Property, assets, liabilities, waivers, amendments, maintenance, gifts. These may all be terms you’ve heard and scratched your head at, and we totally understand why. Sometimes prenup language can be confusing and dense, and when you’re drafting your prenup, you want to understand what is going on! We’ve got your back. We’ve gathered some pretty common prenup terms that may need some clarification. Keep reading to get a better understanding of prenup language.
Let’s start off with the basics. An antenuptial agreement, premarital agreement, and prenuptial agreement are all the same thing; a contract between two people about to get married. Why are there three different terms for the same thing? Because lawmakers want us to confuse you… Kidding! It’s simply a state-by-state choice in what word they use. If you see the term “antenuptial agreement” in your prenup, not to worry; it’s just a fancy way of saying prenup.
You may be hearing things about “enforcing” a prenup and the “enforceability” of a prenup. The term enforcement refers to whether or not a court will uphold your prenup. For example, let’s say you get a prenup, and down the road, you get a divorce. In the divorce proceedings, your spouse challenges the prenup in court and says the prenup should be thrown out because it’s unenforceable based on X, Y, and Z reasons. The court then has to evaluate your case and the law at hand to say whether or not the prenup should stand. If it stands = it was deemed enforceable. If it is thrown out = it was deemed unenforceable.
Equitable Distribution/Community Property
Equitable distribution and community property are two frameworks that exist in the United States regarding property division. Some states are equitable distribution states, and others are community property states.
Equitable distribution is the framework that divides property in a divorce based on a set of factors that are laid out by the state legislature. The court is required to divvy up property based on what is equitable, not necessarily what is 50/50. The factors that states may use include the length of the marriage, the age of the spouses, the earning potential for each party, and many more.
Community property is the framework that divides property in a divorce 50/50, regardless of the circumstances. There are a few exceptions to this rule, but for the most part, property is split right down the middle.
You may see these terms appear in your prenup in regard to different legal principles or statutes.
The crux of a prenup is laying out what is Spouse A’s property and what Spouse B’s property. Generally, most prenups do this by delineating what one’s separate property is. If something is your separate property, it means it’s not divisible in a divorce. In plain English? Separate property is yours and yours alone; if you get a divorce, your spouse can’t have any of it. It’s important to understand that when we say “separate property,” we don’t mean just your physical stuff. It can also be money in bank accounts, investments, crypto, etc. Some states may refer to separate property as “non-marital property,” but it means the same thing!
Something else to understand about separate property is that, without a prenup, something that may be typically considered separate property by state law may sometimes be divisible in a divorce. The best way to avoid this is through a prenup.
What’s the opposite of separate property? Why, marital/community property, of course! If something is marital/community property, then it means it may be split up in the divorce. In other words, it’s the property that is not “protected.” For example, if you go through a divorce, and your bank account is deemed to be marital property, then the judge may give a portion to you and a portion to your spouse or give one spouse the whole bank account and the other spouse a piece of real estate for the same value. Depending on what state you’re in, it might be called marital property or community property.
You might be wondering, well, how much of the marital/community property will I get, and how much will my spouse get? That’s a hard question to answer in one sentence. How marital/community property is split up will depend on what state you’re in, first and foremost.
Community property states will generally split community property 50/50. If you’re in an equitable distribution state, marital property will be split up according to a list of state factors and could be 40/60, 30/70, 50/50, or any combination of split. Sometimes, even separate property may be deemed divisible in a divorce if you don’t have a prenup.
A term you will likely get to know in the prenup process is the term asset. An asset is something of value, such as real estate, bank accounts, investment funds, retirement accounts, jewelry, crypto, furniture, etc. You will likely encounter the term assets in the financial disclosure phase of the prenup process. Why? Because financial disclosure requires you to list your assets and liabilities. More on financial disclosure later.
Why is the term asset important in a prenup? Well, prenups protect assets (or not), depending on what you want to do with your assets. A major part of a prenup is outlining ownership of the different assets you own now or in the future, and the same for your future spouse. This brings us back to the first two terms: separate and marital/community property. Generally, you’re going to want to put your assets into these two categories (separate or marital/community) in your prenup.
Sitting all the way on the other end of the table from assets are liabilities. Liability is a fancy way of saying the money you owe. You may see the term liabilities pop up in the financial disclosure section, or it may be listed as a section in your prenup. Debts and liabilities can be credit card debt, student loan debt, car loans, mortgages, taxes owed, and more.
In your prenup, you may dictate how liabilities and debts are treated, just like you may do so with assets. Debts and liabilities are generally broken into two categories: premarital debt and future debt (i.e., marital debt). Premarital debt is the debt you took out before the marriage. Future debt (i.e., marital debt) is the debt you might take out during the marriage.
The question is: do you want to keep it separate or joint? If you say premarital debt is separate, then it will be each spouse’s responsibility alone. If you say future debt is joint, then you will split this debt in a divorce.
You may see the term “gifts” in your prenup and be wondering, “why would anyone want that blanket my Mom got me for Christmas last year?” And you’d be right! When you see a section about gifts in a prenup, it’s generally referring to large gifts that you and your spouse may “fight” over in a divorce, not that ragged old blanket. Think more along the lines of large wedding gifts, large sums of money gifted to you, a house that your parents got you for graduation, etc. In your prenup, you can protect existing and future gifts from being shared with your future ex-spouse if you mark them as separate property.
You may not have money now, but maybe in 10 years, you will receive a big, fat inheritance from your Grandpa Joe. An inheritance is money you receive after someone dies. They typically pass this money on to you through estate planning documents. And, yes, you can protect inheritances in your prenup, and no, they are not automatically protected in a divorce. You may see a section for inheritances that says whether or not it is separate property. Remember, separate property = protected.
Pro tip: if you do not know how much you will be inheriting, you will need to ask the person you are inheriting from for an estimate. Why? Because if you get a prenup, it must be included in the financial disclosure section with an estimated value. And, no, you cannot skip this part.
While we’re on the topic of inheritances, it’s important to point out one crucial term related to inheritances, and that is a benefactor. A benefactor is a person that gives you an inheritance. If your Grandma Mary gives you $100,000 after she passes away, Grandma Mary is your benefactor.
You may see the term benefactor on your financial schedule, which is the list of your finances that you disclose during the prenup process and attach to the back of your prenup. So, the term benefactor may not appear in your prenup per se, but you may see it at the end of the prenup in the financial schedule attachment.
While we’re on the topic of words that start with “bene,” let’s talk about beneficiaries. A beneficiary is someone who receives the benefit of something, like a will or a life insurance policy. You may see this term as it relates to insurance in your prenup. You might have a clause that pertains to life insurance, and it may require that each spouse maintain a life insurance policy for the benefit of the other spouse (the other spouse being the beneficiary).
Spousal support, maintenance, and alimony all mean the same thing: money paid from one spouse to the other in the event of a divorce. You will likely see something about alimony in any prenup, even if it’s just to say, “we don’t want to address alimony here; we’ll let a court decide.”
There are several ways to address alimony in a prenup, such as waiving it all together, capping it, leaving it for a later date, and more. If you decide to leave alimony for the court to decide, then the laws of your state will apply. Every state has its own alimony statute and deals with it in its own way. Some states even have online calculators that you can find on Google to get an estimate of what you can expect for alimony payments.
You’ll probably run into the term “waiver” in more than just prenups. A waiver is a common legal term that is used for tons of different things, not just prenups, but let’s just focus on what it means in a prenup. We think this is best explained by example.
Let’s say you and your partner want to WAIVE alimony. This means you are relinquishing your right to request alimony from your spouse (and vice versa). Another example would be if you waive financial disclosure (which is only allowed in some states). By waiving financial disclosure, you are essentially saying, “I relinquish my spouse’s liability to share their finances with me.”
Waiving a right to something in a prenup can be a big deal. Why? Because you’re giving up something that could be beneficial to you. Like if you waive spousal support, you could be giving up future potential money. If you waive financial disclosure, you may not understand just how well-off (or in debt) your spouse is.
Some prenups may refer to this as the primary residence or the marital home, but it means the same thing. It’s the house that you and your spouse live in during the marriage. There may be several clauses referring to the primary residence, one being who may stay there in the event of a divorce. There are also special rules surrounding the primary residence in most states, as it is a more “sensitive” asset to handle.
Lump Sum Payments
If you see the term “lump sum,” it simply means one person is paying the other person a chunk of money. You may see the lump sum term in various different clauses, like alimony and/or an equalization clause. If you see the term lump sum in an alimony clause, it generally means that the spouses stipulated to paying alimony in the form of a lump sum (a one-time, lumped payment). If you see an equalization clause, it may say one spouse shall pay the other a lump sum to equal out the finances a bit should a divorce arise (this doesn’t mean alimony, it’s completely separate).
Most of you probably know this one already, but infidelity means one spouse was not faithful to the other. There may be an infidelity clause in your prenup (if you live in a state where infidelity clauses in prenups are okay). The term infidelity usually means sexual intercourse with a person outside of the marriage, but infidelity may be defined differently in your prenup, depending on what your prenup dictates.
Nowadays, confidentiality clauses are becoming much more popular. You may see the term or terms “confidential information,” which is typically defined in every prenup. Generally, it means information that is owned by one person and not known to the public already. Confidential information may relate to finances, family, businesses, or other personal information. Again, how confidentiality is defined should be laid out in your prenup for you to understand.
You may see the term “amendment” floating around somewhere in your prenup or at the end of your prenup. An amendment is basically just an update to your original prenup. For example, let’s say you finalize your prenup on August 5th. Your wedding is on October 5th. You decide on December 5th that you want to make a change to your prenup. Any changes you make to your prenup must be done through an amendment.
If you have a severability clause in your prenup, which most do, then it usually means your prenup is severable. Wait, what?! Okay, let’s back it up a little bit. Sometimes provisions in prenups can be stricken by a court for various reasons, like unconscionability. Let’s say your alimony provision is stricken for whatever reason. A severability clause says, “Okay, fine, you can throw out the alimony provision, but let’s keep the other stuff intact.” And typically, a court will abide by this.
Estate planning documents
“Hold on; I thought we were talking about prenups?!” That is what you might be thinking right now, and for a good reason! What do estate planning documents have to do with prenups? Well, sometimes (depending on state law), you can “point” to your will in your prenup by including a death clause. A death clause may say something like, “if I die, then all of my stuff goes to whoever is listed in my will.” In that case, you’d need to have a will set up. Someone may want to have this death clause if they’re in their second marriage and have children from another relationship to make sure their money goes to their kids when they die and not their second husband and his new spouse.
Reimbursement generally refers to one spouse “paying the other back” based on contributions. Let’s use an example to demonstrate this notion. Let’s say Spouse A owns a house that is considered their separate property. Spouse B contributes funds to make improvements to the house. Spouse B may seek reimbursement for those funds if Spouse A is keeping that house as their separate property. A reimbursement clause may also say the opposite and declare that neither spouse may receive reimbursement from the other. It depends on what your state allows for and what your goal is for the prenup.
Alternative Dispute Resolution
Not all prenups will include this term; it’s generally optional. Alternative dispute resolution is simply a way to resolve divorce and prenup issues outside of a courtroom, with a mediator or some other type of approved third party. Typically, an alternative dispute resolution clause will also say that one spouse will cover the costs, or both spouses will split the cost of alternative dispute resolution. Why would someone want this, you ask? Well, the benefits of including an alternative dispute resolution clause include avoiding lengthy court battles and attorney fees.
Legal Advice/Legal Representation
Legal advice and legal representation aren’t the same thing, believe it or not. Legal advice is getting suggestions (i.e., advice) from an attorney. Legal advice may be helpful if you have general questions about prenups or what to include in your prenup. Legal representation (sometimes referred to as attorney signature) is deeper than just advice; it’s when an attorney actually signs off on your prenup. This may be useful if you want an attorney to negotiate your prenup for you or if you have extremely complex finances. Sometimes legal representation is required in certain circumstances, such as waiving spousal support in California.
Where might you see the terms legal advice and/or legal representation in your prenup? It may be included in a waiver of some sort. If you waive your right to legal advice and/or representation, you may be required to have this stated explicitly in your prenup. If you waive your right to legal advice and representation, you are effectively saying, “I know I am giving up my right to an attorney, and I’m okay with that.”
You will definitely hear all about financial disclosure in the prenup-making process. Why? Because it is a required step that, if skipped, could get your prenup thrown in the trash. Financial disclosure is incredibly important because it requires each spouse to divulge all of the details of their finances (debts, assets, inheritances, you name it). This helps their partner understand what they may be giving up in a prenup. For example, if financial disclosure didn’t exist, you might waive your right to alimony, but little did you know your spouse is an undercover billionaire. Okay, that may be a little extreme, but you catch our drift.
While the term “postnuptial agreement” may not be directly located in your prenup, it’s closely related. A postnuptial agreement, often called a postnup, is not a prenup but is similar. It’s a contract that is between two married people after the wedding day. A prenup is done before the wedding day.
And that’s it, folks! You’re basically a family law attorney after reading this article (kidding!). In all seriousness, we hope this helps give you a better understanding of the dense prenup language that may exist in your prenup. If you’re craving more, we have tons of resources on our website, including a list of clauses and an encyclopedia flush with knowledge.
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]renup.com