What is a Prenup?
The term prenuptial agreement commonly refers to a contract between two individuals prior to the marriage that sets forth various rights and obligations of the parties with respect to their marital property and possibly with respect to matters of alimony and other consequences of a terminated marriage. To be enforceable, the contract must be entered into knowingly and willingly and the parties must have been given an adequate period of time to review the contract and consult with their respective counsel.
The legal definition of a valid prenuptial agreement is as follows: "An antenuptial agreement is a contract made by parties in contemplation of marriage, and to be operative upon marriage. The primary purpose of such an agreement is to determine the property rights of the parties upon divorce."
Under the new law "antenuptial agreement" which is synonymous with prenuptial agreement , is defined as "an agreement between prospective spouses made in contemplation of marriage and to be effective upon marriage."
In order to be valid, a prenuptial agreement must have consideration. Consideration, in the context of a prenuptial agreement, is usually the mutual promises as to the exchange of property. This consideration will be enough, however, if it is stated in the prenuptial agreement that the marriage itself is the consideration for the agreement.
A prenuptial agreement may be drafted to encompass a variety of different subject matters, including, but not limited to: What may be included in a prenuptial agreement may vary from state to state.
Benefits of Using a Prenup
A prenuptial agreement can provide substantial benefits for couples contemplating marriage. Although many people associate prenuptial agreements with wealth and opulence, consumers may be surprised to learn that the vast majority of prenuptial agreements are entered into between "traditional" couples in relatively modest financial circumstances.
Many consumers who do not consider prenuptial agreements because they need a prenuptial agreement to protect their separate property. On the other hand, one of the fundamental benefits of a prenuptial agreement is the cost-savings involved in preparing it. For most Americans, the legal fees associated with entering into a prenuptial agreement will be less than the legal fees associated with litigating the issues that ought to be covered in a prenuptial agreement.
One of the key benefits of a prenuptial agreement is that it provides the couple with options with respect to the terms of their agreement. In negotiating the scope of a prenuptial agreement, the couple can either agree on certain marital choices or delegate authority to a third party so that no one spouse makes the unilateral decision. The couple may agree to address the following issues: division of ownership of businesses and other assets, protection for future retirement and/or social security benefits, in all likelihood, these issues are already addressed by statute and regulation for married persons. Regardless, having a written agreement that accurately reflects the intentions and expectations of the parties is a great benefit.
Yet another advantage of prenuptial agreements is avoidance of litigation and expense in estate administration. Even when a married couple executes a written will pursuant to legal formalities, it is not uncommon for family members to challenge the terms of the will if the surviving spouse, executor, administrator and other residual legatees fail to adequately insure the estate is administered pursuant to statutory guidelines. The presence of an enforceable prenuptial agreement and life insurance naming the former spouse as beneficiary may assuage disputes among potential beneficiaries as to the disposition of marital assets. In any event, the presence of a written document that addresses how assets will be addressed upon death can limit litigation among family members.
Most importantly, a prenuptial agreement can provide peace of mind for participants. Many have the fondest intentions with respect to the longevity of their marriage. Yet statistics show that over half of American marriages end in divorce. A prenuptial agreement can address the terms of marital separation so that there is a tuna a priori basis for the parties to address what will happen to their property and business interests, as well as date of separation, custody of minor children and child support. This factor alone makes prenuptial agreements advantageous.
Disadvantages
As with most things, the benefits of prenuptial agreements must be considered in light of potential drawbacks. Therefore, it is important to also consider the possible downsides to entering a prenuptial contract. For example, is there a potential to cause harm to the partners’ level of trust and intimacy if one party presses for a prenuptial agreement? Is there potential for long-term legal complications if the prenuptial agreement is not properly drafted by a qualified attorney? Over the course of a marriage, one also wonders about the potential for inequitable results as times change, and laws are revised. These are all fair questions and topics for consideration.
Signing a prenuptial agreement before entering a marriage raises some interesting issues about the level of confidence, trust and intimacy between the parties. Does one party value a potential claim over real property or financial assets more than the integrity of the marriage? If so, how is that matter going to get settled when it’s something that’s absolutely central to the contract?
There are also potential legal implications to not having a prenuptial agreement properly drafted by a qualified attorney. The potential damage may not only affect your relationship, but it could result in some form of legal complication that may haunt you and your spouse. Fairly or not, this happens most often to women after the dissolution of a marriage. Men can use existing case law and statutes to their advantage, while a woman often has to settle because it is too costly to challenge. That is one reason why it is so critically important to have a well-drafted and contemplative prenuptial agreement.
Fairness certainly will change over a period of time, which is why it is so important to keep the agreement updated throughout the duration of the marriage.
When a Prenup Makes Sense
There are several situations in which it might be appropriate for a couple to discuss and potentially enter into a prenuptial agreement. These include:
• One or both of the partners becoming wealthy during the course of the marriage.
• One or both of the partners has children from a previous marriage.
• One or both of the partners own a business or are getting into a business with the other partner.
• One or both of the partners expect to inherit a sizable amount of money in the future.
• The couple is remarrying.
One situation in particular that requires a prenup is if one partner has substantially greater wealth or assets than the other. This situation would require more protection of the wealthier partner’s assets , especially when it comes to business ownership or children from a previous relationship.
No matter the situation, both partners should be very open and honest with each other about their financial or marital status. Whichever side is turning over their financial information to the other, they should know and understand exactly what information they are providing. The other spouse should also understand what their counterpart’s financial situation at the time of marriage was like.
Legal Ins and Outs
From a legal perspective, there are a number of requirements that a prenup must meet to be enforceable. First, the prenup must have been entered into voluntarily. Courts want evidence that individuals entered into the agreement of their own free will, because they wanted to, because they were not forced to do so by physical or mental duress.
Second, the agreement must be fair to the parties. In other words, courts will look at the terms and conditions of the agreement to ensure that it is not "grossly inequitable" to one party.
Like an ordinary contract, another requirement is mutual disclosure, i.e., all assets and liabilities for both parties must be disclosed and setting forth how will these be categorized, owned, distributed or terminated in the event of a divorce.
Lastly, it is always advisable but not absolutely necessary for each party to retain independent legal advice. Circumstances may arise where one party does not want to hire a lawyer, either because of money or because the couple is already spending a lot of money on their wedding. However, if an agreement is unfair to one party, the judge may set it aside unless the parties had independent legal advice and the unfair terms were specifically brought to the attention of the parties or that the party who claims unfairness waived his or her right to receive independent legal advice.
Alternatives to Prenups
If prenups aren’t for you and you’re on the fence about entering into one, there are other alternatives to consider. For instance, in the event of a challenge to your prenup, you can enter into a postnuptial agreement. A post-nuptial agreement refers to a negotiation of assets after marriage, that typically takes place within one to two months of marriage. However, a post-nuptial agreement isn’t ironclad. The court still reserves the right to enforce the terms of the prenup, especially if it is determined that the post-nuptial agreement was not entered into voluntarily .
Another option to consider are "living together contracts" which refer to any arrangements made between two individuals living together — regardless of marital status — concerning the management of financial and property interests. Pre-civil union agreements may be utilized in lieu of a traditional prenuptial agreement. For legal purposes, a civil union is recognized by a state as marriage.
The alternative to entering into a financial agreement prior to marriage and/or civil union is to consider scheduling a simple family meeting, in order to openly discuss any financial concerns, plans or problems with all parties involved.