With cases of divorce on the rise which sees partners share their assets. Some partners are not comfortable with this, and this is where a prenup has been of help to some.
Not many people might be fully aware of a prenuptial agreement and how it can save them in the long run.
And while a prenuptial agreement may be a good choice or option for some people, some others are not comfortable with it and this has gone on to affect some relationships and also hindered some marriage decisions.
Understanding the legal implications of a prenup and how it works would be beneficial to both parties who intended to settle down as a married couple.
Prenuptial agreements have long been a contentious issue among couples.
Prenuptial agreements are portrayed in the media as mechanisms used by celebrities and other high-net-worth persons to limit the amount of wealth that an ex-spouse can obtain.
A prenuptial agreement, on the other hand, can be a fair manner of dividing assets and obligations when properly drafted and implemented.
What is a Prenup?
A prenuptial agreement, often known as a prenup, is a legal agreement that describes an engaged couple's rights and duties concerning premarital and marital assets and debts, as well as what could happen if their marriage ended in divorce or death.
A prenuptial agreement is a sort of contract that two people make before getting married. For the term of the marriage, this agreement could spell out each party's obligations and property rights.
Prenuptial agreements are more typically used to spell out the terms and conditions for sharing financial assets and duties if the marriage ends.
It normally details all of the property each individual possesses, as well as any debts, and outlines what property rights each person will have after the marriage. A prenuptial agreement is also called an “antenuptial agreement” in some jurisdictions or, in more modern terminology, a “premarital agreement”.
As in a prenuptial contract, the word “contract” is sometimes used instead of agreement. A postnuptial, postmarital, or marital arrangement is one that is made during marriage rather than before.
How a Prenup works
Prenuptial agreements are governed by state laws according to what applies in each state, however, the American Bar Association points out that:
“All mandate that such agreements be procedurally and substantively fair. Determining whether an agreement is fair requires knowledge of basic principles of contract law such as capacity, duress, fraud, and undue influence.”
The motives for getting into these contracts differ, but wealthier spouses generally do so to protect their assets.
Furthermore, elderly spouses may desire such an arrangement because they may have assets or retirement funds to retain and safeguard, as well as the desire to ensure that offspring from previous marriages receive a portion of their estate.
Couples may disagree on prenups, especially if one partner has significantly more wealth than the other. When a marriage ends, a proportion of prenups end up in court.
The deal will be judged on whether it was fair and not coercive. Prenuptial agreements that are imposed on a partner on or close to the wedding day are often frowned upon by the courts.
A prenuptial agreement typically includes a list of each spouse's assets, some acknowledgment of which individual assets will continue to stay as the property of each husband or wife in the case of divorce.
Rules on how property obtained during the marriage will be split in the event of a divorce, language on obligation for debts acquired before and during the marriage, and an overview of support payments such as alimony if the marriage is dissolved.
It's unclear whether a prenuptial agreement makes divorce easier or faster. If one spouse requests the court to throw out the prenup, it might lead to a long and expensive legal battle.
An unopposed prenup, on the other side, implies less finding on the issues stated in the contract, and hence less acrimony. As a result, the court and lawyers will have less work to do.
Who needs a Prenup?
Contrary to popular belief, prenuptial agreements are not only for the wealthy.
While prenuptial agreements are commonly used to preserve the assets of a wealthy spouse, couples of moderate incomes are increasingly using them for their own needs.
Some people request a prenuptial agreement for the following reasons:
A business is owned by one or both parties. A prenuptial agreement sounds right if you own a business before you get married, as a divorce can devastate a family business.
Furthermore, if you own a business with others, your divorce may have an influence on their portion of the company. A prenuptial agreement can provide each party with complete control over how their business is run now and in the long term.
One party owes more money. According to TD Bank's 2019 Love & Money survey, 27% of millennials maintain a financial secret from their partner, especially considerable credit card debt.
Lois Brenner, Esq. a matrimonial attorney and mediator in New York City said “Premarital debts are usually paid by the person who incurred them. However, debts incurred during the marriage may often be allocated to both spouses, putting the non-debtor spouse at a disadvantage.”
One or both parties have an inheritance to safeguard. Two reasons why some might seek a prenuptial agreement are hereditary wealth and future inheritance.
Sandy K. Roxas, Esq., a Family Law Litigator and Mediator in Torrance, California had the following to say concerning inheritances “If a party to the marriage receives an inheritance, it will be their non-marital property unless they do something to make it marital, such as putting the funds in a jointly titled account or buying a piece of real estate in both names.”
One or both of the parties has previously married. Formerly married couples, particularly those who have gone through a long and acrimonious divorce, may be hesitant to marry again without having adequate knowledge of what happens to their finance and assets in the future.
Prenup Vs. Postnup
Postnuptial agreements are identical to prenuptial agreements, but they take place after the parties have married.
The most significant distinction is that postnuptial agreements are entered into after the wedding. Unlike prenuptial agreements, which are normally regarded as legitimate upon marriage, a postnuptial agreement will be reviewed by the courts before being deemed enforceable.
If you're thinking about getting married, you should know that many of your assets become marital assets the moment you get married. Retirement assets, stock options obtained during the marriage, and real estate purchased since your marriage are examples of these.
As a result, in your postnuptial agreement, you'll need to figure out how to share these marital properties, as well as any earnings made in the future.
What happens if you don’t make a Prenup?
If you don't sign a prenuptial agreement, state law where you are will govern who owns the property you obtain during your marriage and what happens to it if you split or die.
Based on the state you are, property obtained during your marriage is referred to as marital or community property.
Some of the property you had before you married may also be subject to state law.
Marriage is regarded by the law as an agreement between the marrying couple, and that contract confers on each spouse some automatic property rights.
In the lack of a prenuptial agreement, a spouse's rights normally include:
Share in the operation and supervision of any marital or community property, including the power to sell or give it away in specific cases.
Accrue debts that the other spouse may be responsible for paying.
Share ownership of property obtained during marriage with the anticipation of the property being shared between spouses in the case of divorce or death.