A prenuptial agreement, sometimes called a premarital agreement or antenuptial agreement, is a contract between people who intend to marry that governs what will happen to their assets in the event of separation, divorce and, if the parties choose, death.
The agreement may help a couple maintain separate property as they enter a marriage, separate their income and retirement benefits during the marriage, avoid the application of state laws that would require an undesirable division of their assets upon separation or divorce, and may even incorporate estate planning provisions.
Historically, courts viewed prenuptial agreements with suspicion, under the theory that they discouraged people from getting married or could potentially encourage divorce. Today, most jurisdictions have adopted the opposite perspective, that prenuptial agreements may facilitate marriage.
For example, a couple that might be reluctant to marry due to financial disparities, estate planning concerns, or one partner's debt load might not hesitate to marry if allowed to address those issues through a binding premarital agreement.
What Does "Prenuptial" Mean
The terms "prenuptial" and "antenuptial" both mean "before marriage". The prefixes, pre and ante both mean "before". The word nuptial, means "of or relating to marriage or the wedding ceremony".
Common reasons for entering a prenuptial agreement include,
Wealth Disparity: Although far from the only reason for entering into a prenuptial agreement, these agreements remain relatively common in marriages in which one partner has accumulated significantly more wealth or income than the other, as they go into the marriage.
Business Ownership: If one partner to a marriage owns a business or professional practice, or a share in a business or partnership, it may be beneficial to enter into a prenuptial agreement that protects the business from being divided as part of the marital estate.
Premarital Debts: If one spouse enters the marriage with a significantly higher debt load than the other, a prenuptial agreement may help protect the non-debtor spouse from being held accountable for those debts or from having them considered if they are not paid off prior to a divorce or separation.
Second Marriages: Partners who have been previously married may want a prenuptial agreement to keep their assets separate for the benefit of children from a prior marriage.
Heirloom Property: One or both partners may hold real estate or items of personal property that they want to keep within their side of the family.
Inheritances and Gifts: A prenuptial agreement can protect a spouse from claims against assets that have not yet come into their possession, or are anticipated to be received through inheritance. Where it is anticipated that one or both spouses may receive significant inheritances or gifts during the relationship, they may want to address in advance how the proceeds will be separately maintained and treated in relation to the marital estate.
Preservation of an Estate Plan: A spouse who has formed an estate plan may want a prenuptial agreement to ensure that the estate plan remains in effect following remarriage.
Agreements Affecting Future Earnings: Sometimes the parties to a marriage may agree that one spouse will leave a career path in order to support the marriage in another way, such as by supporting a spouse's political or business career, or staying home to raise the parties' children.
Prenuptial agreements are most commonly associated with marriages in which one partner has significantly more wealth and income than the other. An agreement that defines the spouses' rights to their premarital assets, how the marital estate will be divided, and defining any spousal support payments can provide the wealthier spouse with both financial protection and reassurance that the marriage is about love and not money.
With a wealth disparity, the biggest concern is that any prenuptial agreement will primarily benefit the wealthier spouse. However, due to the requirement that prenuptial agreements be fair, the agreement may provide significant protection and reassurance to the less wealthy spouse.
- The less wealthy spouse may get a reasonably clear picture of what life will be like after the marriage, and will understand what assets and spousal support are likely to be received following any break-up of the marriage.
- The less wealthy spouse may also be relieved of some concern that a divorce will be nasty or contentious, or that a judge might award less than is provided for by the prenuptial agreement.
Many possible situtions exist in which a prenuptial agreement may benefit the partners to a marriage, even when they enter the marriage on relatively even financial footing. Also, while premarital agreements cannot assure that a divorce will not be contentious, by limiting litigation over specified financial issues, they may help simplify any eventual divorce.
Prenuptial agreements may be of particular value in second marriages, particularly where the couple is older and both partners are financially established. People who have accumulated significant assets or retirement savings, or who have children from prior relationships, may want to keep their assets and retirement accounts separate, and to keep certain assets outside of the marital estate in the event of separation, divorce, or death.
Sometimes a spouse with a professional degree, or who intends to earn an advanced degree during the marriage, will want a prenuptial agreement that defines that degree as separate property.
Although the requirements for validity may vary by state, in order to be reasonably confident that the agreement will be deemed valid and enforced, all of the following requirements must be met:
Agreement in Writing: A prenuptial agreement must be in writing. While there is at least one case upholding an oral prenuptial agreement within the context of an estate proceeding, following the death of one of the spouses, that's a rare, and exceptional circumstance. If you want any degree of certainty that your agreement to be enforceable, it must take the form of a written contract.
Full Disclosure: A prenuptial agreement must include a full and fair disclosure of the parties financial situation, including their assets and debts.
Fairness: The agreement must be fair and reasonable at the time it is signed, and may again be reviewed for fairness at the time it is enforced.
Voluntary: The parties to a prenuptial agreement must enter that agreement voluntarily, of their own free will.
Signed: The parties to a prenuptial agreement must sign the agreement.
Witnessed: The parties' signature of the prenuptial agreement must be witnessed.
Notarization: The prenuptial agreement must be signed or acknowledged before a notary public.
The Importance of Full Disclosure
The purpose of a prenuptial agreement is to address financial rights and issues that arise because of marriage, and during a subsequent marriage.
As finances go to the heart of the agreement, a partner's failure to make a full and fair disclosure of debts and assets can undermine the agreement. The other partner will not understand the full implications of signing the agreement.
Further, any intentional deception during the negotiation and execution of a prenuptial agreement suggests at a minimum that the deceptive partner knew that the agreement was not likely to be signed with full disclosure, and carries a strong suggestion of fraudulent intent. That's an approach that is likely to result in an unenforceable prenuptial agreement, and a terrible way to start a marriage.
Customizing Your Prenuptial Agreement
A prenuptial agreement is highly customizable, and can be either very simple, or may include a wide range of provisions that are tailored to the parties detailed needs.
One couple may desire only a simple agreement that defines certain property as separate property, while holding that all other property will be divided equally upon divorce. Another couple may want a far more elaborate agreement with terms that change based upon the length of their relationship, whether they have children together, and their estate planning goals.
Although it is impossible to anticipate every contingency, a prenuptial agreement can be drafted to address the most likely issues that will arise within the parties' marital relationship.
Among the factors that may require customization of an agreement, language may be included to address:
Marital Property: What assets accumulated during the marriage, including earnings, newly acquired assets, or appreciation on premarital or separate assets, will be included in or excluded from the marital estate.
Retirement Benefits: How will retirement accounts and pension benefits be treated in the event of divorce or the death of one of the parties.
When Does the Agreement Become Active: Will the prenuptial agreement become active upon separation, or must a divorce action first be filed? Will there be any other triggering events?
Clauses that may be customized based upon the parties needs and wishes include:
Spousal Support: whether, when, and in what amount or by what formula may spousal support be ordered?
Choice of Law: What state's laws will apply to the interpretation of the contract if the parties relocate?
Sunset Clause: Will the prenuptial agreement expire, in whole or in part, after a specified number of years? Will it expire upon the occurrence of specified events such as upon the birth of a child?
Inheritance Rights: Does the prenuptial agreement apply to inheritance rights if one spouse predeceases the other and, if so, to what effect?
A prenuptial agreement can cover many issues relating to the parties assets, debts, pension and retirement benefits, and estates, but the agreements are not without limit.
The following provisions will not be enforced:
Child Custody and Support: A prenuptial agreement cannot impose a child custody agreement or visitation schedule, or modify or restrict child support as it would otherwise be calculated under the governing state law.
Violations of Public Policy: A provision that is contrary to the public interest or to important rights of a party may be deemed unenforceable. For example, a clause that prohibits a party from seeking attorney fees from the other party in the event of a child custody dispute might be deemed unenforceable, as it could prevent a less affluent spouse from being able to afford representation in a custody dispute.
Promotion of Divorce: A provision that is deemed to promote divorce, such as a clause that requires the other party to agree to a divorce upon payment of a defined sum of money, would not be enforced.
Non-Disclosure: A provision that attempts to excuse one or both of the parties from making a full financial disclosure will cause the agreement to be held invalid.
Lifestyle Restrictions: Provisions in a prenuptial agreement that make its benefits conditional upon certain lifestyle or behavioral restrictions, such as requiring a spouse to attend church or requiring that any child born to the parties be raised in a specific religion, will not be upheld.
Using Lawyers to Negotiate a Prenuptial Agreement
Most engaged couples that are negotiating a prenuptial agreement benefit from obtaining independent legal representation. Proceeding without a lawyer raises a significant risk of error, and proceeding with only lawyer raises issues of conflict of interest:
Neither Party Uses a Lawyer: While saving legal fees, this approach is likely to result in the least customized prenuptial agreement, may result in the inclusion of language that is inconsistent with the parties' wishes or complicates enforcement, omits provisions that would address issues that are important to the parties, and is partially or wholly unenforceable;
Both Parties Use One Lawyer: The problem with using only one lawyer is that there is an inherent conflict of interest between the parties to a prenuptial agreement. If one party hires and pays the lawyer, the lawyer will represent that party and negotiations are likely to be unbalanced in favor of the represented party, and that alone may later be grounds to set aside the prenuptial agreement.
Even if the parties try to jointly hire a lawyer, the balancing act of trying to advise both parties of their best interest while helping them protect their individual goals and objectives is something most lawyers would choose not to attempt, let alone an approach that is likely to result in an agreement that best serves the parties.
Both Parties Have Independent Legal Representation: The best approach for negotiating a prenuptial agreement is for both parties to the agreement to be represented by independent, qualified lawyers of their own choosing. Where one party is significantly wealthier than the other, that party may pay the less wealthy party's legal fees but, to ensure independence, should have no further role in the selection or use of the other party's lawyer.
Some states may require independent legal representation for prenuptial agreements that address specific issues. For example, in order for a provision that affects spousal support to be enforceable, California requires that both parties be represented by independent attorneys before entering the agreement.
Some of the parties' goals in entering a prenuptial agreement may depend heavily upon state law. For example, where parties are trying to protect their assets for future inheritance by children from a prior marriage, they need to be aware of state law restrictions on partially or completely disinheriting a spouse. A prenuptial agreement that ignores those restrictions may permit a widowed spouse to claim a percentage share of the other spouse's entire estate, including assets previously understood to be separate.
A lawyer can assist with:
State Law Issues: Making sure that the prenuptial agreement is consistent with state law, and is properly executed;
Full Understanding: With the use of independent counsel, both parties can seek an objective interpretation of any confusing terms or language before agreeing to that language;
Advice About Alternatives: Upon consultation with a lawyer, the parties may learn that they have better alternatives available to them, For example, where estate planning is a significant goal, the lawyer may advise on the relative advantages and disadvantages of instead employing trusts to pass assets to the parties' heirs.
If you have or expect to accumulate sufficient assets and income to justify a prenuptial agreement, the cost of having an attorney draft the agreement should seem reasonable in comparison to that actual or anticipated wealth. While for a multi-million dollar estate, a prenuptial agreement may cost thousands of dollars to prepare, that is a small amount in proportion to the estate.
The attorney fee may be viewed as a form of insurance in the event that the agreement is subsequently held invalid, as the attorney will likely carry malpractice insurance which may provide some recompense in the event that the agreement fails due to the attorney's negligence.
Sample Prenuptial Agreement
If you want to review an actual prenuptial agreement to see how it may be structured, we offer an example prenuptial agreement form for your review.
In order to ensure that a prenuptial agreement will be enforced, the engaged couple should negotiate the agreement well before the wedding. If possible, the agreement should be concluded and executed at least a month before the wedding, long enough before the wedding to remove or reduce the impression that one spouse was pressured into signing.
Rushing through the negotiation process as a wedding date approaches will increase both the likelihood of error and the potential appearance that one of the parties is being pressured into agreeing to agreement. A very late demand for a prenuptial agreement will leave insufficient time for meaningful negotiation, legal review, or evaluation of the terms of the agreement.
The closer to the wedding date that one partner raises the issue of a prenuptial agreement, the more likely it is that a court that later reviews the agreement will find the other partner's acceptance to have been less than voluntary, if not coerced.
Fairness Upon Enforcement
A prenuptial agreement must be fair and reasonable at the time it is entered, but may also be subject to review for fairness at the time it is enforced.
Factors that may affect the enforcement of a prenuptial agreement include:
Impoverishment: If the enforcement of the terms of a premarital agreement will leave one spouse impoverished, a court may find that to be a basis to modify or set aside the agreement;
Fairness: Some provisions may not be fair if applied to the benefit of one party, based upon the changes in the couple's circumstances since the time the agreement was executed. For example, if an agreement provides that one spouse's professional degree will be that spouse's separate property, and the other spouse earns a professional degree after the parties marry, a court may find that it would be inequitable to treat one degree as separate property and the other as a marital asset.
Changes in the Parties' Situation: A court may examine changes in a spouse's health, employment, or financial status when asked to enforce a prenuptial agreement, when determining if the agreement should be enforced.
The extent to which a court will examine the parties' circumstances at the time of enforcement will vary based upon state law and the facts presented in court. However, even if the laws of the state in which a prenuptial agreement is executed are more friendly to its enforcement, those laws may be amended in the future. A focus on fairness will help ensure that the agreement is regarded as having been voluntarily entered, and enforced as written.
If the parties to a prenuptial agreement find that their situation or goals change after they marry, they may consider voiding the prenuptial agreement or replacing it with post-nuptial agreement.