Prenuptial Agreements – Why, What, and How

In popular media, you often hear the term “Prenup” casually thrown about. Often in the context of a celebrity marriage or divorce. But, premarital agreements, often referred to as a prenuptial agreement, is not just for the Red-Carpet set. Considering a premarital agreement can be a wise step for anyone planning to get married These agreements, also know at prenuptial agreements are a legal contract between both parties and it will protect both participants and should the marriage unfortunately come an end, will make the legal process of divorce or annulment significantly easier.

Please see my previous post on divorce HERE

In this blog post, we will explore the key components of a premarital agreement, how they can be used in a divorce, and essential tips for creating a legally sound and fair agreement.

What Should Be Included in a Premarital Agreement?

• Property: When a marriage occurs, a community is created between the two spouses. Property owned by either person prior to the marriage is considered to not be part of the community. A common argument that arises during a divorce is what property was owned by which person before the marriage. A strong Prenup will list, in detail, all of the property assets and their ownership before the marriage. This list should include such items as vehicles, homes, and businesses. It should also include financial items like stocks, bonds, bank accounts and retirement funds. It does not have to include every minor item, but anything of significant financial or sentimental value should be listed. After all, you might as well figure out now who will get Grandmother’s Royal Doulton with hand painted periwinkles now before emotion gets in the way.
• Debt: Any outstanding debts should be listed in the agreement. This can be mortgages, liens, car loans, credit card balances, student loans etc. During a divorce, debts accrued during the marriage are part of the community and need to be apportioned. Listing them now, removes them from that later division. Anticipated future debts can also be listed. As an example, a partner wants to take out a loan for college after the marriage. If anticipated now, that debt can be assigned an appropriate division in the event of divorce. See the below division section.
• Spousal Support: Texas does not have alimony per se; we call it Spousal support and it normally runs for a limited time for a limited financial value. A prenup can spell out the exact length of time and value of the support. Again, see the division section below.
• Child Custody and Support: Custody and Support are generally handled by Statute. Normally, there is very little, if anything, in a prenup regarding these issues. If the agreement attempts to spell out support, especially if it places an arbitrary value on support, the Judge overseeing the divorce will probably toss that portion out and could invalidate the entire agreement.
• Estate Planning: A prenup is not the correct document for handling estate planning. A Will is the correct document. A probate court, lacking a Notarized Will, is not likely to place much value on a pre-marital agreement.
• Superseding Clause: The prenup should point out that this agreement overrides any earlier agreement.

Division

• A common misconception is that a prenup just says “What’s mine is mine and what’s yours is yours.” In actuality, each of the assets listed above need to get explicitly divided up. This can be very detailed.
• Example 1: A house is owned by Joan before the marriage. Over the course of the marriage, the house will improve in value and it will require maintenance .In the event of a divorce, the community needs to divide up the accrued value and be reimbursed for the maintenance of the property. A prenup might spell out this division as: “In the first 3 years of the marriage, Joan receives 100% of the accrued value and pays the community back 75% of the maintenance. In years 4-10, Joan receives 75% of the accrued value and after 10 years, Joan and her spouse will split the accrued value equally.
• Example 2: Ben has plans to attend higher education after the marriage and will take out loans to do so. The division for this could be predetermined as so: In the first 10 years of marriage, Ben accepts 100% of the student loan debt. After 10 years, presumably after Ben has obtained a high paying job that has benefited community, Ben accepts 50% of the debt and his spouse will take the other 50%
• Example 3: Miles has a high paying career, and the couple intend for his spouse, Susan, to stay at home and take care of their family. Susan will forgo her earning potential. Spousal support could be defined as: In the first 5 years of the marriage, support will be a certain percent of Mile’s income for 1 year. In years 5-10, a higher percentage of his income for 3 years. And so on. Unlike Spousal Support in Texas, a defined support in this agreement does not have to have a set termination date and could, theoretically, run the lifespan of the spouse.

How Premarital Agreements Are Used in Divorce

• Presumption of Validity: In the unfortunate event of divorce, a copy of the premarital agreement is filed with the Petition of Divorce. This allows both sides to begin negotiations for dividing up the community assets. The presiding Judge will look over the agreement and decide if the agreement is fair and proper.
• Challenges to Agreements: It is important that the agreement is properly drafted by an experienced attorney. One or both parties may challenge the agreement and the presiding Judge will make rulings. An improperly drafted agreement, or improperly signed or notarized can allow the Judge to overturn the agreement. Fraud or signing under duress are also reasons for the agreement to be set aside.
• Enforcement: The divorce proceedings are guided by the agreement in much the same ways as a mediated settlement. During a divorce, both parties will have to offer up financial documents in order for the assets of the community to be properly divided. A neutral third party, called a mediator, will attempt to reconcile the two sides. The prenup will shortcut that process. In effect, the prenup is a binding mediation held before the marriage even takes place. The presiding Judge will carefully compare the divorce settlement to the premarital agreement and enforce the provisions of agreement.

Tips for Creating a Premarital Agreement

• Consult with an Attorney: A correctly drafted prenup is not a simple nor a short document. It will often run into tens or even hundreds of pages depending on the assets to consider and the complexity of the division. The process of drafting the agreement will take considerable time and a lot of negotiation between the two sides.
• Full Disclosure: Both parties will have to disclose all of the assets being considered with the agreement. If, during a divorce, one side can show that the other side hid assets, then the entire agreement can be rendered void.
• Fairness: A properly drafted agreement will be fair to both parties. This does not mean the terms must be equal. Often, before the marriage, one party might have considerable more assets or opportunities than the other. That might be why that person wants a premarital agreement. But, marriage is a partnership. The other person is still contributing to the new community and should be fairly compensated in the event of divorce. An agreement that is too one-sided, even if it was signed by both parties, can be set aside if the presiding Judge rules it is unfair.
• Negotiation and Compromise: Entering into a premarital agreement requires frank and open communications. The ideal agreement protects the interests of both parties in the event of divorce. Both parties need to be willing and able to state their goals for the agreement and open to compromise on their goals.

In Conclusion

Premarital Agreements (Prenups) are a great way to alleviate stresses on the relationship before a marriage takes place. Both parties enter the adventure of matrimony knowing that, if things do not work out the way they hope, both of their interests are protected. Remember: Have the agreement properly written by a licensed attorney, agree to compromise, sign the agreement before a Notary Public, and keep the document in a safe place. Ideally, both parties should have original signature copies and they should preserve their individual copies in separate safe locations. Not every state recognizes Prenups and you should consult with your attorney before proceeding.

JOHN AND MORGAN is a versatile law firm that handles Family Law cases such as Divorce, Child Support, and Child Custody. We do Wills and Estate Planning. We also do Intellectual Property work such as Patents and Trademark.

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