I’ve been asked about premarital or prenuptial agreements — what they do and who might need one.
A prenuptial or premarital agreement, as the name implies, is an agreement entered into by two people who are planning to get married. Although certainly not the most fun or romantic aspect to planning a marriage, a “prenup” is a topic many couples should discuss. (I prefer the term “premarital agreement,” so that’s what I’ll use for the rest of this post.)
A premarital agreement is designed to address issues relating to property ownership by each spouse during the marriage, and the division of that property at the death of one of the spouses or in the (hopefully unlikely) event of divorce. Pop culture gives premarital agreements a bad name, and certainly some people view them as distasteful. However, you must realize that marriage is far more than an emotional and romantic event – it is in a very real way a financial union, and far too few couples seem to acknowledge that fact in advance. Indeed, if it is approached properly, a premarital agreement (and the discussions leading to the creation of that agreement) can indeed lead to increased financial well-being, and less finance-induced stress, in the marriage, perhaps decreasing the likelihood of divorce.
So, which couples should consider a premarital agreement? There are a few major indicators: where one or both partners (1) have significant assets, like a house, a retirement fund, or ownership of a business; (2) have children from a prior marriage; (3) have loved ones who are dependent on them; (4) anticipate receiving a significant inheritance; or (5) anticipate a significant change in wealth or earning power (such as someone pursuing an advanced degree). Some other situations where a premarital agreement might be wise are where one spouse is planning to put the other through college or an advanced degree program, where one spouse owns significant intellectual property, or where one spouse has exhibited difficult managing money in the past.
In Idaho, premarital agreements are governed by Idaho’s version of the Uniform Premarital Agreement Act. That Act provides that, in addition to addressing property ownership, the premarital agreement can cover a variety of other topics, including inheritance rights or spousal support in the event of divorce (alimony). Or, where a small business is involved, the premarital agreement can sort out ownership and control of that business, to avoid the possible result that ex-spouses end up in co-control of the business following a divorce. Premarital agreements cannot, however, address issues such as child support or custody.
The Act also requires certain prerequisites to the signing of the agreement in order to be enforceable. One major prerequisite is that each party needs to provide full disclosure of his or her assets to the other party. “Assets” here includes anything that might be of value, including interests in trust accounts and intellectual property assets. Another requirement is that the agreement must be reasonably fair to both parties and must be voluntarily signed by both spouses.
As a final note, it is much preferred that each spouse have his or her own attorney for representation in the process. Where couples are unable to afford an attorney for each spouse, a couple might proceed by hiring an attorney for only one spouse, with the other spouse proceeding without an attorney. As long as the couple are squarely on the same page regarding the agreement, that arrangement might work, although it does make a future challenge to the agreement somewhat more likely. The agreement should also be signed far in advance of the marriage itself, to lessen the appearance that the agreement was an eleventh hour surprise and thus not fully voluntary for one spouse.
Although they are not for every couple, a premarital agreement can be an important part of the marriage planning process. Although no one likes to imagine the death of a spouse or the end of the marriage, having a premarital agreement will give the couple the opportunity to control their own fate if one of those events occurs. And resolving those issues at a time when the couple are happy with each other can result in much better outcomes than saving those issues for a divorce proceeding.
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