By Henry F. Lewis on January 26, 2020
A premarital or prenuptial agreement is an agreement between prospective spouses that is made in contemplation of marriage and is intended to be effective on marriage. See California Family Code §1610(a). It is, in its basic essence, a contract between intended spouses which allows you to opt-out of the general community property laws that apply to married couples.
This post will explore some basic reasons someone may want a prenuptial agreement, but these are not the only reasons. You can use a prenuptial agreement to cover any financial aspect of your marriage, including division of property should you get divorced.
Do I need a Prenuptial Agreement?
This is the first question you should consider.
If you have no assets to protect and want to accumulate community property, no agreement is necessary. You may also be able to accomplish your goals through proper estate planning.
Contrary to some claims, getting married does not automatically transmute your separate property to community property. Your separate property remains separate under the law even after marriage. However, you need to have careful management and record-keeping, to keep it separate.
Your actions during the marriage could transmute separate property to community property, such as commingling separate property funds with community property or using your efforts during the marriage to manage or improve community property. A prenuptial agreement will clarify when and if this occurs.
In these cases, it makes sense to bring up the idea of a prenuptial agreement with your intended spouse. This can be uncomfortable and may lead to strife, but addressing difficult money-related issues before marriage may help eliminate later misunderstandings about finances.
Some reasons why people seek prenuptial agreements:
A Business Interest
If you have a business before marriage, that remains separate property. However, your efforts to run that business during the marriage could give the community interest in that business. Also, the income that the business generates during the marriage could be separate, or community, or a mixture of both, depending on the specifics of the business.
A prenuptial agreement could clearly define what happens with the business and the income.
Real property is treated similar to a business. If community property money is used to pay down the mortgage or improve the property, the community can obtain an interest in the property. A prenuptial agreement could limit that as well.
Executive Compensation and Deferred Compensation
Questions can arise when a party receives stock options, bonuses, or other compensation before or during the marriage. Is the compensation traceable to pre-marital efforts, or post-marital efforts? Does the community have an interest, or is it wholly separate property?
A prenuptial agreement can help clarify these issues.
Intended spouses can also define, limit, or terminate spousal support as part of a prenuptial agreement. However, the law on this issue is evolving, and there are questions as to whether to not such agreements will be enforced by a court.
The current law states that such Spousal Support agreements are not enforceable if the party against whom enforcement of the spousal support provision is sought was not represented by independent counsel at the time the agreement containing the provision was signed, or if the provision regarding spousal support is unconscionable at the time of enforcement. California Family Code §1612(c). See also Marriage of Pendleton & Fireman (2000) 24 C4th 39
Unlike Spousal Support, you cannot contract out of child support. It is against public policy in the state of California. While you may get your intended spouse to sign an agreement, it is simply not enforceable.
Drafting Prenuptial Agreements
Under California law, there are strict requirements for the enforceability of prenuptial agreements, which must be followed. Not only must the language in the agreement be legally sound, but there must also be full financial disclosures by both parties, and both parties should have legal representation.
The law regarding prenuptial agreements has changed in the past, and likely will change in the future. One of the considerations in deciding if you want a prenuptial agreement is that the law in the future may change, and your agreement may no longer be enforceable. Spousal Support is a good example of that. In the past, waivers of Spousal Support were more broadly enforced. Now, while still enforceable, it is easier to argue the agreement is unconscionable.
Learn More About Prenuptial Agreements
If you would like more information about prenuptial agreements and why you should consider having one, be sure to Contact Us. The lawyers of Gardner & Lewis, LLP can be reached in Oakland by calling (510) 451-4822.
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