When two people decide to get married, they may want to consider a prenuptial agreement to help protect their property (whether already existing or future). A prenup, a.k.a. a premarital agreement or antenuptial agreement, depending on your state, is a legal contract that outlines how a couple’s assets and debt will be divided in the event of a divorce. One key element of a prenup is the establishment of separate property rights (i.e., what is yours and what is mine). Also, note that some states call separate property “non-marital property.”
In this article, we will discuss what separate property is, how it can be protected in a prenup, and the steps to take to establish separate property rights.
What is a prenup?
A prenup is a contract that is executed before marriage and can include many different topics, from keeping property separate to confidentiality. At its core, a prenup is designed to protect the individual assets of each spouse (if they want it to). This means that any property, including real estate, investments, and personal property, can be designated as separate property in the prenup. However, it is essential to understand that each state has its own set of laws that may impact the enforceability of a prenuptial agreement.
Understanding state laws
The first step in establishing separate property rights in a prenup is to understand the laws in your state. Every state has its own rules and regulations that impact the enforceability of prenuptial agreements. Some states require that both parties have legal representation in certain scenarios, while others may have strict requirements about what can and cannot be included in a prenup. It is crucial to understand your state’s laws and regulations before creating a prenup to ensure that it will be considered valid and enforceable.
What is Separate Property?
Let’s get into the meat of it. First, you should understand that there’s separate property and marital/community property in a marriage. In a divorce, all of your and your partner’s “stuff” must be categorized as either separate or marital/community. If it’s separate, it’s yours. If it’s marital/community, it’s shared.
So, what is separate property? Separate property is “stuff” that you own that is not divisible in a divorce. Thus, if something is deemed separate property, it’s yours and yours alone. Your spouse doesn’t have a claim to it. On the other end of the spectrum is marital/community property. Marital/community property is property that is joint and may be “split up” in a divorce.
Without a prenup, default state laws dictate what is considered separate property. Some states may say all property owned prior to marriage is deemed separate property (with exceptions, like commingling, spousal contributions, or certain circumstances which may require it to become marital property). That is why the only surefire way to keep certain property separate is to put it in a prenup!
Categories of Separate Property in a prenup
A prenup can be used to protect separate property by clearly outlining which assets are considered separate property and how they will be divided in the event of a divorce. But what kind of separate property is there? Well, first let’s look at some examples of what property (in general) might consist of:
- Bank accounts
- Real estate
- Vehicles, boats, etc.
- Personal property (think: jewelry, artwork, furniture, etc.)
- And more
Now, how do you make sure your property (i.e., houses, cars, boats, businesses, bank accounts) are protected? You can do so by making sure the following categories of property are outlined as separate property in your prenup:
- Property you already own
- Inheritances and gifts received during the marriage (i.e, in the future)
- Property purchased with separate property (i.e., if you deem something your separate property, then sell it and use the funds to buy something new during the marriage)
- Appreciation on separate property (i.e., you deem something separate property, such as a house, and it blows up in value. It was worth $300,000 before the marriage but is now worth $2,000,000 at the time of the divorce)
- Income and property that is acquired during the marriage (i.e., in the future)
Note that you can also outline the above types of property as marital/community property. It doesn’t HAVE to be listed as your separate property in your prenup unless you want it to. Remember, if something is considered marital/community property, then it’s shared and may be divided in the divorce.
How to Establish Separate Property Rights in a Prenup
If you are interested in establishing separate property rights in a prenup, there are several steps to take. Don’t stress too much, though; hiring an attorney or using a platform such as HelloPrenup’s will walk you through the ways you can establish your separate property rights. Nevertheless, here are some steps that this may include:
Step 1: Understand the law. The first thing you should do is understand what separate property really means. Again, if something is separate property, it’s considered yours (not your spouse’s) and not divisible in a divorce. If you still have legal questions, you might consider consulting with an attorney.
Step 2: Understand what assets you actually have. You can start by making a comprehensive list of all the property you own. This may include real estate, bank accounts, retirement funds, investments, cars, boats, jewelry, etc. It is important to get a holistic view of all of your assets in order to make an educated decision on how you want to establish your separate property rights in the prenup.
Step 3: Determine your goals regarding separate property. Now that you’ve got a comprehensive list of all the property you own, start thinking about your goals. Here are some questions to get your wheels turning:
- Let’s say you want House A to be your separate property. What would you want to happen if you sold House A during the marriage and bought House Z with the funds? Should that still be considered your separate property, or should it be considered marital/community property now?
- Let’s say you want Retirement Fund A to be your separate property. What happens if Retirement Fund A is worth $100,000 when you sign the prenup, but at the time of the divorce, it’s worth $500,000? What do you want to happen to that $400,000 in appreciation?
- What about income that is earned during the marriage (i.e., future assets), such as salary, commission, and bonuses? Should this future earned income be separate or not?
- What about future gifts and inheritances? Whether Grandpa Joe gifts you his 1,000-acre farm or Great Aunt Sue sends you $10,000 for your birthday, you can decide whether or not to deem it separate property.
- What about existing or future businesses? How should those be treated?
Step 4: Discuss your goals and concerns with your partner. It is important to be honest about your intentions for the prenup and to make sure that your fiancé understands and agrees with the terms of the agreement. For example, if you want to keep Retirement Fund A separate property, and also all of its appreciation separate, then you may want to explain that to your future spouse. And it works both ways! They should also be explaining their goals with you as well.
Step 5: Negotiate the terms of the prenup. Once you and your future spouse understand each other’s goals and wishes, some negotiation may be in order, and that’s okay! It doesn’t have to be hostile. Negotiation is good for making sure both parties feel comfortable with the prenup.
Step 6: Financial disclosure. Some level of financial disclosure is required in every state. It’s the sharing of financial information with your soon-to-be spouse. Omitting any information at this stage could cost you your prenup. In other words–if you don’t include every last one of your finances, you could end up with your prenup in the trash.
Step 7: Finalize the terms of the agreement. Once you’ve negotiated, come to terms, and disclosed your finances, it’s time to finalize the agreement. You and your partner should fully understand every inch of the agreement and be comfortable with it.
Step 8: Sign and notarize (and possibly witness). Signatures are in order, of course. And we recommend you do so with a notary. Some states require notarization in order for a prenup to be valid. So, make sure to notarize your agreement; it can’t hurt you! Also, there are a few states that require witnesses to the agreement. If that is your state, don’t skip that either!
Remember, separate property is YOUR property (not your spouse’s). You can override what the state’s default rules are for separate property by outlining what you want to be separate property in a prenup. From boats to retirement funds, you can protect it all! Or not; it’s totally up to you.
HelloPrenup can help you keep your property separate and will walk you through the steps to make sure that happens.
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]