What is a Prenuptial Agreement?
by ACTEC Fellows Anne W. Coventry and Natalie M. Perry
A prenup, premarital agreement, is a contract between two people prior to a marriage covering how their property is to be managed. Learn when it’s important to create a premarital agreement and what to consider if you live in a community property state from ACTEC Fellows Anne W. Coventry and Natalie M. Perry.
We’re going to talk about premarital agreements, what they are and when they can be useful. I often get clients into my practice, Anne, coming in and asking me about whether their children should have a premarital agreement. Can you tell us a little bit about what a premarital agreement is and when someone should have one?
A premarital agreement is a contract between people who intend to get married to one another. It explains what they’ve decided the rules should be about their property and what obligations they have to one another at the time when the marriage ends, either by divorce or upon the death of one of the parties. It’s a good idea to get started on the process of preparing your premarital agreement about six months prior to the date of the wedding. We typically tell clients, “You don’t want to be making deposits to the venue or the caterer, putting significant deposits down prior to getting started on your marital agreement.”
Is there a deadline for creating a premarital agreement? It sounds like the timing is important.
The important thing to keep in mind is the validity of the premarital agreement. The closer you are to the wedding date, when you sign it, the easier it might be for one of the parties to say later on that they signed it under duress because, perhaps, they had paid the caterer already or all their guests were in town. You want to avoid that. You also want to spend those last few weeks leading up to your wedding focused on the celebrations and the fact that your friends are in town. So, we recommend that you have it finished well before the wedding, which means getting started early. There’s no set deadline but you want to avoid a situation where someone could later say they had to sign it under duress.
Do your answers change if I live in a community property state?
That doesn’t change the advice that people should get premarital agreements or that they should get started on the process early. What it changes is what the state law default rules are about your rights and obligations to one another if you don’t have an agreement. The premarital agreement allows you to write your own rules so that it matters less what the state law default rules say.
What if someone is refusing to sign a premarital agreement? Is there anything else that can be done?
One option, of course, is to not get married. I realize that a lot of people are not going to take that option. But another option, that may not be quite as good, is to make sure you think about your estate planning and what steps you can take to protect yourself well in advance of the marriage. So, you want to see an estate planning attorney to understand what your state allows you to do to structure your assets and how you hold them to make sure you’re best protected. You also want to be careful about how you’re titling things. For example, if you inherit assets from a family member and then you put those assets in joint name with your spouse, you may have lost the opportunity to protect those assets as your separate property. So, you’ll want to get advice from an estate planning attorney in advance of the wedding to see what can be done. Some states, for example, allow you to create an irrevocable trust that is for your own benefit that would give your assets some better protection.
Okay. Great. Thank you for being here today, Anne. That was really helpful.
Happy to help.