PREMARITAL AGREEMENTS NOT JUST FOR RICH AND FAMOUS

Not so long ago, we thought of premarital agreements mostly in connection with entertainment stars and the super rich. Now these documents (sometimes called antenuptial agreements) are a lot more common, as many men and women try to protect their property and describe what each party’s rights will be if they divorce or if one of them dies.

Reasons for Premarital Agreements. People intending to marry may use premarital agreements to avoid uncertainties about how a divorce court might divide property and decide spousal support if the marriage fails. One or both partners may want to avoid a major loss of assets, income, or a family business in the event of a divorce.

People marrying for a second or third time also might desire to make sure that certain assets or personal belongings are passed on to their children or grandchildren of prior marriages rather than a current spouse.

Of course, these considerations are also important to people already married, and sometimes couples enter into these agreements after they’re married. In that case, they’re called post-marital or postnuptial agreements.

Modifying Rules of Law. The less wealthy spouse generally is giving something up by signing a premarital or post-marital agreement. That spouse (as well as the other spouse) is agreeing to have his or her property rights determined by the agreement rather than by the usual rules of law that a court would apply on divorce or death.

Courts have rules for dividing property when a couple divorces. In some states, courts automatically divide equally the property acquired by the husband and wife during the marriage. In most states, courts divide property as the court considers fair, and the result is less predictable. The split could be 50-50 or something else. By signing a premarital or post-marital agreement, a couple avoids this uncertainty.

If one spouse dies, courts normally follow the instructions of that person’s will, but state law usually entitles the surviving spouse to one-third to one-half of the estate, regardless of what the will says. However, a valid agreement supersedes the usual laws for dividing property and income upon death, and in this way the couple can agree that the surviving spouse will get less, perhaps even nothing.

Criteria for a Valid Agreement. The laws governing the validity of premarital agreements vary from state to state. In general, the agreements must be in writing and signed by the parties.

In most states, the parties (particularly the wealthier party) must disclose their income and assets to the other party. This way, the parties will know more about what they might be giving up.

In order to be valid, an agreement must not be the result of fraud or duress. An agreement is likely to be invalid on the basis of fraud if one person (particularly the wealthier one) deliberately misstates his or her financial condition. Similarly, if one person exerts excessive emotional pressure on the other to sign the agreement, a court might declare it to be invalid because of duress.

To avoid an appearance of duress and give the parties ample time to consider the agreement, the agreement should be reviewed and signed well before the wedding.

It’s a very good idea for each party to be represented by a lawyer, to assure the agreement is drafted properly and that both parties are making informed decisions.

The standard for validity of post-marital agreements might be even higher. When a man and woman are married, instead of just contemplating marriage, they may be held to a very high standard when dealing with each other on financial issues, making full disclosure of assets absence of duress, and fairness of the agreement even more important.

Amount of Support. State laws do not set a specific amount of support that must be provided in premarital or post-marital agreements.

If, after a divorce, the parties are capable of self-support, a court could uphold an agreement that provided no property or support to the less wealthy spouse.

If, on the other hand, the less wealthy spouse cannot be self-sufficient and the agreement provides little or no property or support, courts in most states are likely to order some distribution of property or support in favor of the less wealthy spouse.

To promote fairness, many lawyers drafting premarital agreements favor including an escalator clause or a phase-in provision that will increase the amount of assets or support given to the less wealthy spouse based on the length of the marriage or an increase in the wealthier party’s assets or income after the agreement is made.