An Overview of Prenuptial Agreements
A prenuptial agreement is a contract entered into by two people before they get married. The purpose of such a contract is to address what happens to each person’s property and to the payment of any debts when a couple gets divorced, or dies. Under the right circumstances, it can also secure an award of alimony or spousal support in the event of a divorce.
More people are using prenuptial agreements than before. In the past, this might have been just because they were wealthier or were marrying for the second time. Now these agreements are being used by younger people and more people without significant wealth. They are used, increasingly, to address terms so that these issues do not have to be dealt with as part of a divorce — particularly creating the terms of any financial support term for one spouse should the other be awarded alimony or spousal support. However, they are often used to fix the distribution of property when spouses die, separating what each spouse’s separate and marital property are.
The term is a misnomer, as the agreement does not address post-nuptial issues but deals with pre-nuptial issues. If you have a child, or children, from a previous marriage or relationship and want to secure your prior child or children’s rights to property or family support, this is a way to address that. Or, maybe you just want to assure that your current spouse has no claim on certain property that you missed in your prior divorce, but you are now living with someone else and want to re-marry. Alternatively , you may work for a company and have some stock options and employee benefits that you do not want to share with a new spouse. Separating premarital assets from marital property with a prenup can create space for all of these concerns at the time of separation, or at death. It is particularly important, if the time between one marriage and another is short and you have not had time to build substantial assets in the period between the marriages.
Because the issues are complex and there often are other concerns or issues unique to you and your loved one, the terms of a prenuptial agreement should be carefully thought out, detailed and understood by both sides. There are filing requirements with the court, and not following them could jeopardize the core premise of the contract, which is that it avoids the court having to address the issues it covers. Likewise, if one party is entitled to alimony or spousal support, the failure to have the agreement reviewed by a professional versed in the needs addressed by the agreement could result in either not getting what you had hoped for at a later date, or the payment of too much money when you separate.
Prenuptial agreements are contracts that are enforceable like any other contract. However, because of their nature, mistakes, omissions, misrepresentations or even inequities occur regularly in the drafting and execution of these agreements. At times an parties’ financial circumstances change after the agreement is signed. Because of their importance and potential to protect your rights you and your attorney should review any proposed agreement before it is signed.
Major Elements of a Prenuptial Agreement
The contents of a prenuptial agreement differ as widely as the personalities that create them. Yet it is possible to compile a list of the elements that typically appear in a relatively even distribution of these documents. The practice of listing items like this is not only a great way for attorneys to remember their various provisions, but also for clients to evaluate their own needs. The key components contained in prenuptial agreements can be broadly classified into four categories:
- Separation of Property: In most states, property acquired during marriage is subject to division in the event of a divorce. A prenuptial agreement can preserve the property of each spouse in the event of a divorce and thereby eliminate any future dispute over how to distribute the property of either spouse.
- Spousal Support: An attorney can help draft a prenuptial agreement in which the spouses waive alimony or agree on a specific amount of alimony that one spouse will pay to the other in the event of a divorce. In addition, the spouses can agree to limit the duration of the alimony award. This area is a particularly sensitive one, and care should be taken to ensure that the parties do not agree to an alimony waiver that a court might strike down in the event of a divorce.
- Disposition of Property Upon Death: A prenuptial agreement can determine who will receive property upon the death of one of the spouses, and in what amounts. This can be especially useful where one spouse brings into a marriage a child from a prior relationship and wishes to insure that assets are distributed to that child on the death of that spouse. Without a valid prenuptial agreement, a spouse has certain rights to a share of his or her partner’s estate and courts may be hesitant to strike down such awards in order to protect the rights of the innocent surviving spouse.
- Gift in Anticipation of Divorce: It is also possible for spouses to agree in a prenuptial agreement to make gifts to each other in the event of a divorce. This is a less commonly used approach to divorce because it is generally much more profitable for a couple to negotiate a settlement following the breakdown of their marriage. However, if couples prefer to avoid the rancor of separation, this can be a viable option.
As with any contract, the law takes significant steps to enforce these provisions. However, there are limits to the enforcement of an agreement that takes away important rights from a spouse. For example, an agreement that waives the right to seek alimony may not be enforceable if the amount of property that a spouse brings into a marriage is so low that even a waiver of alimony cannot compensate for it.
Conversely, a court will enforce a prenuptial agreement even if it results in a substantial economic imbalance between the spouses if that imbalance is no greater than what would occur on the spouse’s death. In other words, spouses can generally agree in advance on the economic rights they will confer upon each other during their lives and even after their deaths.
Why You Should Review a Prenuptial Agreement
A prenuptial agreement is a legal contract that should not be signed without thoroughly reviewing its terms and their implications under law. A thorough review may include running the terms by your attorney, a tax advisor and/or an accountant. If you do not understand the terms or the impact a term may have on you, ask for clarification and/or consult with appropriate professionals. Your then-future spouse should be open to providing clarity and/or independent confirmation of the terms. Although this process may seem cumbersome, it will ensure that the contract you sign is acceptable to you and you are aware of the potential impact a term may have on you. Your future spouse should be aware that you may need to consult with someone else to clarify points that could significantly impact you.
If you have questions regarding any of the terms, you should not sign the agreement until you have had the terms either explained or confirmed by whomever is appropriate. Do not assume the terms are clear and you understand their implications until such time as you have actually received professional confirmation that you have an accurate understanding of the terms.
An example of a potential outcome if you do not receive clarity regarding the terms is outlined here. You and your future spouse may agree to a provision stating that all of your separate property from prior to the marriage shall remain your separate property and shall not be deemed marital property. After the marriage, you may purchase property which is deemed matrimonial property, even though you purchased the property with your separate assets. The fact that the agreement states your separate assets shall remain your separate assets does not render such assets actually separate in the event of a divorce. In other words, just because a provision is contained in a Decision of Matrimonial Action (D.O.M.A), does not mean the provision will be upheld.
Any provision in a Prenuptial Agreement may be disregarded if it is contrary to the law of the State of New York or contrary to public policy. For example, you cannot agree to waive the Child Support Standards Act (CSSA) as such is against public policy. Parents and future parents have a positive obligation to support the needs of their children. As a result, such waiver will not be upheld and if you and your future spouse wish to have the contract upheld, you should delete the provision. You should also discuss with your attorney whether there are other provisions which may be unenforceable.
The Prerequisites of a Prenuptial Agreement Review
The following is a roadmap to the types of issues which may be presented in the review of a proposed prenuptial agreement:
- Introduction – Make sure the agreement states that it is only effective upon marriage and therefore needs to be signed before the wedding date.
- Execution – While practicality points towards the agreement being prepared and signed as early as possible, prior to the wedding date, the law in the State of New Jersey has developed a rule that if less than 6 days elapse between when a prenuptial agreement is presented to one party and when a party is asked to sign then the agreement entered into may be the source of legal challenge. However, if there has been any substantial independent cooperation of counsel for each party, this 6 day period may be expanded. This rule is a product of case law decided by the New Jersey Supreme Court and the prudence of any party in agreement is to ensure that adequate time is given to evaluate and consider the substantive rights contained in the agreement.
- Disclosures – It should be confirmed that the disclosure of income and assets has been conducted in order that, among other things, no claim can be made that there was a lack of disclosure resulting in the agreement being rendered void if and when it is put to any test.
- Fairness and Reasonableness – Make sure the provisions of the proposed agreement are reasonable and fair. This will take into account the ages, education, length of relationship and whether or not there is any disparity in the setting up of property and assets prior to and after the marriage. It will also take into account the factual background necessary for a court to find that the terms of the proposed agreement have been "equitably fair". A proposed agreement that is overwhelmingly weighted in favor of one party may in itself, regardless of the length of time before signing and the extent of the disclosure, be deemed so inequitable as to render it subject to challenge. The court may, depending upon the circumstances, require some degree of financial involvement during the marriage in order for a couple to enjoy fairly an equitable distribution of assets acquired during the marriage. The extent of participation will be a factor in the court’s evaluation of whether the terms are equitable.
- Basic Terms of Prenuptial Agreement – Make sure that all the basic contractual requirements are present in the proposed agreement, such as:
A.) The agreement must have a clear and unambiguous statement of what is and what is not marital property.
B.) The agreement must provide adequate security for the dependent spouse.
C.) The agreement must address the issue of child support where the possibility of children is considered.
D.) The agreement must address the issue of how to apportion marital liabilities.
E.) The agreement must include a schedule of premarital assets.
F.) The agreement must include a schedule of premarital debts.
G.) The agreement must include a schedule of premarital liabilities.
H.) The agreement must include a provision addressing the needs of the dependent spouse should children be born.
I.) The agreement must include provisions addressing the tax consequences of the prenuptial agreement.
Things to Avoid when Reviewing a Prenuptial Agreement
With limited time, there is a great temptation to speed-read the prenup. When you do this, you may miss key financial and non-financial information that is likely to have an impact. While speed-reading the document may be insufficient, however, there can also be an opposite reaction. In an effort to understand everything before signing the prenup, you may go down unnecessary rabbit holes seeking your lawyer’s advice. Your attorney gives great guidance, but will they need to charge you by the hour to get answers to too many questions?
It is important to understand what do qualify as questions that require your lawyer’s input and which ones actually are not necessary. Just because you don’t understand something in the prenup, doesn’t mean you can’t sign it. Ask basic questions that clarify how the various parts of the prenup can affect your life.
Are there other members of your family you may want to offer input to?
A little healthy checking in with loved ones can help unveil blind spots and any possible weaknesses in the prenup. The same way you’ve probably spoken with your parents and friends about marriage or your wedding , you could also ask them about your prenuptial agreement.
In some cases, however, asking outside parties could be counterproductive. For example, if you or your beloved’s parents have strong ideas about how a marriage should be, their input could overwhelm you. Outside parties should never control you or make you feel bad about your choices.
Misunderstanding the Contract’s Implications
There are some situations where your prenup is revocable and others where it is not. This depends on the laws of your state or country and the terms of the prenup itself. Some people think their prenuptial agreement is completely immutable. Understanding what is revocable and what is not can make the current negotiations and any future ones more fruitful.
The Need for a Lawyer with Prenup Review
The process of reviewing and assessing a prenuptial agreement can be lengthy and arduous, but having representation from an experienced family law attorney can provide a better understanding of what lies ahead. An attorney can help to answer questions about the process as well as the content of the document itself. This will also allow for a more thorough review of the terms and conditions of the prenuptial agreement. In addition, it will allow for the client to understand the potential effects the agreement can have on their life, both during the marriage and in the event of separation or divorce.
When meeting with a family law attorney regarding a suspected prenuptial, it is helpful to have the actual agreement with you. Simply stating that a prenuptial agreement exists is not sufficient. It is important for an attorney to be able to review the terms and conditions of the document itself, especially if the parties have not yet executed the agreement. It is also beneficial for the attorney to have a sense of the funds, assets, and liabilities that may be subject to the terms of the agreement. Experience is key. You should retain a lawyer who specializes in prenuptial agreements and who is familiar with the law in your state. If the case is likely to involve significant litigation, you should retain a lawyer who is also experienced in litigating the matter.
How to Modify or Update a Prenuptial Agreement
While prenuptial agreements are designed to set forth the parties’ rights upon certain triggering events, such as divorce or the death of one of the parties, or to spell out a property settlement agreement, they also need to respond to the changing circumstances of the parties’ lives. New children, a new job, a business venture that takes-off or a financial windfall can impact how the parties approach their marriage.
In some situations, events happen during the marriage which causes the parties to desire changes to their prenup. In other situations, the parties may agree that the once-savvy financial plans, whether contained in a prenuptial agreement or not, no longer meet the parties’ needs. An over-ride on the prenup may need to be created. In the event the parties have children, and want those funds to pass to the children in the event of deaths, they may decide that in the event they die without a will, those assets should be covered by the prenup.
If both parties desire to make a change or an override to the prenup after the marriage, they must both execute a new agreement and sign in front of a notary public. These changes or over-rides are best done in advance of the event, whether it is new employment or a new child. In the event of a death, this could be too late to address. For small adjustments, if an agreement was relied upon, the adjustment will need to be made via the new agreement after the event occurs.
As with making a prenuptial agreement prior to the marriage, it is best to work with a matrimonial attorney experienced in these changes or adjustments to prenups.
Questions to Ponder when Reviewing a Prenuptial
The following are questions that should be asked:
Is the document drafted to address each party’s individual circumstances and concerns?
Are the property disclosures accurate?
Is the language clear and understandable?
Is the division of property fair and reasonable?
Does the deal seem fair?
Is it in the divorce documents or is it incorporated by reference to the prenuptial?
If it is not in the divorce documents , then it needs to be.
Has the spouse received independent counsel?
Were the prenuptial and the divorce documents prepared by the same attorney?
How was the document served on the other spouse and when?
What is the likelihood the alimony and support provisions would be enforced?