A prenuptial agreement is a contract entered into prior to marriage where the future spouses agree to ownership and disposition of certain assets in the event of divorce, as well as to how they wish to handle distribution of marital assets and spousal support. Many people think that prenuptial agreements benefit wealthy people by allowing them to safeguard their wealth in the event of a divorce, but that really is not the purpose of these agreements. Indeed, when an agreement gives virtually all property to a wealthy spouse and essentially nothing to the other spouse, courts will scrutinize these agreements carefully to determine if they are so fundamentally unfair that they should not be enforced.
Typically, most people want a prenuptial agreement to simplify certain issues of asset distribution and spousal support. For example, parties can agree that they will waive maintenance (spousal support) but receive instead a fixed sum after a certain number of years of marriage. Or if one party has substantial interest in a family trust or inheritance, that party will use a prenuptial agreement to assure that it remains that party’s separate property during the marriage and in the event of divorce.
But one need not have great wealth to take advantage of a prenuptial agreement.
Consider two people, both of whom have been married before and have children from the prior marriages. Assume further that both owned a house in their own name prior to meeting each other, and that they intend to keep these houses after they get married but only live in one house. It is quite possible that in the event of a divorce, the spouses would want to have the availability of that other house free from any claim by the other spouse. Or perhaps the spouses want to keep the interests in the home clear so that divorce will not give that spouse an interest in the house that the respective spouses want to leave as an inheritance to their children.
In this situation, without a clear prenuptial agreement, it could be very easy for each spouse to end up losing some of the interest in their houses. They may end up commingling assets to pay for a mortgage or upkeep; they may live in one house exclusively and yet both contribute to updates to the house. Many contingencies could be listed that would create real problems for a spouse trying to keep the house totally free and clear from the other spouse.
However, with a prenuptial agreement, the spouses clearly delineate ownership and address issues of mortgage payments, upkeep, possession, use and the like. In this way, in the event of divorce, each party has that house as it was prior to the marriage, and no future inheritance has been burdened or lessened by an interest in the home by the other spouse.
Similar situations could arise with regard to investment funds that a spouse wants to keep for his or her benefit as a nest egg in the event of divorce or simply to leave to a child. A spouse with little money can require a new spouse with wealth to assure the lesser earning spouse will be cared for in the event of a divorce through a simple beneficiary designation on a certain investment account in a prenuptial agreement.
These examples illustrate that prenuptial agreements can serve as excellent tools of financial planning, protecting certain assets and the intent of the parties in the event of a divorce. While people worry about “jinxing” a marriage by talking about divorce, it is well worth the risk of ending up with far less than anticipated in the event of divorce.
If you have questions about prenuptial agreements, contact us – we can help.