What is a prenuptial agreement?
A prenuptial agreement is a contract between a prospective groom and a prospective bride that becomes effective once they are married. The purpose of a prenuptial agreement is to determine, prior to marriage, how assets would be distributed in the event of a divorce. A prenuptial agreement must be signed by both parties. The agreement has no effect unless the parties are married.
A prenuptial agreement is most common when one party has significantly more assets than the other party. It can also be used to determine the allocation of assets if the parties get a divorce when both parties have somewhat considerable assets and do not want them to be commingled in the event they are later divorced. This might happen when a widow and a widower meet and later decide to get married.
It is advisable that a full disclosure be made of all assets, the value of the assets, and all encumbrances, such as loans, liens, or mortgages, on the assets.
The agreement should also specifically state that each party is represented by an attorney and that they have had time to review the agreement before signing it. It is also advisable that each attorney representing each of the parties to the agreement sign it as a witness. Each party’s signature to the agreement should be notarized.
Another consideration is whether the agreement should have a provision in it that allows a party to execute all necessary documents after they are married to further effectuate the terms of the agreement. The primary purpose of this provision is to ensure that any documents that need to be executed, such as those relating to retirement accounts, pensions, or insurance policies, are signed. Often times it is necessary that these signatures be obtained after the parties are married so, in the absence of this provision or cooperation from the other party, merely signing the prenuptial agreement may be inadequate to insure that the parties’ desired intent is obtained.
A prenuptial agreement is only enforceable if there is some consideration given in exchange for executing the document. This means that the party who is waiving his or her right to assets of the other party in the event they are later divorced, must get something in return. Typically, this is a specified amount of compensation.
The agreement should further address that this consideration is a substitute for payments that might otherwise have to be made in the event the parties are divorced, such as alimony or support, division of property, or attorney’s fees.
It is not unusual that the amount one party is to receive under the terms of the agreement would be staggered, so that it increases based on the number of years that they are married. For instance, there might be clauses that increase the amount to which one party is entitled if they are married at least 5 years.
It is also advisable to include a provision that addresses whether gifts made either in anticipation of marriage or during the course of marriage should count toward the amount to be paid in the event of divorce.