Is it Time for a Pre-Nup? Some Considerations and Pitfalls of Creating a Premarital Agreement

Is it Time for a Pre-Nup? Some Considerations and Pitfalls of Creating a Premarital Agreement

California law currently recognizes three basic types of agreements involving marriage: Premarital Agreements, Marital Agreements, and Marital Settlement Agreements. As of January 1, 2005, these agreements are also applicable to lawful domestic partnerships.[1] Marital agreements are executed by spouses during marriage and affect marital rights and obligations in an ongoing marriage. Marriage settlement agreements are executed to resolve the parties’ marital and property rights and obligations upon the dissolution of marriage. This article addresses some of the practical considerations involving premarital agreements, or “Prenups,” and what rights those agreements can and cannot afford.

When people are getting married, the notion of divorce is likely far from their minds. Most could not even contemplate the possibility their marriage will not work out. Nevertheless, as of 2008, approximately 40% of all marriages end in divorce.[2] Premarital Agreements provide the parties with rights and protections both during marriage and in the event of dissolution, and are a tool to allocate not only their pre-marital assets, but also income or property acquired during marriage.
 
Premarital Agreements are contracts executed between prospective spouses intended to be effective upon marriage. They are intended to allocate assets and income the parties either bring into the marriage or earn and acquire after marriage. Unlike marriage settlement agreements which define the parties’ rights upon dissolution, a premarital agreement is actually intended to promote or continue rights and conditions to help preserve a prospective marriage. They may deal with the parties’ present and future property rights, both before and after death, and other related matters, and are intended to avoid or alter the applicability of California’s community property laws. Thus, premarital agreements may provide that the earnings and property acquired by each spouse during marriage will remain that party’s separate property in the event the marriage fails.
 

What subjects can a premarital agreement cover?

Subject to certain limitations, a valid premarital agreement can address and allocate the parties’ rights and obligations in any property of either or both parties, whether it was acquired before or during marriage. This includes real property, income and earnings, and other assets. It may govern the right to buy, sell, use, transfer, or lease property. The agreement may also establish or limit the right to mortgage, encumber, manage and control the property, and even the disposal of property upon separation, dissolution, or death.
 
However, pre-marital agreements cannot modify or abridge a party’s statutory child support obligations. The courts will not enforce agreements which attempt to limit or remove one parent’s duty to support their children.
 
A valid premarital agreement may of course preserve the separate property the parties brought into the marriage, but may also allocate the property rights of income and property acquired during marriage, and provide for one or both spouses in the event of dissolution. For example, a valid premarital agreement may allow for the payment of a specified sum of money to one spouse in the event of dissolution. Although this may appear to promote dissolution, California law is careful to recognize the rights or income one party may have given up when they entered into the marriage, such as spousal support from a prior marriage. This provision is increasingly important in the event one spouse remarries. However, this lump sum payment cannot appear to be a fine or penalty linked to a party’s alleged fault for the marriage ending. This type of agreement is contrary to California’s no-fault dissolution policy.
 
Parties interested in entering into a premarital agreement must be cautious not to craft an agreement which may be seen to promote the dissolution of marriage. Courts will not enforce a premarital agreement if it provides incentives for one or both parties to divorce. This is a slippery slope. On the one hand, a premarital agreement is intended to take into account the possibility that the marriage will not work out, and it is a rational and realistic attempt to account for this unfortunate possibility. On the other hand, these agreements should not promote or encourage dissolution of a marriage that may have endured if the premarital agreement were not in place.
 
California law is also careful to ensure that one spouse is not strong-armed into giving up rights they would otherwise lawfully be entitled to through marriage. Therefore, to ensure a prenup will be valid and enforceable, premarital agreements typically must be evidenced by a writing signed by both parties and each party should be represented by separate counsel. This will better ensure each party’s interests are represented and their rights are understood. In the event one party still wishes to sign a premarital agreement without the advice of separate counsel, the agreement will not be enforceable unless that party signs a separate document expressly stating among other things that he or she waives representation by independent legal counsel, and also that he or she is fully informed, in writing, of the terms and effect of the agreement, including the rights and obligations relinquished. In any case, any provision regarding post-dissolution spousal support will not be enforced unless the party seeking support was represented by counsel when the agreement was signed.
 
Premarital Agreements can provide a practical, fair, and legitimate means before marriage of allocating the parties’ separate assets and income. They are increasingly important today, not only for those intent on approaching their nuptuals with more realistic expectations, but for those who now more ever enter a prospective union with assets and obligations that need to be protected. A properly drafted and executed prenup prepared by knowledgeable counsel can preserve these rights and the agreement contemplated by the parties before marriage.


[1] The California Domestic Partner Rights and Responsibilities Act extends to registered domestic partnerships nearly all the rights, benefits obligations and protections afforded spouses under California law both during and upon termination of the union. Therefore, the term “spouse” should be read in this article to encompass lawful “domestic partners” and “marriage” should be read to in a lawful domestic partnership.
[2] Spratling, Cassandra (9 June 2009). "Blended families can overcome daunting odds". Burlington, Vermont: Burlington Free Press. pp. 9A.
 

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