…And How They Can Be Used in a Prenup
As the name indicates, a sunset clause can be a beautiful thing if incorporated properly to a contract or prenuptial agreement. Including a sunset clause in your prenup may very well provide you and your future spouse with the best of both worlds.
It’s important first to know what a sunset clause is and how it works to determine if it’s right for your prenup and your specific purposes.
What Is a Sunset Clause?
Also referred to as a sunset provision, a sunset clause determines an expiration date for a prenup, within the contract itself, at which time the terms of the contract will no longer apply and the agreement will be null and void.
Put simply– you can write into your prenup for the terms to terminate after a specified period of time elapses, almost as though it never happened in the first place.
Presumably, you will choose to get a prenup because you have important assets or plans for the assets that you need to ensure will remain as separate property. You may want a prenup in the first place to make sure things don’t get messy in the event of a divorce or separation.
So why in the heck would anyone put an expiration date on that protection? What benefits could a sunset clause have in practice?
Sunset Clauses Help Even the Playing Field
Let’s walk through an example – John and Jane.
They meet the old fashioned way, using a mobile dating app, and fall in love. Over the course of their relationship, John learns that Jane is an accomplished doctor with a diverse portfolio of assets, while he’s a man of more modest accomplishments who keeps his life savings in a checking account.
John proposes, Jane says yes, and the two start planning their dream wedding.
Jane knows she stands to lose considerably more than John if the marriage is to fail and with that nagging thought in the back of her mind she wants to have some assurances. Jane recommends that they get a prenup to protect her assets.
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In order to get the best of both worlds, the couple agree to a sunset clause that will expire on the 10th anniversary date. This gives them a chance to make sure their marriage has existed long enough, that they feel following default state laws would be more fair than their prenup.
John and Jane get the best of both worlds thanks to a sunset clause in the prenup.
Sunset Clauses Can Phase Out Conditions of a Prenup
Just like the sun setting beneath the horizon, you can still see brilliant hues in the sky even when the sun has vanished from sight.
Sunset clauses can be written to operate just the same way by phasing conditions of a prenup out over time. This illustrated goodwill towards your spouse, as you are mandating that your assets will be protected but allow that more and more of your independent wealth becomes shared property over time.
Other Nuances of Sunset Clauses
Sunset clauses can be useful in that they set parameters for how the marriage will operate, or how the assets will gradually transition from non marital to shared marital assets.
For example, the sunset clause can include a condition that causes it to go into effect immediately if the wealthier partner commits adultery and it is cause for the divorce. This helps the partner of lesser wealth guarantee that they will not be left with nothing in the event their spouse tries to have their cake and eat it too.
Sunset clauses can include conditions for if or when your first child is born, providing an option to terminate the prenup at that time, alter existing terms of the prenup automatically, or open things up for a renegotiation. It should be noted, however, that prenups cannot legally resolve matters of child custody or child support in any of the 50 states.
What Happens When the Sunset Clause Takes Effect?
Once the sunset clause brings the prenup to the predetermined expiration date, it goes away completely. No more prenup, and now you can finally file for divorce and sink your teeth into those tasty marital assets!
Just kidding, but you see what I mean.
Once the prenup expires, all formerly protected assets are now considered marital assets and could be split by community property or, in 41 out of 50 states, equitable distribution, which divides the assets “equitably” and rarely equally.
Each state uses its own criteria in determining what is fair in the split, and nuances of the laws can dictate exactly how things work out. Consult an attorney for specifics in your state and to your marriage.
Why Get a Prenup in the First Place?
So the burning question here– if it makes sense to include a sunset clause that will eventually effectively nullify the entire prenup, did you ever need it in the first place?
Unfortunately, there’s no easy answer to that question and it will depend completely on how much you stand to benefit or lose in a divorce, how secure you feel in the arrangement, and how confident you are that divorce proceedings will be conducted with level-headed, rational, sensible thinking.
No one can guarantee that everything works out favorably if the sun sets on your marriage, but a prenup is an agreement that outlines how you will keep what’s rightfully yours and that counts for something.