In the bliss of love and the throes of wedding planning, bringing up the topic of a prenuptial agreement can sometimes feel awkward. However, setting clear expectations and provisions for potential future scenarios doesn’t diminish the romance of a union. On the contrary, it shows foresight and a commitment to ensuring that both parties are on the same page. For those who have missed the boat before marriage, postnuptial agreements can serve a similar purpose. This article sheds light on how both types of agreements can protect one’s assets and ensure peace of mind.
Understanding the Basics
Prenuptial Agreement (Prenup): This is a legal contract entered into by two individuals before they get married. It details how assets and liabilities will be divided should the marriage end in divorce or upon the death of one spouse. It also specifies any alimony or spousal maintenance requirements.
Postnuptial Agreement (Postnup): Entered into after marriage, a postnuptial agreement serves a similar purpose to a prenup, outlining the distribution of assets and liabilities and payment of spousal maintenance.
A “marital agreement” refers to either a prenup or a postnup.
How Does a Prenup Protect Your Assets?
There are two primary ways that a prenuptial or postnuptial agreement (collectively referred to as “marital agreements”) can protect your assets.
- Protection of Assets in Case of Divorce. In the event that the marriage ends in divorce without a marital agreement, all income and assets earned during the marriage (“marital assets”) would be divided between the spouses, regardless of who earned the income or in whose name the assets are held. In “separate property states,” such as New York, a court would divide the assets “equitably” in the discretion of the judge presiding over the case. In other states, like California, all assets are divided equally. If you don’t want all marital assets to be divided equally, or if you don’t want to be at the mercy of the whims of a judge, you should have a marital agreement in place to govern how the marital assets would be divided.
- Protection Against (or for) Spousal Support Requirements. If you don’t want to pay spousal maintenance (or alimony) to your spouse in the event your marriage ends in divorce, you should have a marital agreement in place providing that no maintenance would be awarded in the event of a divorce. If divorce would have a dramatic impact on your financial wellbeing, you may want a marital agreement to stipulate certain spousal maintenance payments.
- Protection for Stay-at-Home Parents. Deciding to take a step back from your career to take care of your kids full time is a major financial decision. If you don’t have a marital agreement in place, a divorce poses an enormous risk to your financial wellbeing – and the wellbeing of your kids. You never want to be in a situation where you can’t leave a relationship if you needed to. A marital agreement can put protections in place so that you never feel financially stuck.
- Safeguarding Business Interests: For entrepreneurs or business owners, a divorce can result in a division of your business and a disruption to business operations. A pre- or post-nuptial agreement can ensure that the business remains unaffected by a personal split. (Pro Tip: If your business partner is married or getting married, be sure that the business is protected in case of divorce. The last thing you want is to end up in a partnership with a divorced couple!)
- Protection of Estate. In the event one spouse passes away, the surviving spouse is entitled to a share of the deceased spouse’s estate. If you have children from another marriage, you may want to leave your assets to your kids instead of your spouse. In that case, a marital agreement could include a waiver of the spousal rights to a share of the estate.
- Reducing Legal Fees. Legal fees for divorce proceedings can run into the hundreds of thousands of dollars, draining the assets available for both you and your spouse. A marital agreement can minimize the legal fees incurred since many issues have been decided on in advance.
- Debt. If your spouse racks up significant debt, a marital agreement can protect you against being liable for that debt. The laws governing spousal liability for debt vary among states, but a marital agreement can often provide at least some protection.
A Caveat: Fairness and Legality of a Marital Agreement
For both prenups and postnups to be enforceable in New York State, they need to meet certain criteria. These criteria vary from state to state, but below are some of the common requirements:
- Voluntary. Both parties must enter the agreement willingly, without coercion.
- Full Disclosure. Both parties must be fully aware of each other’s financial situation.
- Fairness. The agreement shouldn’t be grossly unfair or one-sided. If a court believes the agreement is “unconscionable,” it might not uphold it. At least in New York, the fairness requirement is a low hurdle to clear, as long as other requirements of the agreement are met.
- Legal Counsel. In New York, each party should have their own lawyer in order for the agreement to be enforceable. We know, the only thing worse than having to pay a lawyer is having to pay two lawyers! Just kidding – in the long run, having no lawyer or a bad lawyer can be far more expensive than any fees to prepare a good marital agreement.
In the end, considering a prenuptial or postnuptial agreement isn’t about expecting your marriage to fail; it’s about being prepared and understanding each other’s financial perspectives. Just like insurance, we don’t get it because we expect the worst to happen, but because we want to be prepared if it does. By safeguarding your assets, you ensure that your future, irrespective of how life unfolds, remains secure and in line with your intentions.
If you have questions about putting a marital agreement in place, contact us to see if we can help.
