When you create a prenup, you must include property that you want to protect (don’t worry you can protect property you don’t have yet, too). But for the sake of this article, we’re going to talk mostly about property you already own when you made the prenup. So, you must make sure that the property that you already own is included in the prenup in two ways: (1) you must state the value of the property and (2) you must state how you want the property treated in the event of a divorce. The question for this article is…what happens if you SELL that property at some point going forward?
Prenup Language Regarding Exchange of Property
First things first, don’t freak out! You can still protect the property that you sell during the marriage, it’s common to do. No, you don’t need to refrain from selling a property just because you have it listed on your prenup. The likely scenario is that your lawyer (or HelloPrenup), will include a clause called “property exchange.” A property exchange clause 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
For example, let’s say you own an amazing house on 123 Apple Lane prior to getting married. In your prenup, you mark 123 Apple Lane as your separate property because you want to make sure 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, then 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!
Another Scenario for Good Measure
If you’re still confused let’s try another scenario. Let’s say you own a boat. You want to sell the boat during your marriage and buy a car with the money. Can you do this and still make sure your new car is YOUR separate property? YES, yes, you can, with a property exchange clause. The proceeds from the boat go towards the car. The car is still protected as your separate property! Win!
Property Listed on Financial Schedule
Okay, so if you don’t know what financial disclosure is, we’ll break it down really quick for you. Financial disclosure is the part in 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. ANYTHING you own with economic value, including potential inheritances that you don’t own yet. Every state has some level of financial disclosure that you must follow. Without it, you risk getting your prenup thrown out. That means if you fail to disclose that property you own on 123 Apple Lane, you risk your prenup getting thrown in the trash if your spouse ever contests it one day.
So, let’s say you have a bunch of properties on your financial schedule. What happens if you sell those? Does it make the prenup void? Is there anything you need to do to the prenup when you sell it? No! 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 List Under 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.
The Bottom Line
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 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: [email protected]
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