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What is a prenuptial agreement and when to use it

Updated: Dec 19, 2023

A prenuptial agreement, commonly known as a "prenup," is a legally binding contract entered into by future spouses before getting married. The purpose of a prenuptial agreement is to establish the rights and obligations of each spouse in the event of divorce, separation, or the death of one spouse. Additionally, a prenup can regulate other marriage-related matters, such as the division of property, spousal support, and the management of assets and debts.


Benefits of a prenuptial agreement


A prenuptial agreement can offer several potential benefits, including:


  1. protecting assets that each future spouse brings into the marriage, such as real estate, savings, investments, or shares in businesses. Couples often opt in for a prenup if the assets of one spouse are significantly greater than those of the other.

  2. protecting a spouse from financial liability for debts incurred by the other spouse before marriage. A prenup can also govern the terms of responsibility for debt acquired during the marriage and ensure that one spouse is not burdened with the other spouse’s debts in case of a divorce.

  3. separating joint property from assets acquired by one spouse through inheritance.

  4. defining the terms of spousal support payments in case of divorce.

  5. serving as a tool for estate planning, particularly when one or both spouses have children from previous relationships, ensuring that assets are distributed according to their wishes.

  6. if one or both spouses run a business, a prenup can determine how the business will be handled in the event of a divorce, helping to protect the continuity and value of the business.


In the event of a divorce, a prenup can speed up the process and reduce costs, as the court will be obligated to follow its provisions.


What should a prenuptial agreement include


To be valid and binding, a prenuptial agreement must meet certain requirements. Both parties must fully disclose their assets. While not exhaustive, this list includes:


  1. real estate: all properties, including vacation homes, land, and real estate investments.

  2. financial accounts: including bank accounts (checking and savings), investment accounts, retirement accounts (such as 401(k) and IRA), and other financial instruments.

  3. income: salaries, wages, bonuses, commissions, and income from other sources like royalties or passive income.

  4. personal property: vehicles, furniture, jewelry, artwork, collector's items, and other valuable objects.

  5. life insurance: life insurance policies and other insurance policies.

  6. business interests: ownership stakes in any businesses, partnerships, or corporations.

  7. debts: all debts and liabilities, including credit card debt, student loans, personal loans, mortgages, and other obligations.

  8. inheritances and gifts: all expected inheritances, trusts, or gifts.

  9. intellectual property: copyrights, patents, trademarks, and any other intellectual property rights.

Each spouse should consult with their own lawyer and give the other party sufficient time to familiarize themselves and fully consider the terms of the agreement. Therefore, entering into the agreement shortly before the marriage can be problematic.


Remember, a prenuptial agreement can be invalidated by a court if it is deemed unconscionable or entered if one party was pressured or forced into signing the prenup. To reduce the risk of annulment, it is advisable to consult with a family law attorney.


Consequences of not having a prenup


Couples who marry without a prenuptial agreement are subject to the family law statute applicable in their place of residence. Generally, however, all assets and debts acquired during the marriage are considered joint property and are usually divided based on each spouse's contribution, often leading to lengthy and costly legal disputes. Additionally, in the absence of a prenuptial agreement, both spouses may be liable for debts acquired during the marriage, such as credit card debts, mortgage loans, and other obligations. There are many well-known cases of couples who did not have a prenuptial agreement before marriage, often leading to complicated and expensive settlements in case of divorce. For instance, Amazon founder Jeff Bezos and his wife MacKenzie did not have a prenup, and as a result of their divorce, MacKenzie received a significant portion of Amazon shares, making her one of the richest women in the world. Similarly, actor Mel Gibson and his wife Robyn did not have a prenup, and Robyn acquired rights to Mel's property worth approximately 850 million dollars in the divorce.


Summary


While entering into marriage is a joyous moment, it is important to prepare for various scenarios and plan for every contingency. A prenuptial agreement is not a vision of future separation but a demonstration of care for mutual security and harmony. With proper legal guidance, a prenuptial agreement can be a valuable tool to protect the interests of both parties, providing a stable foundation for a new life path. To learn more about the benefits of prenuptial agreements, schedule a consultation with the attorneys at Baumert Law.


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