Discussing Financial and Personal Goals Before Saying ‘I Do’
After a couple gets engaged, they spend a lot of time planning for the big day and thinking about what the future will hold for them as husband and wife. Although this seems like the most important thing a couple should be doing during this time, it is also important for them to have a discussion about how their economic and emotional lives will merge together. Additionally, they should take the time to do a thorough assessment of their personal and financial goals before they say “I do.”
Protecting Wealth with a Prenuptial Agreement
Depending on the couple’s unique circumstances, this assessment may or may not include putting together a prenuptial agreement, (also called a premarital agreement in some states), which can help preserve the couple’s relationship while also protecting each individual financially. For those couples who are considering this type of agreement, it is important to enlist the help of a family lawyer to ensure there are not gray areas or loopholes that would make the prenuptial agreement unclear or unenforceable should the couple divorce.
In situations where the couple has a business or a degree of wealth involved in their relationship, a lawyer can help them protect the assets they owned prior to the marriage without using a prenuptial agreement. These types of agreements are more often used when one or both members of the couple are business professionals or if the couple anticipates having children and one parent is to remain at home to care for those children while the other parent earns an income to support the family.
Misconception of a Prenuptial Agreement
It is a standing misconception that a prenuptial agreement is meant to help protect wealth – the reality is these agreements are much more effective in protecting the potential for lost-earnings as well as any retirement benefits or savings. One of the unrecognized but important goals of a prenuptial agreement is to recognize the contribution made by a stay-at-home parent. A recent study found that parents who stay home to raise children, even if for one year, lose almost 40 percent of their earning power.
The impact of this can be neutralized by using a prenuptial agreement to ensure that a parent who stays home with the children is still financially supported by his or her spouse even if the marriage ends. Laws regarding spousal support vary from one state to the next, so without a well-structured prenuptial agreement, the judge decides whether or not a stay-at-home parent needs to be financially supported, and if the answer is no, it could force that parent back into the workforce while earning less.
What Can a Prenuptial Agreement Do?
A prenuptial agreement (premarital agreement) can protect a persons personal property, future earnings, investment accounts, retirement accounts, and real estate purchases, so long as the agreement clearly outlines each item specifically. Many people that enter in a premarital agreement do so because one party has already been burned in a divorce or one person is bringing a substantially larger share of assets to the marriage and is looking for some type of protection should things go south. Sometimes, people enter into premarital agreements because a business partner does not want the risk of a divorce affecting his/her business interests should his/her business partner lose half of the marital share in the business.
A premarital agreement can be set up to protect the following items (this list is not exhaustive):
- Current bank accounts
- Current investment/retirement accounts
- Current real estate holdings
- Current personal property (cars, furniture, boats, etc.)
- The increase in value of any current accounts
- Future monies or assets that are specifically defined
- Business ownership and business interests
- Current/future debts owed by a future spouse
- Whether maintenance (alimony) can be paid should a divorce happen
- Requiring either or both spouses to create a will or trust to fulfill the premarital agreements provisions
- Which states law shall apply should a divorce take place
What Can’t a Prenuptial Agreement Do?
While a premarital agreement can protect all sorts of property and money and determine what happens should a divorce take place, there are some things that a prenuptial agreement cannot do. Obviously, anything that is illegal cannot be enforced in court if included in a prenuptial agreement, but other things that are what most state legislatures have deemed “a violation of public policy” (which is pretty vague).
Some things a prenuptial agreement CAN’T do are the following:
- Anything illegal
- Determine the custody of a child for children (or the allocation of parental responsibilities)
- Determine or limit child support
- Eliminate responsibility for child-related expenses (school, medical expenses, etc.)
What Makes a Prenuptial Agreement Unenforceable?
There are any number of things that can make a premarital agreement unenforceable, but the main things to be careful of are the timing of it and each persons understanding of the law. This can take on many different meanings.
The timing of the prenuptial agreement is one of the most used ways to overturn a premarital agreement and claim that is should not be enforced during a divorce. While most states do not have a set time between the signing of the prenuptial agreement and the wedding ceremony, the idea behind timing makes sense. The court will not enforce a premarital agreement if the judge believes that one person was coerced (forced) into signing it with the threat that the marriage would otherwise not take place. So, a premarital agreement signed a week before the wedding might look bad because the court could take it to mean that a person was forced to sign or the wedding would be called off causing a loss of money and embarrassment. While there is no set date rule in most states, it is usually best to have premarital agreements signed months in advance of the wedding to make sure a court doesn’t view it as a coercive act.
The sophistication of each party is also a factor that comes into whether a prenuptial agreement should be enforced during a divorce as well. Obviously, if one person is a lawyer, they will be held to a significantly higher standard. But taking that out of the equation, this mainly comes down to whether both people had a lawyer representing their individual interests or whether one person had a lawyer and the other person didn’t have legal counsel. Without legal counsel for both parties, and especially if the time until the wedding is approaching, a court could view it as coercive and/or that the lawyer pulled a fast one on the unrepresented person. For this reason, it is generally a good idea for both parties to have their own lawyers during the negotiation and drafting phase.
There are many other reasons why a premarital agreement may be deemed unenforceable by a judge. One such reason would be if something unforeseen happened to one person that would cause a serious hardship on that person (sometimes referred to as “undue hardship”). An example would be a prenuptial agreement that says no maintenance (alimony) will be paid during a divorce, but one person suffers a debilitating injury or disability. The judge could declare that portion of the premarital agreement null and void and force maintenance to be paid.
How To Get a Prenuptial Agreement Ready
The first step is generally to begin taking inventory of all items that you and your future spouse want to protect and discuss this in detail and write everything down. Organize all accounts by name and date. Then, work with a lawyer to get a draft started and to explain the fine points of the prenuptial agreement laws in your particular state. That attorney will likely have a colleague to refer the other future spouse to so that both parties have legal representation to protect themselves and to further protect the future enforceability of the premarital agreement.