If you have a prenuptial agreement and want to sell some of the property within that agreement, what do you do? Well, this all depends on what your prenuptial agreement says! Generally, a well-drafted prenuptial agreement will include language for what should happen if you sell something that is listed and categorized under the agreement. For example, what happens to a house you have listed as separate property in the agreement, and then it’s later sold? Is it now marital property? We get into this question and much more below, so keep reading!
Can you sell a property you listed in a prenup?
Yes, of course. A prenup generally does not restrict you from selling the property. However, depending on the language of the prenup, the ownership of the asset may change (but not always). Many prenuptial agreements will say that even if a property listed under the agreement is sold, it will still stay with the same owner. For example, let’s say John owns House A. In John’s prenuptial agreement, House A is listed as John’s separate property. In addition, the prenup also says that if House A is sold, any proceeds from that house are also to remain separate property, even if he uses those proceeds to buy House B. So, as you can see, John is able to sell House A even though it is listed in his prenup and his contract language allows him to retain ownership of the sale proceeds even when put into a new purchase.
The prenup language used to protect the sale proceeds of a property
First things first, don’t freak out! Most of the time, prenups are drafted so that any properties you sell remain separate, even after they’re sold and used for a new purchase. The likely scenario is that your lawyer (or HelloPrenup) will include a clause sometimes referred to as “property exchange,” which basically says that any separate property you sell, the property you get in exchange for it will still be your separate property. Remember, the property you exchange in the first place must actually be separate property to keep it separate.
Example scenario of selling property listed in your prenup
For example, let’s say you own an amazing house on 123 Apple Lane before getting married. In your prenup, you outline 123 Apple Lane as your separate property because you want to ensure it stays yours, even in a divorce. But you wonder, “What happens if I decide to sell this property one day?” It’s a valid question! If you include a property exchange clause ensuring that any property exchanged for separate property remains separate, you can protect the original proceeds from 123 Apple Lane.
It would work like this: you include a property exchange clause in your prenup. About two years into the marriage, you decide to sell 123 Apple Lane and use the proceeds to buy 678 Pear Drive. Since you exchanged the proceeds from 123 Apple Lane for the new house on Pear Drive, the second house is still your separate property!
What about updating my financial disclosure after selling a property?
Okay, so if you don’t know what financial disclosure is, we’ll break it down really quickly for you. Financial disclosure is the part of the prenup process where you and your partner share financial info with each other via a financial schedule. This means disclosing to your spouse all assets, accounts, debts, and future inheritances. This includes anything and everything you own with economic value, even potential inheritances that you don’t own just yet. Without proper financial disclosure, you risk getting your prenup thrown out by a court.
So, let’s say you have a bunch of properties on your financial schedule. What happens if you sell one of those? Does it make the prenup void? Is there anything you need to do to the prenup when you sell it? No, not necessarily! It’s okay if there are some properties listed on your financial schedule attached to your prenup that get sold–you aren’t expected to freeze all assets for the entire duration of your marriage, just because you have a prenup! Go ahead and sell that property, just make sure you understand what happens to that property (according to your prenup) when you sell it (hint: property exchange clause).
Frequently Asked Questions (FAQs) about selling property you have listed in your prenup
Q: If I sell property that I have listed under my prenup, do I lose its value if I ever get a divorce?
A: Not necessarily! If you have a valid and enforceable prenup with a clause that says any separate property that you exchange for OTHER property, that new property will still remain yours, and yours alone in a divorce.
Q: Can I sell property listed under my prenup?
A: Yes, of course. If you have the correct prenup language in your prenup, that new property will remain yours, too.
Q: What is a property exchange clause?
A: A property exchange clause in a prenup basically says that if you exchange separate property for other property, the new property is still separate. For example, your Maserati is your separate property according to your prenup. You sell the Maserati and use the proceeds to buy a Lamborghini. That Lambo is still your separate property.
Q: If I list certain property on my financial disclosure and then later sell it, do I need to update my prenup?
A: No, you don’t need to update your prenup every single time you sell something. However, if your financial circumstances have drastically changed, you may want to amend your agreement to reflect a significant financial change and confirm that both parties are still comfortable with the existing clauses.
The bottom line on selling property listed in a prenuptial agreement
The bottom line is simple: yes, you can sell property that you have listed under your prenup. You don’t need to freeze all purchasing and selling throughout the entirety of your marriage, just because you have a prenup! Just make sure you include a clause (property exchange clause) that says the proceeds from your separate property that go towards the new property are still kept separate. In other words, a clause that says you can sell your property and make sure the money is still your separate property. And don’t worry about selling property based on financial disclosure forms. You can sell property and still have it listed on your financial schedule, you won’t get “docked” for that in any way and you don’t need to go back and update it every single time you sell something (unless you have a material change that you want to make to the prenup).
Nicole Sheehey is the Head of Legal Content at HelloPrenup, and an Illinois licensed attorney. She has a wealth of knowledge and experience when it comes to prenuptial agreements. Nicole has Juris Doctor from John Marshall Law School. She has a deep understanding of the legal and financial implications of prenuptial agreements, and enjoys writing and collaborating with other attorneys on the nuances of the law. Nicole is passionate about helping couples locate the information they need when it comes to prenuptial agreements. You can reach Nicole here: Nicole@Helloprenup.com
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