What is a Prenup?
A prenuptial agreement (often referred to as a "prenup") is a legally binding contract between two people, usually soon-to-be spouses, that stipulates how property will be divided in the event of a divorce. For couples planning to marry, entering into such an agreement can be a contentious process – but one that can be well worth the trouble for both parties in the long run.
While no one dreams about the day they’ll have to use a prenup, the unfortunate fact remains that close to 40 percent of all marriages end in divorce. Considering the high divorce rate, it is worthwhile for couples to examine whether a prenup makes sense. Oftentimes, when people think about a prenup, the first thing that comes to mind is often the division of property. But there are various other elements that a prenup can provide.
Disclosure. In order for a prenup to be considered valid. Both parties should fully disclose the nature of their assets and liabilities. This means that if one party has an asset that the other party does not know about, this could nullify the prenup, which is why our firm makes it a point to have full disclosure of all assets in order to make sure that the prenup is valid.
Choice of state law. All states do not have the same laws governing marital property. If one party resides in a different state than the other, then this is something that the parties should discuss. Generally , you will want to pick a state whose property laws make the most sense for your situation.
Alimony. Many clients ask us about alimony. Often, people just want to limit the amount of time that they would be obligated to pay alimony or to get alimony in the case of a divorce. You should discuss with your lawyer if an alimony provision makes sense given your particular circumstances.
Length and amount of alimony. Many states are starting to legislate the length and amount of alimony that is appropriate in a divorce – especially with regard to long or short term marriages. This is something that you should discuss with your attorney as well.
Wills and inheritance. Many parties have children from their previous relationships, are step-parents and plan to have children together. The issue of wills becomes very important in equalizing how various property will pass, especially in the case of death. Many states have very strict rules regarding the inheritance rights of spouses who divorce or remarry.
Health issues. Problems may arise in the context of health insurance if a spouse becomes ill. This is something that a prenup can provide for.
Debt protection. Our firm has seen numerous clients who came into the marriage with significant debt. The law is somewhat unclear regarding debt that is incurred after marriage. We often advise clients to look to their individual state’s laws regarding what has to happen in the event of a divorce.
The Key Elements of an Unshakeable Prenup
To be considered "ironclad", a prenuptial agreement must include full disclosure of assets and liabilities, be legally fair, and both spouses must have independent legal advice. It must also be properly executed by both parties.
Disclosure of Assets and Liabilities
A prenuptial agreement must fully disclose the income, assets and liabilities of each party. Full and complete disclosure is the foundation on which a court will base its enforcement of the agreement. Anything left out could mean the difference between having the agreement enforced or finding it invalid.
Legal Fairness
The prenuptial agreement must also be fair, or at least not give the impression of being unfair: it must pass the smell test. This fact is true even if both parties have legal representation. Courts have ruled that a prenuptial agreement which was advantageous to one party (under the circumstances at that time) may become extremely unfair at a later date.
Independent Legal Advice
While it is always advisable for both parties to obtain independent legal advice, it is not always necessary for the attorney who drafts a prenuptial agreement to draft it. Sometimes the parties have already divided their assets or fully discussed the prenuptial agreement with their respective attorneys before the prenuptial agreement is drafted.
Proper Execution
The prenuptial agreement must be signed in front of a notary public.
Common Obstacles & How to Sidestep Them
One of the biggest threats to a prenuptial agreement is an allegation of coercion or undue influence. When this argument is made, courts will look at exactly how the agreement was developed. Did one spouse get input from a neutral third party? Were both spouses represented by legal counsel? Did both spouses have reasonable time to review the agreement and ask questions? Did it involve a fair process? In short, if one spouse created the agreement and pressured the other into signing it or ‘threw it in front of them’ without giving them a reasonable amount of time to review the document and seek counsel, the prenuptial agreement is likely to be thrown out. A good way to avoid a coercion argument is to both be represented by independent counsel during negotiations and formal reviews of the final agreement. This can help both parties understand what they are signing, the implications of doing so, and mean that the (hopefully) relatively large costs associated with negotiating the agreement were money well spent should the agreement be challenged.
Specific challenges to prenuptial agreements arise where certain terms are not clearly written or vague terms are included. For example, a prenuptial agreement may include a clause such as "We will share our property equitably" without defining the word equitably. Equitably can mean very different things to different people and in different contexts. A court may determine that such a clause is too vague to be enforceable. Another common problem is spelling out exactly what happens to property acquired after the marriage. Generally, the property acquired after the marriage is marital property. However, if one party acquires the property through a specific effort or during a specifically defined period of time, the prenuptial agreement can provide that the property is excluded from marital property. Without these efforts, the court may determine that the property is marital property and due to be divided in a divorce.
Legal Prerequisites According to Jurisdiction
Effective prenuptial agreements hinge on a solid understanding of the various legal requirements for each jurisdiction. To ensure the enforceability of an agreement, compliance with local laws is critical.
States regulate prenuptial agreements differently (due to their right to determine local marriage and divorce law). For example, while Illinois requires that prenups be signed by both parties in the presence of a notary public, California just asks that prenups be signed by both parties (also in the case of real estate property, it must be noted on the deed).
Also, some jurisdictions require notarization or witnesses while others do not.
According to the Uniform Premarital Agreement Act , which is followed in Arkansas, Colorado, Florida, Kansas, Kentucky, Massachusetts, Minnesota, Missouri, Nebraska, Nevada, New Jersey, North Carolina, Ohio, Oregon, South Dakota, Tennessee, Utah, Washington and Wyoming, the following requirements must be met for an agreement to be valid:
In North Carolina, prenuptial agreements must be made and signed voluntarily, with no fraud, overreaching or incapacity. Like other states, all parties’ signatures must be in writing and signed in front of a witness for the document to be legally binding.
States without a uniform law require that all the above criteria be met in order for the prenuptial agreement to be legally binding.
A Guide to Drafting a Robust Prenup
The process for drafting a prenup usually goes as follows. First and foremost, both parties need to agree that a prenup makes sense for them. If only one person wants a prenup the risk is that it may ultimately be thrown out by the court if it lacks the voluntary element. Once both parties agree, they will need to exchange full financial disclosures so that both parties know what the financial realities are for the other.
Once this information is in, the parties begin to negotiate the terms of the prenuptial agreement. Each person has to be transparent about what they want and why they feel they might need certain protections. The goal of the negotiation is to come to an agreement that each person feels they can live with and that seems fair and reasonable given the situation. Depending on how compatible these views are, the negotiation phase can take a while and requires some compromise. After a draft of the agreement is complete, both people should have it reviewed by separate independent counsel (attorneys). This is essential for being able to prove that the document was voluntary. Both parties also must be given seven days to review the proposed agreement and seek legal advice if they wish. At the end of the seven days, the parties can sign and notarize the agreement and it is enforceable.
Real-world Scenarios: Experiences and Implications
Jane and Tom, both professionals with significant assets, entered into a prenuptial agreement early in their courtship. The agreement was drafted by Tom’s attorney – let’s call him Henry. Although Jane was represented by an attorney, the attorney failed to explain certain relevant concepts of property division to Jane, including the fact that she would not be able to make a claim on any portion of Tom’s retirement plan. Unfortunately, when it came time to divide their assets, Jane believed that she was entitled to a piece of Tom’s retirement plan. The judge concurred. Hindsight, of course, is always 20-20, and had Jane fully understood the implications, she could have challenged the agreement on the basis of duress – because she was being pressured to enter into the agreement during a period of emotional instability (i.e., her father had just been diagnosed with cancer) – or that it was unconscionable (i.e., it benefitted Tom significantly while hurting Jane). Investing in good counsel the first time around (Jane had used a general practitioner who didn’t practice family law regularly) would have saved the parties thousands of dollars spent in litigation and many a sleepless night.
Consider the case of Stoller v. Stoller, 826 So.2d 472 (Fla. 4th DCA 2002). During the marriage, the parties entered into a marital settlement agreement which contained a prenuptial-like provision that obligated both parties to waive alimony in the event of the dissolution of their marriage. Months later, the parties entered into a prenuptial agreement which included the same language about waiving alimony and was signed and notarized. Later still, the husband was diagnosed with a terminal illness. He filed a second divorce action and moved for summary judgment on the issue of alimony, as a matter of law . The trial court held that the alimony waivers were without consideration and granted summary judgment in favor of the husband, ruling that the wife was not entitled to alimony. The wife appealed. The appellate court reversed. It held that where a spouse consents to asset division and where the parties are represented by independent counsel, a sufficient level of consideration existed to render the second agreement valid.
In doing so, the court determined that material considerations may include consideration received for a promise (in this case, an alimony waiver) which detracts from the consideration received by the other party in a contemporaneously executed marital settlement agreement. In other words, the husband’s receipt of yet another alimony waiver agreement, his second, was deemed sufficient consideration to support the alimony waiver in the prenuptial agreement. Something to consider if finding yourself in a similar situation: We do not know what the husband’s condition would have been; however, the court did rule that the illness was a material change of circumstance affecting the equitable factors set forth in section 61.08(2), Florida Statutes (2000). Consider what would have happened, though, if husband’s condition was terminal. Would marital settlement agreement #1 have been considered a basis for alimony – despite the fact that consideration was given for it? Perhaps. The lesson here is that while a prenuptial agreement might remove a number of issues from consideration in a divorce action, a regional court might still find it enforceable, despite the age of the agreement, the agreement was signed by both parties while they were represented by independent counsel, and the husband did provide consideration in the context of the marital settlement agreement.