A prenuptial agreement defines asset division and financial responsibilities before marriage, offering legal clarity in case of divorce. It is beneficial for individuals with significant assets, debts, or dependents, ensuring financial security and reducing legal disputes.
By Brad Nakase, Attorney
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Before you tie the knot, have you considered getting a prenuptial agreement? You are not the only one. Axios reported in 2023 that half of all adults in the US would be willing to sign a prenuptial agreement. Millennials were, by far and away, the subgroup that was most enthusiastic about the concept of a premarital agreement.
Having said that, popularity is not everything, and determining whether or not a prenuptial agreement is suitable for you and your future spouse is a highly personal process. One of the most important aspects of this process is being aware of the specifics of what exactly can and cannot be included in a prenuptial agreement.
The parties to a prenuptial agreement (prenup) have agreed to divide up their assets and debts in the case of a divorce in a legally enforceable contract before they are even married. The Uniform Premarital Agreement Act of 1983 was an attempt by the federal government to standardize premarital agreements throughout the country. At present, prenups in 28 states adhere to this law. It is wise to consult a family law attorney when drafting a prenuptial agreement because its scope and enforceability can differ greatly among the other 22 states.
In a prenuptial agreement, couples have the freedom to decide on a wide range of personal and financial rules for their married life, including:
1. Liabilities and rights related to property
A well-crafted prenuptial agreement might state that the party without an ownership stake in the marital property will not be responsible for maintenance expenses following a divorce if one spouse brings separate assets into the marriage.
2. Property division
In the case of a divorce, it is essential for a prenup to specify the division of marital and personal property, including vacation homes and cars. Legally, couples have a lot of leeway to decide how to split their assets as long as it’s not unfair or unreasonable.
Note that any debts accrued during the marriage may also be divided through prenuptial agreements. For instance, a prenup can state that the spouse’s obligation to repay any outstanding student loans is yours to bear in the event that your future spouse intends to pursue further education.
3. The interests of dependents
Prenuptial agreements provide a great measure of financial security for spouses who have dependents or children from a prior marriage in the case of a divorce. In particular, prenuptial agreements can distinguish between marital and non-marital assets by designating certain properties or assets for current dependents.
4. Support for a spouse
The majority of people usually picture alimony when they consider prenuptial agreements. In addition to establishing a minimum amount of alimony, prenups can be utilized to entirely forego alimony rights. This way, in the event of a separation, both parties have a basic idea of what to expect.
5. Life insurance policies
If you have a life insurance policy, a prenuptial agreement can spell out who gets what percentage of the payout or even name your spouse as the beneficiary. Another use of prenuptial agreements is to guarantee financial security in the case of your partner’s death by mandating that they get life insurance.
6. Factors related to trust and will
Although we will get into the nitty-gritty of the relationship between prenups and estate planning documents shortly, it is common for courts to give prenups more weight than wills. In addition, a prenup can specify the distribution of marital assets upon death, mandate that one spouse make a will, or forego the elective share of either spouse in an existing will.
7. Inheritances
A prenup is a great tool for people who want to avoid having their future assets divided up in a marriage if they anticipate receiving an inheritance.
We already established that prenuptial agreement laws might differ greatly from one state to the next. As a result, a lot of prenups spell out which state’s laws will apply in the event of a dispute or arbitration.
Prenuptial agreements are legally binding contracts, but there are a few caveats that you should know about before you tie the knot.
1. Custody and child support matters
It is against the law in every state to use a prenup to set out the terms of child support, visitation, or custody in advance. In the case of a divorce, the courts will instead prioritize the child’s best interests above those of the parents.
When determining the precise amount of child support that needs to be paid, factors such as the child’s unique needs and state guidelines are taken into account.
2. Routine domestic tasks
Federal and state laws typically limit prenups to matters pertaining to money and marital duties. Household responsibilities or philosophical differences regarding childrearing are examples of more mundane, personal issues that have no place in a prenup and could render it unenforceable.
Furthermore, neither spouse may include terms regarding the other’s religious views, hobbies, or physical appearance in a prenup because the law views a prenup as a contract between equals.
3. Unlawful conditions
This may sound like stating the obvious, but a prenup cannot include any language that would require one spouse to participate in illegal activities or be involved in such activities.
4. The promotion of divorce in any way
Whether it’s a financial incentive to file for a divorce or anything else that goes against the general policy of encouraging marriage, the court will review your prenup during the divorce process for such provisions. Including such clauses in your prenup may render it null and void and unenforceable in all respects.
5. Anything that is not fair or just
The idea that prenuptial agreements should be equitable for both partners is central to their philosophy. Accordingly, a prenup cannot stipulate an undue advantage for either party, such as an unfair distribution of assets upon divorce.
How can you tell if a premarital agreement is necessary? It is wise to consider a prenuptial agreement if you or your fiancé/fiancée fall into any of the following categories.
Some states’ alimony law states that support payments to an estranged spouse may be required from individuals whose income was substantially higher than their spouse’s during the marriage. You will be required to pay alimony (and, in the event that you are the lower-earning spouse, how much you will receive) depending on the specifics of your marriage and the circumstances surrounding your divorce.
You are more likely to be required to pay substantial alimony if you are married for a longer period of time and have a higher income.
The sole surefire way to avoid paying alimony as a “supporting spouse” under North Carolina divorce law is to prove that your spouse’s adultery was the decisive factor in the dissolution of your marriage. If you don’t take action, you might end up paying alimony for a long time. This is because alimony awards are sometimes “permanent,” meaning they won’t end until either you or your spouse gets a court order to change them or stop them.
You might want to think about getting a prenuptial agreement if one of you has kids from a previous relationship or marriage. In order to establish child support and custody, the facts surrounding the separation must be considered. But a prenuptial agreement can help shield your kids from certain risks.
If you plan to have a family, is a premarital agreement still necessary?
You can protect your children’s future financial security and property holdings by drafting a prenuptial agreement. In a different scenario, this money or property might be considered part of the marital estate and divided accordingly. Divorce can be a contentious process, and a premarital agreement can help keep children’s inheritance and future support out of the legal system.
It can be extremely challenging, if not impossible, to regain one’s professional or financial footing after a divorce if one spouse has temporarily or permanently put their career on hold to care for their children. If a stay-at-home parent’s career is on hold when their marriage ends, a prenuptial agreement can safeguard their interest in the marital assets and provide legal documentation of the agreements.
You should think about getting a prenuptial agreement if you or your future spouse have a lot of assets before you tie the knot. This includes both monetary assets, like a 401(k) or investment accounts, and physical assets, like cars, boats, or real estate. A prenup will make sure that these assets, and any money that comes from them, stay out of the marital estate.
Stocks are a type of financial asset, but they merit special attention. In the case of a divorce, the other spouse may be able to claim a portion of your stock portfolio or the income it generates if either of you has substantial assets.
If you want to keep your money and investments safe in the event of a divorce, you should get a prenuptial agreement. You might lose a lot of money and potential earnings if you don’t have one.
When you’re married, your personal and professional lives may seem unrelated, but in the case of a divorce, those lines can blur. If your business appreciates in value while you’re married, your spouse still gets half of it, regardless of when you started.
To illustrate the point, let’s say you started a business before you were married and managed to grow it into a $1 million firm. During your marriage, you managed to grow it into a $2 million firm, so if you were to get a divorce, your spouse would be eligible to receive at least $1 million. If your company loses half of its value, it will have a devastating effect on your employees and your own finances.
Businesses may be subject to division as marital property if they were either started during the marriage or if one spouse made substantial contributions to the company while the other was married. If it’s a family company, you could end up financially harming family members.
Do not jeopardize the financial stability of your family and employees, as well as your business and future earnings.
You should get a prenuptial agreement if your future spouse has any debt.
While it’s true that pre-marriage debt usually stays separate from post-marriage debt, issues arise when resources start to change hands. Using your retirement savings or an equity line to pay off your spouse’s student loans might seem like a good idea at the time, but in the long run, it will hurt your own finances and leave you feeling cheated. Plus, if any marital debts go unpaid, the creditors might go after you for the money—regardless of who took out the loans—in the marital name.
An excellent method to safeguard yourself is to specify in a premarital agreement the existence, type, and future obligations of debt.
Including pets in a prenuptial agreement is not uncommon, particularly when the animals are expensive. If you do this, the rightful owner of any pets or animals you own with your spouse will get them if the marriage ends in divorce. While arguments involving pets in court are uncommon, some divorcing couples do use their pets as leverage (e.g., “Give me such-and-such or I’ll take the cat”).
Strong-willed people are easy to fall for, but they’re not always easy to win an argument with.
A prenuptial agreement is a good way to handle contentious financial matters, especially if your future spouse is difficult, vindictive, or stubborn. Think about how your new partner has handled exes from past marriages or relationships; be honest with yourself.
If you imagine yourself spending your married life attempting to stay out of your spouse’s bad graces, you should prepare yourself for the challenges of a divorce. Go with your gut and get a prenuptial agreement in writing.
There are some people for whom prenuptial agreements aren’t a good fit, despite their growing popularity. A prenuptial agreement may not be necessary for the following reasons:
1. Relationship dynamics and trust
Some couples may still view prenuptial agreements as a sign of doubt or distrust despite their increasing popularity in recent years. In most cases, a frank discussion about the reasons behind a prenup can alleviate this concern, even if it is not entirely justified.
2. Equality and financial transparency
If both parties are financially stable, they may decide that a prenup isn’t needed. Although this could work out in a divorce, you should think long and hard about the risks involved before committing to relying on state law to divide assets fairly.
3. The expense and difficulty
With an average cost of between $800 and $1,000, a simple prenuptial agreement is among the more reasonably priced legal documents to have drafted. Prenups that involve more complicated provisions, such as those involving substantial assets held by either party, can be emotionally and financially taxing to draft.
4. Beliefs rooted in culture or religion
There are religious and cultural traditions that teach spouses should always divide and conquer their joint fortunes. Under this interpretation, a prenup may be considered as an affront to traditional values and a violation of privacy.
5. Additional legal safeguards
Prenuptial agreements are among the most common legal safeguards for spouses’ financial interests in modern marriages. Wills, trusts, and postnuptial agreements are all viable alternatives that some couples may choose to use for legal protection.
The entire process of creating and enforcing a prenuptial agreement consists of just six steps:
Partners should first sit down and discuss their financial situation and any particular reasons they may have for wanting a prenup, such as the desire to safeguard assets, family heirlooms, or inheritances. The reasons behind this can vary from person to person, so it’s crucial to communicate everyone’s desires in a clear and reasonable manner.
The next step, after deciding what each partner hopes to achieve with the prenup, is to gather material. You can do this by creating detailed lists of all your assets (such as bank accounts, property, and stocks) and debts (such as medical bills, student loans, and credit cards).
To ensure the validity of your prenup, it is essential to provide what is known as “full and fair disclosure” in legal terms.
After gathering all of the necessary details, you can begin to draft your prenuptial agreement. Here is where it’s a good idea to bring in lawyers—one for each of you—to make sure the prenup is thorough and legally binding. Never mind if this first draft isn’t perfect; a prenup isn’t legally binding until both parties sign and have it notarized. Keep your attention on the big picture and your top priorities instead.
Each spouse should review a copy of the prenuptial agreement with their legal counsel after the initial draft is complete. You can both use this opportunity to ask questions, make edit requests, and potentially negotiate more favorable terms.
After the prenup has been fine-tuned and both parties are satisfied with it, the last step is to have an official notary public and witnesses sign off on the document. Although most individuals use the services of a professional notary, you can also get your documents notarized at any bank or post office.
No matter how fair or legal the terms of the prenup may be, it will be null and invalid if not witnessed and notarized.
Your prenup will be a valuable tool in the event of a separation or divorce, helping to clarify the division of assets and debts, as well as issues like alimony, during the negotiating process. Make sure the prenup was prepared and signed in accordance with state and federal guidelines because the court will review it to ensure it satisfies all legal requirements before this can happen.
Prenuptial agreements prepared without legal representation are more likely to have their validity challenged in court during a divorce. The following are examples of typical blunders that might render a prenup null and void:
It is critical to specify which document takes precedence if the parties have a prenuptial agreement in place when planning their estate. Ideally, you should consult a competent attorney before drafting this provision to ensure that you use precise and appropriate language to prevent expensive litigation down the road.
When the terms of a prenuptial agreement conflict with those of a last will and testament, the probate court will carefully review the prenup to determine which document takes precedence. In most cases, a court will give greater weight to a prenuptial agreement than a last will and testament.
Last but not least, a legitimate prenup should make it crystal clear which state’s laws are to be applied in interpreting it. If this information is missing from the prenuptial agreement and one of the spouses passes away in a different state than the one where the couple lived when they were married, then the laws of the state where the spouse passed away will apply.
One can take two main steps to make sure their prenup and will are both carried out after they pass away.
There is a “sunset” clause in prenups that specifies when the provisions become null and void and give way to a will.
Second, if the heirs to a will believe a prenuptial agreement is invalid, they can challenge it in court.
Bringing up the topic of a prenuptial agreement is never easy, but it could end up saving you and your partner a lot of pain in the long run. Instead of putting it off until a few weeks before the wedding, aim to have this conversation early in the engagement for both fairness and legal reasons. This conversation should ideally happen when the subject of marriage first comes up, but it should happen sooner for couples with substantial individual assets or debts, dependents, and small businesses.
Regarding the discussion itself, here are a few ways to handle the first prenuptial meetings:
1. What does a postnuptial agreement mean?
Postnuptial agreements are legal contracts that some couples choose to discuss after the wedding. The purpose of a postnuptial agreement is to lay out the terms for the division of assets and debts in the case of a divorce or death of one spouse.
All parties to a postnuptial agreement must give their informed consent, sign the document, and have it notarized. If all of those conditions are satisfied, a postnuptial agreement can effectively cover the same assets as a prenup.
2. Am I allowed to create my own prenuptial agreement?
While you can certainly do it yourself, keep in mind that a court may find your prenuptial agreement unenforceable if it turns out that some of the conditions weren’t satisfied.
An invalid prenuptial agreement could be the result of technical mistakes, coercion, or terms that are too generous. Moreover, prenuptial agreements are subject to convoluted regulations in some states. In deciding whether a prenuptial agreement is fair for both parties in the event of a divorce, judges will assess the agreement.
3. In states that recognize community property, are prenuptial agreements legally binding?
A total of nine states—Wisconsin, California, Idaho, Louisiana, Nevada, New Mexico, Texas, and New Mexico—are community property states. When a couple gets a divorce, this means that their assets will be divided equally. However, the community property regulations take a back seat to any prenuptial agreements that may exist.
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