In recent past, the words premarital agreement or “prenup” admittedly held a negative connotation, implying the parties are contemplating their relationship’s inevitable end before they’ve entered the sacred bond of marriage. In this modern age, premarital agreements aren’t so much about planning for divorce, as they are a way of establishing the parties’ expectations during their marriage. For this reason, more couples are signing prenups, whether they’re a first-time traveler to the altar or a frequent flier.
The Parties Expectations are Known and Documented in Advance
A premarital agreement is a learning experience for the parties in two respects. First, they learn each other’s views on money, their respective financial responsibilities, as well as their assets and debts. So oft en, relationships come to an end because the parties had no idea what they were getting into. Having this discussion ahead of time, puts everyone’s cards on the table and forces them to address these issues before taking the plunge.
Secondly, a premarital agreement helps define each party’s financial expectations. With a premarital agreement, you can define as many or as few of the issues that arise in your financial life. Parties can determine who pays the mortgage, how joint living expenses are paid, or whether there will be a joint account at all.
Marriage is (arguably) a lifelong commitment. Partners launching a business together would have a partnership agreement; why not have something similar for your marriage? Marriage has significant financial implications for both parties. Detailing the expectations of the parties helps to minimize misunderstandings. With no ambiguities as to each parties’ financial expectations, the parties can focus on their relationship.
Potential Spousal Support Obligations Could Encourage a Premature Dissolution
In California, marriages of 10 years or more are deemed a long-term marriage. Generally, spousal support is paid for half the length of the marriage, unless that marriage lasts 10 years or more. In that instance, the obligation could continue for life. Regardless of the length of the marriage, if spousal support is at issue, one party may be more inclined to end the marriage at the first sign of difficulty, given the potentially increasing spousal support obligation waiting for them. With a premarital agreement, parties can modify the standard spousal support scheme, or waive it altogether. Without this added pressure, a party might be more inclined to try to make their marriage work than they would have been with their spousal support obligation hanging over their head.
Divorce (and Divorce Counsel) is Expensive
A premarital agreement helps to define expectations during the marriage, but it also helps to define expectations during a divorce. With a premarital agreement, many of the issues that arise during a divorce can be pre-determined, thus saving the parties time in court, as well as the stress and attorney’s fees that go along with that. Not every issue can be resolved ahead of time, but many can. The more that can be resolved without court intervention, the less expensive the divorce will be.
A Premarital Agreement Can Provide the Parties with Financial Independence
One of the most common reasons for divorce is money. There may not be enough or there may be an imbalance of power as to how money is spent. Either way, a premarital agreement can provide parties with financial freedom in allowing them to spend their money however they want. If each party’s earnings are their separate property, they will feel free to do what they wish with their money, thus eliminating any disagreement in that regard.
Separate Property Should Remain Separate Property
Property owned by the parties prior to marriage is considered separate property. Unless comingled with community property, each party’s separate property should remain their own. The problem is through the passage of time and movement of financial assets, it is very easy to comingle assets with community property, thus potentially losing their separate property character. In those instances, sifting through comingled property is time consuming, expensive and oft en difficult to prove in court. With a premarital agreement, each party can define their separate property assets and debts, and ensure they remain separate. These days, when second and third marriages are common, parties are entering a marriage not only with separate property assets, but also with children from a prior marriage. Ensuring that those assets remain separate, will not only avoid issues between the parties, but could also help keep peace between the children and the new spouse.
These aren’t the only reasons that marrying parties elect to have premarital agreements, but all marriages can benefit from such planning, for the reasons stated. So, when your client, colleague, friend or family member mentions that they’re getting married, don’t be afraid to mention a premarital agreement. They’re not dirty words anymore. Matthew Skarin