Prenuptial Agreements Explained

A prenuptial agreement, or more commonly, a "prenup," is a binding agreement (contract) entered into by prospective spouses before marriage.

 

A prenuptial agreement contractually binds the spouses to their respective agreed upon terms and those terms become enforceable on the date of marriage, which is usually the date of “nuptials” or marriage vows.

Note: If prospective spouses enter into an otherwise enforceable prenuptial agreement, but the marriage never occurs for some reason, then the prenup terms are not enforceable against either party unless the parties otherwise agree to enforcement of the prenuptial agreement’s terms regardless of whether or not the marriage materializes.

 

Also, a wedding day is not the same as the date of marriage. The date of marriage, for purposes of prenuptial agreement issues, is the date when the parties fulfill marriage requirements (i.e. exchange of nuptial, ceremony, witnesses, license, etc.).

No Prenuptial Agreement Option

Prenuptial agreement terms identify, in advance of marriage, how the spouses will divide property and/or spousal support in the event of a divorce or death of either spouse. Without a prenuptial agreement, the family law court will divide property and assets that are acquired during the marriage equally, and award spousal support, if any, based upon a complex formula that takes into account many variables.

Prenuptial Agreement Benefits

Less Likely to Divorce: Statistics show that California couples that enter into a prenuptial agreement are more likely to remain married. Some marriage counselors believe that marriage is made stronger simply by the process of drafting a prenuptial agreement as the drafting itself promotes early and healthy communication about financial issues and expectations in the relationship. Today, nearly twenty percent (20%) of California marriages are supported by a prenuptial agreement.

Protection of Business: Prospective spouses who have a separate property business before marriage can save a massive amount of financial strain on the business and business partners if the parties eventually divorce. Without a prenuptial agreement, the spouse who owned a business before marriage, but continued to work in the business during marriage, is subject to possible division of that business as community property. This is true even if the party who owned the business has business partners other than his or her spouse.

Prenups Save Money: Prenuptial agreements usually save money for spouses with a long term marriage. When a marriage is not supported by a prenuptial agreement the parties tend to want to litigate every family law issue, including spousal support, community property division, personal asset division, and more. This can be very expensive in terms of family law lawyer fees. However, when the spouses’ property rights are predetermined by a prenup, there is usually much less litigation, and by default, much less attorney fees.

Income Protection during Marriage: Prenuptial agreements can be used to protect income during marriage. Without a prenuptial agreement, income earned during marriage by either spouse equally belongs to both spouses, even if the spouses use separate banks accounts or earn different income.

Protect Property & Child's Inheritance: A prenuptial agreement is a great option for high income earners who wants to protect their separate property assets and/or business and for any person who has children in common with a person other than his or her prospective spouse (inheritance protection).

Important: Strict legal requirements apply to a prenuptial agreement in order to render the terms enforceable in court.

For example, a prenuptial agreement is invalid unless the final draft is served on both sides at least seven (7) days before the prenuptial agreement is signed and at least ten (10) days before the date of nuptials (marriage date).

Other strict legal requirements include, but are not limited to, the following: No unconscionable terms allowed in the prenuptial agreement (either at the time of signing or at the time of enforcement), independent lawyers must be used if spousal support is waived, the prenuptial agreement must be signed voluntarily, and more.

Remember, the date of nuptials and/or date of marriage, is not necessarily the same as the wedding date. This is because many people choose to have a wedding ceremony on a date which is different than the legal marriage date.

The following covers many of the common terms and legal interests that are included in California prenuptial agreements:

Spousal Support: A prenuptial agreement can set the amount of spousal support (alimony), if any, that may be awarded by a family law judge upon divorce of the spouses.

Warning: Any provision in a premarital agreement that attempts to waive spousal support is not enforceable if the spouse against whom enforcement is sought was not represented by an independent lawyer at the time the prenuptial agreement was signed, or, if the term regarding spousal support is unconscionable, at the time of enforcement. Without a prenuptial agreement, spousal support is awarded, if any, based upon a complex formula that takes into account many variables, including the spouses' respective income, the length of marriage, the spouse's needs, and more.

Business Assets: Prenuptial agreements may predetermine the amount, if any, to which a spouse is entitled to the assets or income of a separately owned business. Without a prenuptial agreement, the family law judge can divide a business and/or the assets of a business equally depending on the circumstances of the case, even a business started solely by one spouse before marriage. In fact, many small businesses now have bylaws in their respective articles of incorporation that require the business owners to enter into a prenuptial agreement which protects the business from division upon divorce or legal separation.

Inheritance Rights: A prenuptial agreement can be used to protect the inheritance rights of a child from a previous marriage or relationship. Without a prenuptial agreement, a child from a prior marriage or relationship can lose his or her inheritance rights, if any, to the living spouse's elective share right to community property; this is true even if the dying spouse executed a will to the contrary. Without a prenuptial agreement, when a spouse dies with a valid will, the living spouses may choose his or her property rights conferred to him or her under either the decedent’s will, or under California divorce law (i.e. "Elective share" of community property).

Property Rights: A prenuptial agreement may predetermine a spouse's rights to existing separate or community property at death or divorce. Property includes real estate (houses and land), personal property (jewelry, tools, cars, cash, stocks, musical equipment, retirement benefits, etc.), and intellectual property (patents, trademarks, copyrights, etc.).

Note: Sometimes property can change its form after a prenup is signed. For example, a piece of land (real property) may be sold for cash (personal property). Prenuptial agreements are drafted to protect rights to property even if the property changes form. Without a prenuptial agreement, the couple may spend thousands of dollars in lawyer fees trying to trace the property from a changed or commingled form to its original form.

Pet Custody: Dogs, cats, and other family pets are considered property in a marriage and a prenuptial agreement may set out in advance which spouse will be entitled to possess and/or care for a dog or cat in the event of a divorce. Without a prenuptial agreement, a judge may use factors similar to the factors that are used in child custody cases to determine which spouse is entitled to take possession of the family pet.

Finance Management: Prenuptial agreements may spell out, in advance of marriage, which spouse is entitled to manage the day-to-day finances of the marriage, or, which spouse will have the ability to sell, transfer, or encumber property or assets, including community property assets and debts. This is especially important where one spouse has a gambling or drug addiction or is otherwise unwise with finances and his or her spouse wants control of the family’s finances in order to protect those finances and assets.

Debt Division: Prenuptial agreements may explain which spouse is responsible for which debts, if any, that are incurred by either spouse, or both, before, during, or after marriage. Prenuptial agreement terms that cover debt are usually included when one spouse intends to continue his or her education or business during marriage, or when one spouse comes into the marriage with substantial preexisting debt. Without a prenuptial agreement, most family law courts, upon divorce or legal separation, will award community debt to the spouse who benefited from the debt, but a judge may also use equitable powers to award the debt to the spouse who can more easily afford the debt.

Estate Planning: Prenuptial agreements may include estate planning features, such as wills, trusts, and powers of attorney.

Retirement: A prenuptial agreement may predetermine the division, if any, of retirement benefits, such as any interest, vested or contingent, in a 401k, IRA, pension, CalPers, etc.

Note: Waiver of the right to any retirement benefit must be in writing and signed by the party against whom enforcement is sought, on separate and subsequent documents, in order for the waiver to be enforceable.

Jurisdiction: Prenuptial agreements may include the law that will control any legal issue not covered in the prenuptial agreement. This is especially important for couples who intend to move out of state during marriage or for couples who are concerned that the law might change in the future.

Prenup Duration: If a prenuptial agreement is not subsequently modified in some way it will be enforceable until all of the terms are satisfied. In other words, the agreement does not become stale over time and there is no statute of limitations as to enforcement of the terms in the prenup. However, most prenuptial agreements include self-imposed time limits on the prenuptial agreement as a whole, or as to some portion of the agreement.

Note: A prenuptial agreement that ends in whole, or in part, at a certain time in the future, is said to contain a Sunset Clause. A Sunset Clause is common in prenuptial agreements between couples who have dated for only a short period of time before marriage and want the terms of the prenuptial agreement to last long enough to ensure the marriage will endure beyond a short period.

Note: The prenuptial agreement is not ordinarily filed with the court. It’s a document that is ordinarily kept with the respective spouse’s personal property or with his or her attorney. This means that any term in the prenup that purports to transfer title to real property or retirement benefits must be followed by an actual transfer of that property through the county recorder’s office and/or the retirement benefits administrator, respectively. Otherwise, a third party bona fide purchaser may claim an interest in the property that was intended to be divided according to the terms of the prenuptial agreement.

For example, if husband and wife have a prenuptial agreement that purports to grant wife the family home on the date of marriage, then wife must record that property transfer with the county recorder’s office (or similar recording agency). Otherwise, a subsequent transfer of that same home by husband could lead to a division of the home not intended by the spouses or their prenuptial agreement (i.e. bona fide purchaser’s claim in the same property).

Also, transfer of property and retirement benefits are not the only property transfers that might be needed to effectuate a prenuptial agreement term. Every case is different, therefore, before entering into a prenuptial agreement, you should talk to a family law lawyer familiar with these issues. In fact, any waiver of spousal support (alimony) is invalid as a term included in a prenup unless the party that waives his or her right to spousal support is represented by an independent attorney and the waiver is express (written, acknowledged, signed by the party waiving support, and all other legal requirements followed).

Terms Not Allowed in Prenuptial Agreements

Certain terms or agreements that are incorporated into a prenuptial agreement are not enforceable by the court. This includes:

 

  • Any term that attempts to control child custody, child support, or child visitation (parenting time), is not allowed in a prenuptial agreement;

  • Any term that violates public policy, such as a term that promotes divorce or allows for domestic violence. For example, a term that allows for payment of money upon divorce is likely an unenforceable term as it promotes divorce.

  • Non-monetary terms, such as which spouse is going to take out the trash or wash the dog are unenforceable terms. Also, sexual promise terms are unenforceable.

  • Any term in a prenup that promotes a crime. For example, a term in a prenuptial agreement that predetermines which spouse will receive proceeds from the illegal sale of narcotics, is an invalid prenup term.

Modifying & Updating a Prenuptial Agreement

After marriage, a couple may modify their prenuptial agreement. The legal requirements to prenuptial agreements also apply to any modification, revision, or updating of the agreement. This includes the legal requirement that any waiver of spousal support (alimony) must be signed by an attorney at the time of the signing of the modified agreement.

Postnuptial Agreement: If a couple has not executed a prenuptial agreement before marriage they may nevertheless execute an inter-marital, or post-marital agreement. For more information, see Post-Nuptial Agreements.

Also, sometimes a spouse would like to be more generous than what is written in a prenuptial agreement. If a spouse, during marriage, has given more to the other spouse than he or she is required according to the prenup it does not automatically waive all the terms of the prenuptial agreement. To be safe, a restoration of rights term should be included in all prenuptial agreements.

Note: Some terms in a prenup do not become enforceable until some later action is complete, such as signing waiver documents for retirement after the prenuptial agreement is signed or recording the transfer of real property.

Breaking a Poorly Drafted or Invalid Prenup

Unfortunately, some couples might have their prenup broken due to a failure to follow very strict legal requirements in the drafting and execution of the prenup. The prenup should be drafted by a lawyer familiar with divorce and family law issues as well as California contract law in order to ensure a strong prenuptial agreement that will stand against a former spouse's effort to break the agreement post-marriage. Never use a pre-printed prenuptial agreement form without the advice of a divorce and family law lawyer.

For more information on California prenuptial agreements call the divorce and family law attorneys at Dorado & Dorado today for a free consultation. Our divorce and family law attorneys are available six days a week to assist you (Mon – Sat). Call today!

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