Q: Should I enter into a prenuptial agreement?
A: Long gone are the days when prenuptial agreements are the exclusive province of the rich and famous. Increasingly, and for a variety of good reasons, people from all different walks of life are opting to take control of their fates by entering into prenuptial agreements.
If you are getting married or entering into a registered domestic partnership, one of the most important decisions you will make is whether to enter into a prenuptial agreement. By default the California Family Code provides those getting married, or entering into a registered domestic partnership (RDP), with a fundamental choice to make. Either he or she can take destiny into their own hands by entering into a prenuptial agreement that is tailor made to suit his or her own needs, or he or she may by default allow California law to govern what can or will happen to his or her property in the event of separation, divorce or death.
With few exceptions, everyone who gets married hopes it will last a lifetime. But over half of all California marriages end in divorce. Those who have not entered into a premarital agreement will be governed by the arbitrary, rigid and harsh rules set forth in the California Family Code. For example, if someone doesn’t enter into a prenuptial agreement, the Family Code will dictate how and when his or her community and separate property assets will be divided upon divorce, and how much he or she will be required to pay in alimony (spousal support).
In short, a prenuptial agreement enables the parties to negotiate an agreement that enables them to “opt out” of the law and regulations under the Family Code, and take matters into their own hands. There are several reasons why people decide to enter into premarital agreements. The following is a summary of some of the frequently cited reasons why my clients have decided to enter into such contracts:
• Preserving Inheritances: If you have children from a prior marriage or grandchildren who you desire to inherit most or all of your assets, a prenuptial agreement is an essential tool to assure that your intentions will be honored. If you don’t enter a prenuptial agreement your children may lose substantial property to your new spouse.
• Asset Preservation and Protection: If one or both parties come to the marriage with significant assets, income streams, one or both of the parties may wish to clarify what will happen to those assets and income streams in the event of separation, divorce or death. A prenuptial agreement may specify what will happen to your property, either community or separate. For example, real estate, antiques, jewelry, stock options, and accident settlements may all be the subject of a prenuptial agreement.
• Dealing with Debt: A prenuptial agreement can and should address how all of your and your fiancee’s debts will be handled. This includes debts incurred before you are married and those incurred after you are married. Although assets or debts acquired prior to marriage are generally separate property, if the parties use their earnings during marriage to pay the mortgage on a separate property asset, under the principles of California community property law, the community acquires an interest in the home which will need to be accounted for upon divorce.
• Preserving And Protecting The Interests in Family and Other Closely-Held Businesses: There are many different types of assets that people seek to protect through the use of a prenuptial agreement. For example, people who have ownership interests in businesses may wish to ensure that in the event of divorce, that they will not have their interests interrupted. A divorce can strip a company of assets when one party claims a stake in a spouse’s family business or a closely held company. Even if such a claim is unsuccessful, hotly contested litigation can expose your business to incredible intrusion including burdensome discovery. A prenuptial agreement can help protect you and your fellow stakeholders in the business against such risks. If you die without a prenuptial agreement or get divorced, your new spouse might share in the family business which could dramatically change the family interaction of the business and cause a serious problems.
• Limiting or Waiving Alimony (Spousal Support): Some people, especially those who have already been through a prior divorce, are nervous about the possibility of having to pay considerable future spousal support payments. A prenuptial agreement may limit or waive future spousal support obligation by the parties.
• Preserving and Protecting Separate Property Acquired Before Marriage: A prenuptial agreement may insure that a spouse’s property owned before marriage remains separate property after marriage. In other words, the property will remain separate regardless of any new developments that might otherwise make the property community property. In particular, when one spouse owns a business he or she may wish to avoid the difficulties involved in apportioning the business in the event of dissolution. A prenuptial agreement can be used to assure that a business will remain entirely the separate property of the owning spouse, regardless of any actions taken after marriage.
• Preventing creation of community property: California is a community property state, meaning all assets acquired during the marriage, including increased value of assets owned before the marriage, may be included in the “marital pot.” A prenuptial agreement may prevent the creation of community property during the marriage. The party’s may agree that each of their respective earnings during marriage and before separation, and any items acquired by the party with those earnings, will be his or her separate property. For example, should a spouse get a loan during marriage to fund a separate property business, under current law, the loan proceeds will be community property. This means that the business will have both separate and community property interests unless a prenuptial agreement is entered into by the parties that provides otherwise. Prenuptial agreements may also be used to clarify whether a contemplated gift or bequest, either before or after marriage has any community property component. For example, a prenuptial agreement can specify whether a gift by one spouse’s parents of a down payment on a house is a gift to the couple (i.e., community property) or just to their child (i.e., separate property).
• Disposition Of Marital Residence: A prenuptial agreement may address who will be entitled to keep possession of the family residence in the event of divorce or death.
• Keeping a Cherished Pet: While child support and custody issues may not be included in prenuptial agreements under California law, who gets to keep a cherished pet is absolutely fair game. In fact, prenups are used to steer a more rational course for those who, instead of children, have pets dear to their hearts. If you want to make sure that your pet will stay with you, make sure to let me know.
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