What Are Prenuptial Agreements?
A prenuptial agreement is a legally binding contract negotiated and signed before you get married which establishes the ownership of assets in the event of death or divorce. In effect, it is a financial plan for your marriage. Prenuptial agreements serve as protection for both you and your spouse, and also your family and children. It is critical to consider what assets you both bring to the marriage . A prenuptial agreement can be simple or complex and may cover child custody, spousal support, and division of property in the event of death or divorce. Some states recognize prenuptial agreements as controlling over child support and custody. In New Jersey, a court may disregard certain aspects of a prenuptial agreement where children are involved.
Key Components to Consider
When entering into a prenuptial agreement, there are several key elements that must be included. Failure to consider each of these could result in an unenforceable contract. It is important that the parties at least consider including each of the following:
Debts – Each spouse should discuss with their lawyer the consideration of each of the debts that each has or conceivably could have and how those debts would be divided.
Property – Property, whether acquired before marriage or during marriage, must be identified. Generally, anything acquired prior to the date of marriage is considered separate property. However, if that property subsequently becomes commingled with marital property, then it may lose its separate status. In addition, any inheritance that is received by a spouse during the course of the marriage generally becomes marital property. As a result, if a spouse is presumed to have a separate interest in certain property, but then goes on to commingle that property with marital property, he or she may be doing so without realizing the consequences.
Spousal support – The parties can agree to waive spousal support whether temporarily or indefinitely. However, there are several factors which a court will consider if deciding whether or not to enforce a prenuptial agreement regarding waiving spousal support. These include the following: (1) whether full disclosure of financial assets was made by both parties during the course of the negotiation; (2) whether each party had independent legal representation prior to the execution of the agreement; (3) and whether the agreement caused either spouse to reside under conditions that substantially reduced his or her economic welfare.
Health – Each party should agree as to which spouse is responsible for paying for health benefits for the other spouse in the event of a separation or divorce. If an agreement is not reached, the court may order one spouse to provide health insurance coverage for the other.
Legal Provisions
A prenuptial agreement is only enforceable if it has been entered into voluntarily, which generally requires that both partners have the requisite opportunity and capacity (including mental competence) to understand what they’re signing, that the terms of the prenuptial agreement be in clear language, and that the parties have the ability to consult independent counsel (and that they do or expressly have waived this right). In the case of matrimonial agreements, perhaps most important is that both parties have made full and honest financial disclosure to each other and have signed the agreement fairly and freely (i.e., without coercion). In Oklahoma, full financial disclosure means revealing sufficient detail in writing whatever will enable a party to make an intelligent and informed decision when deciding whether to execute a prenuptial or pre-marital agreement. If assets are sufficiently detailed on account statements, tax returns, and other statements that are reasonably available or are part of the records of fiduciaries of the assets, then no new documents need be prepared to comply with the disclosure requirement. Further, the spouse who is declaring complete financial disclosure must demonstrate that he/she made available to the other spouse all books, documents, and records necessary to complete the detail required by the rule. Essentially, a prenuptial agreement is a contract (though one that the laws of some states may technically treat as a transfer of property) which requires mutual consent of the parties.
Tailor the Agreement
While there are a number of basics that are pretty standard in a prenuptial agreement, there are many opportunities to tailor the agreement to address the specific needs of the couple. For example, if one or both of the couple own a family business, it is important to define value and ownership interests. Coupling that with issues regarding post-nuptial compensation from the business (i.e. salary, benefits, etc.), will help define the rights of both parties.
Another common area of tailoring is with respect to inheritance. For example, if one party is going to inherit property or an interest in a business, that may not be considered marital property. It is not uncommon to exclude inherited property as marital property if done in a manner that protects the interests of both spouses. For example, the agreement may address the manner in which the inherited property is titled.
Common Pitfalls
One of the most common mistakes individuals make when approaching a prenuptial agreement is treating the process as a simple formality. Crafting an effective prenup requires thoughtful consideration and proactive risk management to address potential challenges that may arise during the course of a marriage. Others mistakenly believe that the provisions of a prenuptial contract do not need to be revisited in the future. In reality, your prenup needs to reflect changes that, for better or worse, always occur after you sign. This is why an experienced family lawyer is so important. Adding that experienced family lawyer later makes more work for them and costs more money .
Here are a few more common mistakes to avoid:
There is no substitute for fully understanding the legal implications of a prenuptial agreement. If you are considering creating a prenup, talking to a family lawyer early in the process will help you understand the full scope of the document and its potential impact on your marital future.
Finally, it’s important not to forget that this is a legal contract. It can be complex and confusing. The last thing you want to do is to try to enter into a prenup without the right support. Optimal representation by an experienced family lawyer can clear the way for you to get the divorce you need, without unnecessary headaches.
Consult an Attorney
Even though a couple may agree on all major assets, finances, and debts to be included in a prenuptial agreement, it’s vital that they seek advice from a lawyer to ensure the agreement is legally binding. Prenuptial agreements are easier to negotiate and draft with qualified legal guidance. Even if a couple agree on all finances and assets, fail to have a lawyer draft a prenuptial agreement could have the document ruled invalid if it goes to court. The following tips are essential: • Ensure that both people involved have their own separate lawyers who practice in their province of residence. Your lawyer must be able to practice law in the province your marriage will take place, so that he/she can advise you on how you should proceed with your prenuptial agreement. • Your lawyers and yourself need to sign both the prenuptial agreement and a disclosure form that states the information you have provided to your partner. • Sign and date all pages of your prenuptial agreement.
Review and Revise
A prenuptial agreement is not set in stone. As life evolves, new assets or circumstances arise, and both parties should be regularly reviewing the agreement to ensure that it still meets their needs. With that being said, as a general rule of thumb, the ideal time to review your prenuptial agreement is every three to five years. Major life events often cause significant changes in circumstances , and the impact of these changes should be addressed in a prenuptial agreement. If you and your spouse had a prenuptial agreement in place during your marriage and were divorced, your repurposed prenuptial agreement may not accurately reflect your current situation. Making updates to your agreement to keep pace with your changing situations is important so that both parties are protected as much as possible under the law should the unlikely event of divorce occur.