A premarital agreement (also known as a prenuptial agreement) is a contract between prospective spouses voluntarily entered into before marriage that becomes effective on the date of marriage. A prenuptial agreement may address any property issue that might arise during the marriage, including:
- the rights and obligations of each of the spouses in any of the property they own regardless of whenever and wherever acquired or located;
- the right to buy, sell, use, transfer, exchange, lease, assign, create a security interest in, mortgage or otherwise manage and control property;
- the disposition of property on separation, divorce, death or the occurrence or non-occurrence of any other event;
- the modification or elimination of spousal support;
- the making of a will, trust, or other arrangement to carry out the provisions of the agreement;
- the ownership rights in and disposition of the death benefit from a life insurance policy; and
- any other personal rights and obligations, provided the agreement does not violate public policy or a statute imposing a criminal penalty.
Premarital agreements also may be used to prevent the creation of community property–which is subject to a “just and right” division upon divorce at the discretion of the court.
Prenuptial agreements may be used to preserve separate property as separate property (including income derived from separate property which, in Texas, is generally considered community property). This is important because separate property is not subject to division by a court. The owner of separate property is allowed to keep his or her separate property upon divorce.
Premarital agreements typically are used in situations where one or both spouses have significant assets they desire to protect, such as real estate, stocks, bonds, retirement and pension plan benefits, 401k plan benefits, employee benefits, boats, airplanes, farms, ranches and hunting camps. They also are useful where one or both spouses own a business or have business partners, have a parent who is financially dependent, have significant premarital financial responsibilities, such as alimony, child support or tax obligations and/or have complex estate planning issues.
A postmarital agreement (also known as a postnuptial agreement or a partition and exchange agreement) is a contract voluntarily entered into by two spouses after the date of marriage that is immediately effective. Postnuptial agreements are similar to prenuptial agreements in the way they operate. They are typically used to convert separate property into community property or convert community property into separate property.
Practical Tips and Legal Considerations
In order for a premarital agreement or postmarital agreement to be valid, it must be in writing and voluntarily signed by both spouses.
A prenuptial agreement or postnuptial agreement also must not be unconscionable when signed. This means that the agreement must not be so one-sided that a reasonable person would conclude that it was not negotiated at arm’s length. Factors to be considered in determining whether a premarital agreement or postmarital agreement is unconscionable include the ages and maturity levels of the spouses, prior marriages, the spouses’ motivations for entering into the agreement, and whether each party was represented by their own lawyer.
For a premarital agreement or postmarital agreement to be effective, each spouse must provide a fair and reasonable disclosure of his or her property and financial obligations to the other spouse or agree, in writing, that the disclosures are not necessary.
Although not required, each spouse should be represented by a lawyer during the negotiation and drafting process. It also is a good idea that a prenuptial agreement or postnuptial agreement be notarized and recorded in the official real property records of the counties where the spouses live and own property. Prenuptial agreements and postnuptial agreements may be amended at any time provided the amendments are in writing and signed by both spouses.
Negotiating and drafting a creative, comprehensive and effective premarital agreement or postmarital agreement requires the skills of both an attorney and a CPA. Trust your prenuptial agreement or postnuptial agreement to attorney/CPA Sonya Coffman. Because . . . family matters.