Protect your Assets: Prenuptial Agreements 101


What is a prenuptial agreement?

A prenuptial or premarital agreement is a negotiated agreement reached between two parties in advance of marriage. The agreement typically deals with the ownership of assets in the event the marriage ends in divorce. Some prenuptial agreements will also cover alimony and child support. There is a great overview from a legal perspective here.

Do I really need a premarital agreement?

About half of marriages end in divorce in the United States so it may be prudent to consider signing one. Following are some considerations to help guide your decision making.

Timing is everything

Many newly engaged couples believe the entire concept of prenuptial agreements is unromantic or even disgusting because the party proposing the agreement may be planning for the marriage to fail. If you plan on asking for a prenuptial agreement in your future marriage we suggest you start the conversation early so expectations are not shattered weeks in advance of the big day.

Many jurisdictions even require a party be given a certain amount of time to review and negotiate the terms of a prenuptial before the marriage date. If the adequate time is not provided the agreement can be rendered unenforceable. In California the party receiving the prenuptial agreement must be given at least seven days to review the agreement before it is signed. If someone is not given the seven days, a court may consider it to be signed under duress and refuse to enforce it’s provisions.

Protect yourself.

Prenuptial agreements should be negotiated with the assistance of licensed and independent legal counsel. Independent is a key word. We have seen many prenuptial agreements drafted for couples by one attorney. Usually the drafting attorney is working for the person with the money. So how could the other party hope to get fair and complete representation from this lawyer if they are already working for their soon to be spouse? Unfortunately they usually do not.

In the State of California the party receiving the prenuptial agreement must be represented by independent legal counsel at the time of signing the agreement or waive their right to do so in writing. If independent counsel is not present the agreement may be rendered unenforceable.

This facet works to the advantage of both parties. For the party receiving the prenuptial agreement they will have access to competent and experienced legal counsel to ensure they understand what they are signing. For the person offering the prenuptial it provides additional assurance the agreement will stand up in court if the day should come. Bottom line don’t use your fiance’s attorney.

Protect your future.

Prenuptial agreements are all about money. One or both parties have it or the expectation of having it and want the money protected in the event of divorce. They are not only for celebrities or the super rich. Say you started a business before you were married and the business is just starting to gain traction. If the business grows to a value of millions of dollars during your marriage, the value may be considered part of your marital estate and you will have to pay your spouse to keep it in a divorce.

You may wish to have the business carved out as your separate property through the use of a prenuptial agreement. If the business does not take off as expected you would still have the peace of mind to know it is yours. If it does take off, you and your new spouse probably enjoyed the fruits of this success during your marriage through the income it was able to pay you.

Be prepared.

Prenuptial agreements require diligence and full disclosure. One of the many problems we see with prenuptial agreements is a complete lack or poor effort at disclosure of financial information. A good prenuptial agreement will include exhibits attached showing the assets, debts, income and expenses of both parties. You may not be able to prove assets not disclosed in the financials of the prenuptial agreement are governed by the provisions.

Take for example a brokerage account. You sign a prenuptial agreement saying all assets owned at the time of marriage are considered the separate property of the owner. What if the brokerage account was with Lehman Brothers who subsequently goes bankrupt and their records are no longer available. Your account balance will not have disappeared with the bankruptcy but your ability to prove it existed at the time of your marriage may have. If you cannot prove it existed at the time of marriage you may not get it awarded as your separate property in divorce. Start with full disclosure, be diligent about keeping records and consider updating or amending your prenuptial agreement as circumstances change and assets move around.


Stay tuned for more on the topic as we dive into Best Practices, explain Common Provisions, uncover Postnuptial and cohabitation agreements, share some horror stories of Prenuptial Failures and maybe even convince you Prenups are Romantic.