Couples, where one or both have financial assets or property, generally plan to protect themselves in the event the marriage fails or one of the partners dies. However, there are also many who do not fully realize that they must take steps to protect what is rightfully his/hers/theirs to safeguard those items they brought into the marriage including artwork, collectables, furniture. Of course, most will seek stipulations in a marital contract to protect bank and retirement accounts, real property, a business, or even a pet, but there are others who do not realize they should identify and carefully spell out what other “items” should be included in a marital contract. Then again, there are certain stipulations you cannot include.
This fourth installment in the six-part series on prenuptial agreements is geared toward providing insight on what you can and cannot call out in a marital contract/prenuptial agreement
What You Can Do With a Prenuptial Agreement
Keep finances separate
In my state of California (a community property state), assets accumulated during the marriage are referred to as community property, even if these assets are held in the name of just one spouse. Those assets are to be divided equally.
That said, you can avoid having some, or all of your individual accumulations before and during the marriage divided up by a court by implementing a prenuptial agreement. For instance, if the house was in your name – you owned it prior to the marriage – then you and your partner lived together in it for a number of years, it may be that your partner put money into refurbishing or adding material value to the home. He/she/they may argue that those contributions have entitled them to equity in the house. To avoid any argument over title and claim to the home, no matter who contributes what, be safe. Stipulate in the marital contract that the house will become your sole and separate property from the date you tie the knot. You can always stipulate that should your partner add to the value of the house via upgrades, he/she/they will be given a payout amount proportionate to what is fair.
Carefully spelling this out ahead of time is important, not only in case you dissolve the marriage, but also if your spouse dies and there are children who should be beneficiaries – those who should get their rightful inheritance(s).
Safeguard your business
You should include terms regarding management, ownership, and the debt of your business. Otherwise, you may inadvertently have a business partner: Your spouse! Oftentimes, one will start the business and a spouse will help build it. Draw the lines sharply as to who is entitled to what share of the business if it continues on but the marriage doesn’t. Not clarifying the terms of business interests in a prenuptial agreement can be one of the most disastrous outcomes of a divorce. Insist on a buy-out plan upfront if something goes wrong with the marriage. Review assets and liabilities associated with the business annually to see where you both stand. If you brought the business into the marriage, say so in the marital contract. Ask your attorney to help you find an equitable way to keep it should things go awry. Also ask your attorney to prepare a buyout plan just as you should with real property.
Protect one another from debts
Some people bring debts into the marriage as well as assets. If there’s no prenuptial agreement in place, you’re on the hook to pay off the debts or settle them. Creditors can oft times turn to marital or community property to collect on debts, even if they belonged to just one spouse. In the prenuptial agreement you can stipulate to limit liability for each partners’ debts. So then, if your spouse is a heavy gambler, lavish spender, or otherwise tends to misappropriate money, you will be covered. The two of you will be able to go your separate ways as well as your separate debts. Make sure your attorney defines this clause very specifically.
Give up the right to alimony or restrict alimony
California (check your state) allows parties to limit or waive their right to alimony, commonly referred to a spousal support, in the event of a divorce. As an aside: both parties must be duly represented by separate attorneys at the time of the prenuptial contract signing and at the time of a divorce. However, for the prenup to be effective, the contract cannot be viewed as “unconscionable” (shocking or outrageous) to a judge. This “view” is generally thought of as leaving a person so bereft that they must rely on public assistance. Recent case law has clarified that if the amount of alimony they are awarded by the terms of the prenuptial agreement is so out of scale with the amount they would have received had there been no agreement, such a determination might be considered “unconscionable.” For this reason, most attorneys avoid outright waivers and instead seek limitations on the awards of alimony. This is very common among those in the celebrity community since their incomes can fluctuate dramatically.
What You Cannot Do With a Prenuptial Agreement
As a general rule any agreement to do something that is illegal or against state-defined public policy will be considered unenforceable. As such, it may jeopardize other valid aspects of the premarital contract. The following is a list of things you cannot do, at least in California, though many other states seem to follow suit:
Restrict child support, custody, or visitation rights
No state will honor any agreement limiting or giving up future child support. The same holds true of agreements limiting future custody and visitation rights. This is because state lawmakers consider the welfare of a child a matter of public policy and do not enforce any private agreements that would impair a child’s right to be supported or to have a relationship with a parent in the future. In sum, the courts always rule in favor of what is in the best interests of the children. Support, custody, and visitation can change as the parents’ circumstances change, thus another reason for these court “rules.”
There was a time when many courts viewed any prenuptial agreement that specified how things would be divided in case the couple split up as void and unenforceable because it was thought to promote divorce. The more current trend, however, allows for such agreements, but there are judges in many states who still take a hard look at them. If the agreement appears to offer a financial incentive for divorce, beneficial to one party, that is, it may be deemed unenforceable. It is best to consult an attorney on the stipulations and wording in your marital agreement so as not to have your agreement questioned or challenged. Don’t try to write the agreement yourself; make sure your attorney does. Neither party should be made to look as if they are trying to gain advantage over the other in the event of a divorce.
Sanction people for infidelity, substance abuse, or religious upbringing
In California, courts have not allowed penalties in prenuptial agreements that sanction people for infidelity or using recreational drugs. Courts will not enforce requirements that one person will do the dishes or that the children will be raised in a certain religion. Yes, there are prenuptial agreements that contain “cheating” clauses – things like that – but often they are not enforceable.
Knowing what you can and cannot include in a prenuptial agreement should be your first task when considering one. Make a list of questions before talking to an attorney before he/she/they present a first draft. You don’t want to leave anything to chance. You also want to make sure you hire an attorney who is respected for drafting prenuptial agreements. That way, you have a better chance of covering all your bases.
In my next submission, I will spell out how to enforce your prenuptial agreement should you need to do so. Knowing how to go about it is just as important as knowing what you can and cannot include in one.