When Mel Gibson divorced in 2006, it reportedly cost him a walloping $425 million because he didn’t have a prenuptial agreement. You may know of someone who suffered a similar fate — although he or she may have parted with a lot less money – but maybe that person had more income or held more assets than you. Creating and signing a prenup may seem like an unnecessary task, particularly when you’re in the middle of making wedding plans, if you don’t feel that you have a lot to protect. In fact, there are more reasons to sign a prenuptial agreement than there are not to.
Let’s begin with property and debts. Regardless of how much or how little you earn or owe, courts take the position that anything acquired during marriage is marital property. If you divorce, each of you are entitled to roughly half his property, and you may find that you’re assigned responsibility for half the debts as well. But what if your spouse doesn’t work and you purchased all those assets? What if she has a bit of a spending problem and she ran up a lot of that debt on purchases you got no enjoyment from or use of? You can establish your own rules for how you’ll deal with situations like these in a prenuptial agreement. You don’t have to trust your financial life to a judge who doesn’t know you and who just wants to rule on your situation in a way that conforms to state law. A prenup allows you to set your own terms. In most cases, prenuptial agreements trump state law. Provided that the court upholds and honors your agreement, your property is dealt according to the terms contained in the agreement, even if the law provides otherwise.
Separate property – anything you owned before you tied the knot or that was given or bequeathed solely to you during the marriage – is not typically distributed in a divorce, but there’s a big caveat here also. It’s possible to commingle separate property, effectively tainting it and turning it into marital property. This can occur if you use income earned during your marriage to maintain an asset, or if you retitle it in joint names while you’re in the bloom of love. If you have a prenup, you can unequivocally state in it that your separate property remains yours – and your spouse’s separate assets remain hers – in the event of a divorce, no matter what you do with it during the term of the marriage.
Prenuptial agreements can also be a valuable tool in estate planning, particularly if this isn’t your first trip down the aisle. Without a premarital agreement, state law will award a healthy chunk of your property to your spouse should you die without a will. Even if you do leave a will, many states have provisions for something called an elective share. If your spouse doesn’t like the terms of your will, she can reject it and take a statutory percentage of your estate instead if it amounts to more. Ultimately, she might end up with premarital assets and property you intended to leave to your children from a previous marriage. They could quite possibly be cut out of your estate. You can override these inheritance laws by providing differently in a prenup.
Courts have been known not to honor prenups, but this generally only happens when the agreement is unconscionably unfair. You can’t determine issues of custody in a prenuptial agreement – all state courts base these decisions on the best interests of your children. You can’t waive child support or detail petty issues like who does the laundry. Still, most people are better off with a prenup than without one.
If you have any questions concerning a prenuptial agreement, call the Law Offices of Peter Van Aulen at 201-845-7400 to schedule a free initial consultation ..