A “prenup,” short for prenuptial, is an agreement between an engaged couple where they define their respective rights to their separate and/or collective property in the event of death or of the dissolution of their marriage.
Prenups are done in a variety of settings, such as between second (or subsequent) marriages to deal with issues associated with disparate assets and/or blended families, or between business owners and their future spouses in order to mitigate potential disruptions in business operations, or between young couples who are the beneficiaries of trusts or expect a significant inheritance.
A prenup is a contract between the two parties that waives and releases rights they may have under public laws and replaces those rights with a private arrangement, done in exchange for the promise to marry. All assets and liabilities must be disclosed in the course of the negotiation of a prenup. An individual cannot waive their legal rights or interests in property without understanding the scope of those potential rights or interests. For future anticipated inheritances, the line typically is drawn at disclosing any currently vested interests. Again, it is up to the parties and their counsel to decide what is appropriate for disclosure.
Any asset owned by an engaged partner prior to the marriage is considered a separate asset. To the extent that the partner keeps that asset separate after marriage, it can remain so and be treated as separate in the event of death or divorce. The separate treatment is a one-way street. If a previously separate asset is put into joint name or commingled, it loses its separate character forever. That toothpaste cannot go back into the tube.
Also included under the umbrella of separate assets are all future received gifts and inheritances – again, provided the recipient keeps those assets separate after receipt. However, the inclusion within separate assets of all assets held prior to the marriage does not mean that assets must be kept separate. All assets are disclosed as separate upfront, but the parties can always choose what they want to retain as separate or not. Collective assets include everything acquired together after the date of the marriage, including earned wages.
One issue that often requires special attention in the course of preparing and negotiating a prenuptial agreement is the treatment of retirement assets, in particular, employer-provided plans governed by the Employee Retirement Income Security Act of 1974 (ERISA). This federal law grants surviving spouses certain rights in ERISA-governed plans, and how to handle these assets in the context of the agreement often becomes a central issue for both sides.
The arrangement in a prenup establishes a floor, not a ceiling. A married couple can always do more for one another, through joint ownership, gift, or their estate planning documents, that is guaranteed in the agreement. The agreement is also revocable at any time after marriage. Again, some couples will tear it up some years down the road, and will greatly relish doing so.
So, a prenup clarifies your financial rights and obligations, offers protection from debts and settles property rights before you get married. It can also help you avoid a lengthy and painful divorce process.
Prenups are not a fun topic to bring up to a future spouse, even where there may be legitimate reasons to do one. Nor is it fun to navigate any of the above issues, but they do have an important role to play for many people, including recently for many longstanding same-sex couples who are now considering marriage. Do all marriages need a pre-marriage agreement? Absolutely not. But, if any of these issues resonate with you, the earlier you start the process, the better it is for everyone.
Call 574.232.3538 for an appointment with our knowledgeable family law attorneys who understand the nuances of what is important to include in the prenuptial agreement.
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