Prenuptial Agreement

March 19, 2015 by: Content Team

A prenuptial agreement is a legal contract made between two people before they become married. The contract details the property rights of each party, as well as the financial remedies in the event that the couple divorces. Prenuptial agreements are also referred to as “prenups,” “antenuptial agreements,” or in modern cases, “premarital agreements.” Such agreements are designed to protect the property and assets of one or both spouses should the relationship dissolve in the future. To explore this concept, consider the following prenuptial agreement definition.

Definition of Prenuptial Agreement

Noun

A contract made between two people before they marry, that specifically states their respective property rights, and amount of spousal support, or how support will be calculated, upon divorce or death of one of the parties.

Origin

1978 First known use of Prenuptial Agreement in the U.S.

What is a Prenuptial Agreement

Traditionally, prenuptial agreements were made in order to protect a spouse who was exceptionally wealthy. This ensured that the other spouse could not gain a large portion of assets, both owned prior to the marriage, and income earned by those assets throughout the terms of the marriage, in the event of a divorce. Another purpose of a prenuptial agreement is to discourage individuals from marrying someone based solely on his or her wealth. These purposes for prenuptial agreements hold true in modern times, though the ever-increasing divorce rate has given these contracts additional uses, such as:

To protect one party from assuming or becoming responsible for the debt of the other party
To determine how a party’s property will be distributed upon their death
To outline the financial rights of each party during the marriage
To avoid conflict or lengthy legal issues upon divorce
To ensure family property stays within the family

Marital and Non-Marital Property

Each state has specific laws that determine what is, and what is not, considered marital property. Most commonly, any property, financial assets, and debt acquired during the marriage are marital property. Property, financial assets, and debt owned by one party prior to the marriage are non-marital property, remaining his or her separate property. Additionally, anything gifted specifically to one spouse, and inheritances remain the separate property of that spouse.

In the event the couple divorces, and cannot agree how the marital property should be divided, a judge will determine its distribution. It is at this time that a signed prenuptial agreement that specifically defines marital and non-marital property, helps a spouse avoid losing what was his or hers prior to the marriage.

What Can and What Cannot be Addressed in Prenuptial Agreements

What can and cannot be addressed in a prenuptial agreement often varies depending on the desires of the parties. Commonly, any property or assets purchased jointly are considered marital property and not included in a prenuptial agreement. State laws may also affect exactly what issues may be governed by a prenuptial agreement. Common prenup terms may include:

Separate business income of one or both parties
The management of joint and separate bank accounts or credit accounts
Retirement benefits
Real and personal property distribution upon the death of a spouse, including life insurance
Secondary educational expenses of one spouse
Management of household expenses
Filing status, income, deductions, and claims on tax filings
How taxes owed will be paid, and how tax returns will be distributed
Investments into specific projects or properties
How alimony will be calculated in the event of divorce

Some of the things that cannot be included in a prenuptial agreement include:

Details about anything illegal, as this may lead to the invalidation of the entire agreement
Issues relating to child custody or child support
Any information seen to encourage divorce, such as financial incentive for divorce
Rules or regulations specifying personal matters of behavior, or personal relationships of a spouse
Any other non-financial issues

How to Write a Prenuptial Agreement

All 50 states recognize prenuptial agreements, however, most require specific elements in order for the agreement to be considered valid. If one or more of the required elements of a prenuptial agreement are missing, a court can refuse to recognize the validity of the agreement. In such a case, the court may set aside the entire agreement, or only specific parts of it. In determining how to write a prenuptial agreement, certain specific elements must include:

Written agreement –the contract must be in writing, with the parties signatures witnessed, usually by a Notary Public.
No coercion – a prenuptial agreement must be drawn up voluntarily, without coercion.
Fair and full disclosure – a prenuptial agreement must be fair to both parties, and must contain full disclosure of finances when it is executed.
Balanced – a prenuptial agreement cannot be made so that it weighs heavily in favor of just one spouse.

Prenuptial Agreement Sample

Any individual seeking to prepare a prenuptial agreement without the assistance of an attorney may find a prenuptial agreement sample to be helpful. Prenuptial agreement samples may be found online, though such samples should only be used as a guide to creating an agreement that is personalized to the specific circumstance. Searching for a prenuptial agreement sample specific to the state in which the marriage is to take place helps ensure necessary provisions are included in the final agreement.

Pros and Cons of a Prenuptial Agreement

Just like there is good and bad in any relationship, there are pros and cons of a prenuptial agreement. Although many people feel such agreements are not necessary, as they trust the person they are marrying implicitly, a prenup can be very useful in the event of a divorce. Some of the pros of a prenuptial agreement include:

Protection for children and grandchildren from a previous marriage, in regard to inheritance rights
Protection of a party’s business interests, by preventing a division or change of control
Protection of one spouse from becoming liable for the other’s debt
Protection for a spouse that gives up a career to care for the family, by ensuring compensation in the event of divorce

The cons of a prenuptial agreement include:

It requires a spouse to give up his or her right to inherit certain property and assets if the other spouse dies
It eliminates the possibility that one spouse will be able to claim a share of the other spouse’s business income, even if they contributed to the business’ success and growth
It can be seen as a spouse’s lack of trust toward the other spouse
It may not allow the low, or non-wage earning, spouse to continue living the lifestyle to which he or she has become accustomed in the event of divorce

Sunset Provision

The inclusion of a sunset provision means that the prenuptial agreement will expire after a certain amount of time, or upon certain life events. For example, in Maine, a statutory sunset provision states that a prenuptial agreement expires automatically upon the birth of a child of the relationship. In some states, sunset provisions ensure the expiration of a prenuptial agreement after the couple has been married a specified period of time, unless the agreement has been renewed. Other states have no statutory reference to sunset provisions, leaving it up to the parties to specifically include one in their prenuptial agreement.

Uniform Agreement Act

The National Conference of Commissioners on Uniform State Laws enacted the Uniform Agreement Act in 1983. The Act was drawn up in order to govern the provisions of prenuptial agreements. However, not all states adopted the Uniform Agreement Act. As of 2015, only 27 states have adopted the Act, and each has their own versions. These include Arkansas, Connecticut, North Carolina, and Rhode Island.

Postnuptial Agreement

A postnuptial agreement is created after the marriage takes place, rather than before. This is done to settle the affairs of the couple in the event of a divorce. Like a premarital agreement, a postnuptial agreement addresses financial issues of the couple, specifying how current and future marital property, financial assets, and debts will be dealt with, including day-to-day household budgeting issues. Not all state laws recognize the legality of postnuptial agreements, so it is important for couples to check with the laws of their state to ensure the contract will be enforceable in the event of a divorce.

There have been cases in which a spouse has created a postnuptial agreement with the intent of filing for a divorce shortly afterward. In many jurisdictions, this is considered fraud, and the agreement is not likely to hold up in court. In the 1991 case of Fogg v Fogg, the Supreme Court ruled that a postnuptial agreement created after the wife discovered she would be receiving a large sum of money, with the intent to file divorce immediately after, was invalid. The money would have been considered marital property without the postnuptial agreement, and due to the Supreme Court’s finding that the wife had fraudulent intent, it remained subject to equitable division.

The Need for an Attorney in a Prenuptial Agreement

The famous case Bonds v Bonds came about when legendary baseball player Barry Bonds and his wife, Sun, divorced. The couple married in 1988 and, before the marriage took place, a prenuptial agreement was drawn up to protect Bond’s earnings and acquisitions during the marriage. Bonds had an attorney present, but Sun did not, though she signed the agreement. After six years of marriage and birth of two children, the couple divorced.

Sun sued Bonds in an attempt to have the prenuptial agreement overturned by the court, claiming she did not have an attorney present, and didn’t truly understand the agreement’s provisions. The trial court ruled there was no need for an attorney in a prenuptial agreement, so long as it was signed voluntarily. The matter was taken to the California Court of Appeals, which sent the matter back, saying that, where a party is not represented by an attorney, the court should subject the agreement to a higher level of scrutiny.

When the California Supreme Court reviewed the case, it overturned the appeals court ruling, reinstating the trial court’s decision, and the validity of the prenuptial agreement. In this case, Sun had determined that she had no need for an attorney to review the prenuptial agreement, and signed it voluntarily.

Related Legal Terms and Issues

Asset – Any valuable thing or property owned by a person or entity, regarded as being of value.
Child Custody – The care, control, and maintenance of a child, often awarded by the court.
Coercion – The act of using force or intimidation to ensure compliance.
Contract – An agreement between two or more parties in which a promise is made to do or provide something in return for a valuable benefit.
Divorce – The legal termination of a marriage.
Intent – A resolve to perform an act for a specific purpose; a resolution to use a particular means to a specific end.
Jurisdiction – The legal authority to hear legal cases and make judgments; the geographical region of authority to enforce justice.
Liable – Responsible by law; to be held legally answerable for an act or omission.
Marital Property – All property, financial assets, and debt acquired by the couple during the course of the marriage, regardless of who holds title to it. (Also, marital assets)
Overturned – To change a decision or judgment so that it becomes the opposite of what it was originally.
Personal Property – Any item that is moveable and not fixed to real property.

Real Property – Land and property attached or fixed directly to the land, including buildings and structures.