining position in the relationship, must refrain from including provisions that are deemed or judged to be unfair to the other spouse;
- It must be executed by both parties (and not their lawyers) in such a way that it is recorded as an acknowledgement
Some pre-nuptial agreements also carry a sunset clause. This means that it will expire after a certain period of time. In the state of Maine, a pre-nuptial agreement expires after the birth of the first child. In other states, these agreements will expire after a number of years and couples who wish to continue the agreement will have to renew it. Couples have the option to use the UPAA (Uniform Pre-nuptial Agreement Act) where a sunset clause is not mandatory. Note, however, that the UPAA is available only in some states.
Pre-nuptial Agreements - Pros and Cons
Generally, we view pre-nuptial agreements as taking away some of the headaches brought about by a sudden separation or divorce. They have specific advantages, starting with –
Separate finances – marital assets have to be assigned in the event of death of one spouse. The court normally does the dividing, but a pre-nuptial agreement removes the court’s intervention here and lets the agreement speak for the spouses. This is assuming of course that the pre-nuptial agreement is a valid instrument and was executed by both spouses accordingly, and the court sees no flaw in the agreement;
Debt protection – you may love your wife dearly, but if she was a spending Sue, she’s likely to bring not only her recipes into the marriage but her credit card statements as well. A pre-nuptial agreement will protect the debt-free spouse from having to take responsibility for the debts of the other;
Provision for children – the wealthier spouse may have children from a prior marriage and may wish to ensure that his children receive their share of his assets;
Family exclusive – perhaps there are art objects or special collection pieces that you want to keep within the family. This matter can be included in the pre-nuptial agreement so that the surviving spouse does not auction them off or give them away. This includes property and other assets that you expect to inherit in the future.
Definition of who gets what – similar to the first advantage we mentioned, if there is no prenup agreement, the state will have to decide how your property is to be divided. The court’s decision may not always be the best for both of you. By having a prenup in place, you lay down the specifics of what you want divided upon your death.
Extras – a prenup doesn’t just cover property and other assets and how they are to be divided. These agreements are good for the extras like decisions on whether spouses will file joint or separate tax returns, what kind of education the children will receive, how the mortgage and other household bills are going to be paid, credit card spending, savings accounts, and whether one spouse will provide for the other upon death. It can also cover estate planning and who the trustees and executors will be.
While pre-nuptial agreements serve a very useful purpose, they do have disadvantages:
- It cannot define child support payments – in fact no court in its right mind will accept the pre-nuptial agreement and its provisions for child support as valid and binding,
- Just as it can’t define child support, it also can’t define alimony. Some states will strike off the alimony clause as unenforceable if they believe that it is unjust and detrimental to the spouse who waived her rights to alimony in the pre-nuptial agreement;
- It will not be a valid agreement for personal preferences. By personal we mean – and these are just a few examples – whether or not to have pets, how the in-laws will be entertained, where to spend the holidays, whether the kids are to be home-schooled or not, household chores (“you take out the garbage and I fix all leaking faucets”).
Do not include very personal preferences in the prenup because it is basically reserved for decisions of a monetary nature. These personal decisions are best left between husband and wife in private. If the judge sees too many inclusions in the prenup he may conclude that it is more of a frivolous piece of paper rather than a serious contract.