An Overview of Premarital Agreements
Couples often desire to protect their assets and create a roadmap for their relationship in the future. A premarital agreement is a contract between two individuals who intend to marry that expresses the terms of their marriage and other matters relating to their current property and obligations, and their future property and obligations which are expected to arise from the marriage. The agreement may only be modified in writing signed by both parties. Premarital agreements are governed by the Uniform Premarital Agreement Act under G.L. c. 209 Section 25-29.
The agreement may be drafted to cover many matters including the disposition of property upon death or divorce, the making of a will, trust, or other instrument to carry out the provisions of the agreement, the right to manage and control property, the disposition of life insurance, the making of a will or trust disposing of a right to alimony, the elimination or establishment of support obligations, the ownership and division of property upon separation, divorce, death, or the dissolution of the marriage, the right to make medical decisions, the right to choose where to live , rights to household services and to the company and companionship of the other spouse, the ownership, division and disposition of retirement plan benefits, educational credits, or payments of educational and related expenses, the ownership, division and disposition of the right to engage in an occupation or business or the right to acquire property in the future, the ownership, division and disposition of pension plans, profit-sharing plans, and other deferred compensation plans, the ownership and use of property, both real and personal, owned prior to the marriage, and the right to expend funds for the benefit of children who are the subject of the marriage.
The agreement cannot adversely affect the right of a child to support, provisions that have not been disclosed and that are required to be set forth by law, provisions that alter or eliminate spousal support, provisions that alter or eliminate the duration of spousal support, provisions that require either spouse to maintain life or health insurance, provisions that preclude child support for children of the marriage, and provisions pertaining to post-mortem characterization of property unless certain conditions set forth in the statute have been met.
Key Components of a Premarital Agreement
While every premarital agreement is unique, there are several key components that are essential to crafting an enforceable and effective legal document. Key elements include:
Dividing Assets and Debts
Asset division can get complicated in a long-term marriage. This is why it’s critical to think about separate property and marital property. Separate property is any asset you hold that directly belongs to you. Marital property includes any assets obtained or acquired during your marriage. Depending on the specific laws in your state, court division rules may apply without a premarital agreement. That’s true regardless of whether your assets are tangible goods or financial assets.
One of the most noteworthy aspects of a premarital agreement is the inclusion of provisions related to asset division and debt responsibility. In some cases, spouses begin their marriage with certain assets in their possession that are at risk in the event of a divorce. Blended families can make these provisions more important, as it protects your children’s stake in your estate in the event of divorce. Your premarital agreement should lay out your individual assets and obligations as well as your shared assets and obligations so you are in agreement before marrying.
Spousal Support
Premarital agreements often outline spousal support or spousal maintenance provisions. While couples can ask the court to overlook a prenup during divorce proceedings, they seldom do. More often than not, courts uphold these agreements, provided that both parties fully disclosed their assets when signing the agreement. Illinois Courts also require that a premarital agreement be signed at least seven days before the marriage.
Creating Your Own Premarital Agreement
The process of drafting your premarital agreement will vary, depending on your state’s premarital agreement requirements. In most cases though, you will be required to disclose certain financial information to your partner, including a full disclosure of your assets and debts, along with income and prospective income. Since this will serve as the basis for your agreement, the first step in the drafting process is to gather this information. Some states may also require you to have a final copy of your premarital agreement notarized by both parties before it can be legally enforceable. Although you are not legally required to have an attorney draft your premarital agreement, doing so can help ensure that you fulfill your state’s legal requirements, which will make it more difficult for either of you to later challenge the validity of the contract for failing to meet those requirements. In many cases, consulting an attorney will also help you understand the legal implications of signing a premarital agreement. After all, an agreement is only as good as the terms negotiated by the parties – and in most cases, the contract between you and your partner will be the first time either of you have ever created a legally binding contract. An attorney can help you understand what types of information are likely to be considered "fair" to most courts, and he or she can also ensure that your agreement is written to comply with your state’s laws. A premarital agreement is also a contract between you and your partner, which means you each have a say in its terms. Once you’ve gathered all the relevant information about the agreements’ terms, you will be positioned to discuss them with your partner. Before doing so, however, think about a few different ways the agreement could look. For example, your the agreement could state that you and your partner keep your finances separate throughout your marriage, or it could state that any income accumulated during your marriage will become joint marital property. You could also agree to distribute assets and liabilities acquired during the marriage equally, or you could agree to distribute them based on who were the owner(s) at its time of acquisition. If you can think of a few different ways the agreement could work, then take the time to discuss them with your partner. This doesn’t mean you should try to coerce your partner into an agreement, but it does mean you should be open and transparent with one another about your hopes or expectations regarding its terms. If the two of you can agree on the terms, you will have much of the legal basis fulfilled for your premarital agreement.
Legal Aspects of Your Agreement
The legal considerations for whether you should have the premarital agreement is important to understand as you move forward with deciding whether a premarital agreement is right for you.
State Laws. Several specific state laws will impact the enforceability and contents of your premarital agreement. For example, some states have laws that require a disclosure of the "fair market value" of certain assets before they can be lawfully transferred to a spouse during a marriage. Or, some states require that both spouses reveal all of their assets and liabilities before executing the agreement. And other states don’t allow prenups to waive the spousal support right. You and your attorneys will need to review the laws in your jurisdiction when drafting your agreement.
Spousal Support Wavers. If you live in a state that does not permit a waiver of spousal support in a premarital agreement, any provision in a prenup attempting to waive a spousal support obligation may be deemed unenforceable. Many have attempted to avoid this by allocating a specific sum of money in case the agreement is deemed unenforceable and then the rest of the contract is biding.
Third Parties. Many premarital agreements will contain provisions with regard to third parties, such as waiving their right to alimony after the marriage. A typical example is an agreement allocating a sum of money to a child from a previous relationship upon death, but limiting it to $X if the marriage lasts less than 10 years. But, it’s important to note that third parties cannot be bound by the contract unless they are a party to the agreement or a party or beneficiary under the agreement. In many cases a waiver by you and your partner won’t be enough to bind a third party.
Adequate Disclosure. For a premarital agreement to be enforceable, each partner must provide a full financial disclosure to the other partner. This includes:
Enforceability. For a premarital agreement to be enforceable under the law, it has to be fair. Courts will consider the contributions of both or all parties to the marital estate and will also consider what effect the agreement has on both or all parties. For example, you can’t waive the right to alimony and leave your spouse with a minimal amount of money, then take all of the assets of the business and have the business pay you and your new spouse as independent contractors. It has to be fair overall. This concept is referred to as "unconscionability." Your attorney will make sure that what you draft is fair to both partners and therefore more likely to be enforced by a court if a court later has to determine the validity of the agreement.
Fairness. For an agreement to be fair:
Independent Counsel. The courts will look for independent counsel to advise each of you, and that you both understood the agreement you signed. If you both have your own attorneys review the document before signing, a court will be more likely to enforce it. If you had the same attorney represent you both, the court may not be persuaded.
We will be discussing some of these Legal Considerations further in individual posts.
Communication with Your Significant Other
When it comes to discussing a premarital agreement, the idea is not to begin the marriage with a financial problem or disagreement that could have been avoided by talking it through in advance. Open communication can help make the process go more smoothly, and even strengthen your relationship.
The following tips can help you and your partner have productive discussions:
- Consider writing down points you want to address. This helps you to sort through your thoughts and enables you to prioritize issues to discuss.
- Be honest. Clearly state your concerns. Avoid holding back to spare anyone’s feelings, and don’t sugarcoat your words.
- Use "I" statements. When you use the words "you" and "your," they can seem accusatory and may bring about defensiveness. Try not to tell your partner what they should be doing regarding finances , or how they should be managing money.
- Be willing to listen. Discussing finances may cause concerns and anxiety for your partner. It is critical to listen to what your partner has to say so that he or she feels comfortable throughout the process.
- Take turns talking and listen to one another. Encourage the other to do the same. You’ll be more likely to come up with a solution that leaves both of you feeling satisfied.
- Be respectful of one another’s opinions. It’s important to remember there is no one-size-fits-all approach when it comes to finances.
- Stay on topic. Don’t let the conversation turn into an argument about how one of you does not earn as much as the other. Return to the task at hand, and continue to focus on what is happening now.
Typical Errors to Avoid
There are common mistakes people make when preparing a premarital agreement. Perhaps the greatest danger is procrastinating the process. Relationships often rush right into marriage and couples will forget to prepare for the future. In one case involving three pre-nuptial agreements signed by a couple, they did not complete the process until the twins were born and beyond the child’s first birthday. Although the court did ultimately uphold the agreement as valid, it cost them time and money in the process.
Another common mistake is not seeking legal counsel before preparing the first draft. Many people have templates of premarital agreements on their computer that they are willing to complete for individuals. It is important to have at least some of the terms set up in your premarital agreement but it is also important to get legal advice from an attorney who is experienced in family law. Those attorneys can also provide you with more thorough research through a retainer. The cost of using a less expensive attorney printed online template could cost you dearly in the long run.
Keeping Your Agreement Updated
Updating your agreement is important. Your lives will change over time. What fascinated you when you were in college may be boring now. Your financial situation will almost certainly change. So life’s challenges may impact the terms of your premarital agreement. Your friends and family may also try to influence your decisions in ways that change your priorities. Your lawyers will almost certainly encourage you to get the agreement signed as soon as possible (ideally before engagement), but premarital agreements should not be set in stone for all eternity.
Some events that should cause you to consider updating, and perhaps even terminating, your premarital agreement:
- the birth of a child
- the death of a spouse
- a significant change in income of either spouse
- the sale of a major asset or a significant change in lifestyle
- the intentional alteration of a major asset
- the establishment of a new and long-term business or investment venture
- the actuary of a favorable or unfavourable major lawsuit judgment
- a successful reconciliation of a prior irreconcilable marital circumstance
- the purchase of a home or another major asset
- a change in the couple’s short-term or long-term goals
Commonly Asked Questions
Several questions may arise when considering a premarital agreement. Here are some common questions and answers you should know.
Do I need a lawyer to draft a premarital agreement?
It’s not legally necessary to hire a lawyer, but it’s strongly recommended that you do. Even more so, each party should be represented to avoid what could be a costly and dangerous conflict of interest.
Can my spouse’s lawyer also be my lawyer?
No. Although your spouse may have a longstanding relationship with his or her attorney, having the same attorney would be a conflict of interest. A lawyer can’t effectively represent both parties’ interests , and it’s important that you both have separate legal representation.
Do I have to disclose all my assets?
It’s in your best interest to be truthful about everything. If you don’t disclose all your assets or deliberately provide incorrect information, the contract can be rendered null and void.
Do I need to wait a certain period of time to sign the agreement?
Your agreement must be signed by both parties at least seven days before the wedding. However, it’s always best to allow more time in case of any changes.
Will I have to pay my spouse’s legal fees?
Not unless it’s agreed in the premarital agreement itself. If there is a provision in your contract for you to cover all legal fees, only then would the other party have recourse to force you to pay expenses.