Prenups help couples jump in the driver’s seat and take control of their money. Specifically, prenups allow couples to safeguard their separate property and assets and determine how newly acquired assets and liabilities will be treated during the marriage. However, the sky is not the limit when it comes to creating your prenup. Generally, a prenuptial agreement must be fair, and it if isn’t, the whole agreement could be invalidated. Ouch!
So, before we dive into what makes a prenup fair, what exactly is a prenup? A prenuptial agreement is a legal contract entered into by two parties who plan to marry. Big picture, it helps a couple to make financial decisions and get on the same page about how property and assets should be treated prior to any potential divorce. This not only helps couples to get on the same page but also reduces the stress and fighting associated with divorce by simplifying the process and making decisions with calm, cool heads.
Many couples get into trouble by waiting until divorce to think about things such as how marital property will be treated, what happens to any inheritance received during the marriage, and when there are children from a prior marriage, what property is earmarked for them. A prenup allows you to answer all of those questions and set your marriage up for success.
If you decide not to get a prenup, the division and distribution of your property will be out of your hands. State law will dictate how your belongings are divided. This often leads to unsatisfying results for both parties involved. Depending on the state you live in, your property will either be distributed based on a community property or an equitable distribution theory.
Community property: Generally, in community property states, property acquired during marriage is split 50/50 upon divorce. So, for example, if one partner contributes 90% of the funds for a piece of property, it would still be split in half between the parties despite the unequal contributions.
Equitable distribution: In equitable distribution states, property acquired during marriage is distributed “equitably”. That means that the court will attempt make the division fair. Many factors affect this “fair” division approach such as the length of the marriage and the earning capacity of both parties.
Not surprisingly, most parties aren’t thrilled by the idea of a judge deciding who gets what. If you’re in that boat, you should definitely consider a prenup!
What Makes a Prenup Fair?
It is a common misconception that prenups are only used by the super-rich to prevent their young partners from “stealing” their money. Allow us to debunk this myth! Everyone has certain property or belongings that they want to remain theirs and that is exactly what a prenup is meant for. Whether you’re a ten-thousandaire or a billionaire, you likely want to be the decision-maker when it comes to your money.
Additionally, as we mentioned above, the sky is not the limit when it comes to your prenup. Prenups must be fair. What does that mean, exactly? A fair prenup should safeguard and protect both parties, but it should do so respectfully. This requires both parties to put all of their cards on the table and provide full and fair disclosure of their financial circumstances. This includes bank accounts, investments, retirement accounts, real estate, as well as financial obligations.
In order to account for changes over time, your prenup can also include a “sunset provision”. This allows you to make certain changes in your prenup once you, as a couple, reach certain milestones. For example, maybe you want your entire prenup to terminate upon reaching 20 years of marriage. Sunset provisions can also reopen your prenup for negotiation down the road. This allows you and your spouse to consider whether the terms are still fair down the road.
Fair prenups are also prospective, meaning that they consider what circumstances may be like in the future. An arrangement that seems fair in the first year of marriage may not seem so fair twenty years down the road. So, drafting your agreement with the future in mind will ensure that the agreement is fair should divorce ever occur.
What Makes a Prenup Unfair?
An unfair prenup is just what you might imagine – one spouse gets pretty much everything while the other spouse is left high and dry. Many states have stepped in to prevent this from happening. For example, in many states, a waiver of alimony will not be enforced if doing so would make one spouse dependent upon the state for support.
Another fairness red flag is requiring the “losing party” to pick up the tab for both parties’ attorney’s fees following a contested divorce. Ouch! That can really add insult to injury. It’s especially unfair if one side is significantly wealthier.
This may go without saying but keep in mind that both parties need to enter into the agreement without pressure, duress, or intimidation. Along those lines, the prenup should be executed well in advance of the wedding. Signing at the 11th hour is a big red flag for judges. If you’re having a lavish destination wedding with 500 guests, that creates a little extra pressure to come to an agreement and sign the prenup to avoid any embarrassment or waste of money if the wedding were called off. These are factors that courts consider when determining if a prenup is fair.
How to Make YOUR Prenup Fair
When it comes to invalidating an unfair prenup, there are generally three big reasons why it occurs– the agreement is unconscionable, the parties didn’t properly disclose their finances, or one party signed under duress. Let’s explore these three categories and determine how you can safeguard your own agreement.
Unconscionable agreements. Unconscionability in terms of prenuptial agreements essentially means that the agreement is beyond unfair. What rises to the level of unconscionable can vary by state, but generally, purely one-sided provisions, unethical demands, or illegal mandates would all fall within the realm.
Failure to disclose finances. This is VERY important. You must disclose your financial circumstances to your partner. Good, bad, and ugly. While certain states do allow waiver of financial disclosure requirements, tread lightly.
Coercion and duress. If one partner signs under significant pressure, they can later challenge the enforceability of the prenup. The same goes for signing under the influence or if signing occurs at a time when there is a lack of mental capacity.
Here are a few more suggestions for creating a fair prenup:
- Consider seeking legal advice. This can ensure that you fully understand your agreement and the implications of signing.
- Don’t want a lawyer? Consider a waiver. If you don’t want to go through the hassle of dealing with a lawyer, you can include a waiver in your agreement declaring that both you and your partner had the opportunity to consult with a lawyer but knowingly chose not to do so.
- Make sure you have thoroughly read your agreement and understand all the language and terms. If there is something you or your partner don’t understand, clear it up before signing.
- Consider including a sunset provision. This can allow you to terminate or revisit the terms of your agreement down the road.
If you determine that your prenup is unfair, there may be steps you can take to remedy the situation before it’s too late. Many states allow you to modify your agreement However, both you and your partner have to agree to make any changes after the fact. Check out your state laws to ensure that this is permitted where you live.
Prenups are powerful tools for protecting property and assets, but they should provide protection for both parties. Ensuring that your agreement is fair can provide peace of mind knowing that your prenup will hold up down the road, should you ever need it. Ready to get started with drafting your *fair* prenup? Get started here.
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