What is a prenuptial agreement?
A premarital agreement (also known as a “prenuptial agreement” or “prenup” ) is a contract between two people who intend to marry. A prenuptial agreement can be a useful planning tool. It allows a couple to decide how they are going to handle their property, finances and their inheritance rights if the marriage is ended by divorce or the death of one of the spouses.
You may think it is unromantic to talk about divorce before you even get married and that signing a prenuptial agreement might make it too easy to get a divorce.
These concerns are valid. But depending on your situation, a thoughtfully written prenuptial agreement can allow a couple to hash out financial issues between them and increase the level of trust they have for each other.
Here are 5 reasons why a premarital agreement may be something to look into before you get married. As one of my clients told me – A premarital agreement makes sense because it is about the business of marriage.
1. One or both of you have already built up a sizeable amount of assets and you want to make sure that these assets remain your separate property if you divorce.
A common reason for a prenuptial agreement is to protect the separate character of property, which each person is going to be bringing into the marriage. This benefit applies to a situation where one person has a lot more property than the other person. It also applies where both people have a lot of property. The premarital agreement can preserve the boundaries between the property, which each person had before they got married and the property, which they adquired after they got married. Otherwise, in the absence of a premarital agreement, a divorce can become costly when one spouse claims the other spouse’s premarital property has morphed into marital property.
2. You and your spouse-to-be are going to live in a home, which one of you already own and you want to make sure the home remains your separate property.
A premarital agreement allows the owner of a home to preserve the separate character of the home or any subsequent homes purchased using the proceeds from the sale of the home. Without a premarital agreement, it is almost impossible to preserve the separate character of a home even if your marriage is short-lived. If your divorce is contested and you go to a trial, there is a strong probability that the judge hearing your case will rule that the home has been transformed from separate to marital property.
3. You or your spouse has a lot of debt and neither of you want to be responsible for the other person’s debt.
A premarital agreement can preserve the boundaries between the debts each of you are bringing into the marriage as long as you keep the debts separate. This means don’t refinance a loan based on the non-debtor spouse’s credit or assume any liability for a loan, which belongs to your spouse.
4. You have children from a prior marriage and you want them to inherit your separate property without your spouse having any rights in your separate property if he or she dies before you do.
Alaska law confers certain inheritance rights on a surviving spouse. These rights prevent the deceased spouse from disinheriting the surviving spouse. These inheritance rights include, among other things, certain statutory allowances. These statutory allowances apply to the deceased spouse’s estate. In the absence of a premarital agreement, a surviving spouse would be entitled to claim the statutory allowances to all of the deceased spouse’s property – both premarital and marital property. However, when each spouse has children from a prior marriage or relationship, the statutory allowances can reduce the amount of assets available for these children to inherit.
Conversely, a waiver of inheritance rights might reduce or eliminate the amount of property to which a surviving spouse would otherwise be entitled.
5. You own a business or have an interest in a business.
If you own a business or have an interest in a business, it would start out as premarital property. However, it is impossible to predict what may happen in the future. You may add additional owners. You may change the business form. You may expand the scope of the business. The longer you are married and the more your business grows, the less likely it would remain your separate property. While there are no guarantees, a thoughtfully drafted prenuptial agreement would give you the best chance of protecting the separate character of your business.
Since every couple is unique, there are probably many other reasons for a premarital agreement. But the five reasons I discussed in this Article are the most common reasons I have seen for a prenuptial agreement.