Prenuptial agreements, commonly called “prenups”, are used to protect spouses’ individual financial interests in the event of a divorce or separation.
As the name suggests, these agreements are made before the couple marries. Similar agreements can be made after the couple marries, but these are called postnuptial agreements.
Due to the delicate nature of talking about divorce before you’re even married, many engaged couples skip the prenup. However, the use of prenups is becoming more common as the divorce rate hovers around 50%. Even Kanye West wrote a song about pre-nups!
As with any important legal document, a pre-nup can be drafted well or poorly…and a poorly drafted pre-nup will just throw salt in the wounds of an already stressful divorce.
A superior prenup will have several topics included: Disclosure of assets, waivers of default rules, death and division of earnings. For a more thorough agreement, you and your spouse can include tax obligations, premarital debt liabilities and insurance agreements.
All prenups should start with a disclosure clause. The point of a disclosure clause is that it makes both spouses swear that all of their assets, debts and obligations have been disclosed.
Some disclosure clauses include disclosures about prior marriages, criminal records, and other sensitive topics. Some couples may choose to extend the reach of the disclosure clause to include things such as future career plans and when and if the couple will have children.
In some states, a spouse can raise the defense that they did not know of their spouses assets or full condition of the marriage. To ensure this defense will not invalidate the prenup, include a disclosure clause.
2. Waiver of Default Rules in the Jurisdiction
Divorce laws vary by state. Each state has their own default rule for property division in divorce.
Unless the prenup states otherwise, the division of your assets in the event of a divorce will be determined by the state’s default law.
i. Community versus Separate Property Default Rules
In states that follow the legal theory “community property”, this means that all earnings and assets acquired during the time of the marriage (excluding inheritances and gifts) are owned 50/50 between spouses. This rule is not followed in Virginia.
Example: Wife earns $100,000 each year of the marriage. Husband is a student and has not earned any money during the marriage. If they divorce in a community property state, Husband is entitled to $50,000 for each year of their marriage — unless their prenup states otherwise.
In a state that follows the legal theory of “separate property”, the assets are divided based on ownership. In a separate property state, like Virginia, the court would have to classify each item as marital property or separate property. In the above example, the Husband’s earnings after the marriage are marital property and would have to be divided equitably and fairly.
Under the default law in Virginia, what is “equitable” and “fair” depends on what each spouse contributed to the marriage partnership, whether one spouse was the cause of the split, and whether one spouse would suffer serious financial harm due to the divorce. Thus, in the example above, of the $100,000 earned by Husband, Wife might end up with much more or less than 50%.
If you do not execute a prenup, your property, including your earnings, will be divided according to your states’s default rule. If you don’t like your state’s default rule, you might want to execute a pre-nup.
For more information on community and separate property state laws, click here.
3. Property Division
The most basic job of a prenup is to determine “who gets what” in the event of a divorce.
Commonly, pre-nups discuss the ownership of:
- Spouses can be liable for their partner’s premarital debt and even student loans!
- Bank accounts
- Will you keep joint or separate bank accounts?
- Will you file joint or separate taxes?
This list is nowhere near exhaustive. Spouses can also determine which property goes to which spouse if the divorce is on the grounds of adultery or abandonment. Most states give the parties to the agreement a lot of wiggle room to determine the property division.
Similar to Divorce, Death is an unpopular topic for newlyweds. Unlike the divorce rate at 50%, the death rate is 100%.
It is important for spouses to have a plan for death. Losing a partner is one of the worst heartbreaks life knows — a little pain is taken out of the process if each spouses knows the other’s wishes.
Additionally, if the death of one spouse leaves the other financially unstable it is important to have a plan if that happens. For many, this portion of the prenup will include decisions on life insurance.
A duly executed Will could stand in place of this section of a prenup. Couples may want to seek independent counsel to draft a Will instead of including this section in their prenup.
5. Protection Against Defenses
A prenup is merely a contract between spouses. In the event of a divorce, a spouse can raise contractual defenses to the prenup to invalidate it.
A common defense used to invalidate the agreement is Duress.
A Duress defense will likely succeed if the spouse can show the court that they did not have enough time to review and consider the agreement before signing. For this reason, it is highly recommended that prenups are drafted and executed with plenty of time before the wedding so that each spouse can review it’s terms.
ii. Undue Influence
A spouse can claim Undue Influence if the spouse can show that the other spouse pressured or coerced them into signing the prenup agreement.
One way to avoid undue influence is to get independent counsel for each spouse during the drafting phase. A spouse bringing an undue influence defense will not have a strong argument if the other spouse can show each party had independent counsel.
A prenup that is written to be extremely unfair (“unconscionable”) will likely fall to an unconscionable defense.
Example: A prenup that attempts to waive the right to alimony for only one spouse is generally unconscionable.
If both parties retain their own attorneys, the attorney will insure that the spouse is adequately protected and there are not any “unconscionable” terms.