How To Handle Division Of Assets After Death In A Prenup

Aug 12, 2023 | Prenuptial Agreements, Protecting Assets

How do you split up assets if you die… in a prenup? Well, for starters, the best way to make sure your assets are divided up the way you want them to is through a will. A prenup is a supplementary legal device that you can use to your advantage once you have a will in place. We repeat: You should not ONLY use a prenup to divide up your assets after death, but you should also use an estate planning document, like a will. With that said, let’s dive into the general laws around spousal inheritance and how prenups can help divide up your assets in case of your death!

 

Surviving Spouse’s Right to Inherit from Deceased Spouse

Every state has its own rules around what should happen when you die. Does your spouse get everything? Do your children and spouse split it half and half? What are the rules (especially when you don’t have a will in place). However, there are some rules around what surviving spouses are entitled to that apply even when you do have a will. Those rules are usually called something like “spousal inheritance rights.” For example, some states say if you try to cut your spouse out of the will, your spouse still has legal rights. These legal rights are generally referred to as an “elective share.”

 

What is an Elective Share? 

An elective share is the state-mandated minimum amount of money that a surviving spouse is entitled to. It’s usually something like one-half or one-third of the deceased spouse’s estate. The elective share could vary depending on factors, too, such as if children are of the marriage or the length of the marriage. Check out your state’s elective share laws to understand what would apply to your situation.

 

Example Scenarios 

Scenario 1: You have a will and a prenup that cuts your spouse out. 

Your will says that all of your money should go to your cousin Billy. Your prenup also makes sure that your spouse waives their right to any of your money in a death clause (i.e., the spouse waives their right to an elective share). The result? Your spouse does not have the right to an elective share, and all of your estate goes successfully to your cousin Billy.



Scenario 2: You have a will that cuts your spouse out but no prenup. 

Your will says that all of your money goes to your daughter Jane, completely cutting out your spouse. You did not have a prenup. Depending on the state laws, your spouse may still have a right to an elective share of your property EVEN THOUGH you made a will cutting them out.

 

Scenario 3: You have a prenup but no will. 

In your prenup, you have a death clause that disinherits your spouse and says everything will go through your estate (but you never ended up making a will). That means, your property will go through intestate laws (i.e., the default “will” that the state makes up for you when you don’t have a will). In this case, it’s likely that your prenup successfully cut your spouse out of receiving anything, but your assets will still be distributed according to state law. This typically would mean 100% would go to children, if no children, then to parents/siblings, and so on and so forth.

How To Handle Division Of Assets After Death In A Prenup

Death Clause in a Prenup

A death clause is a provision in a prenuptial agreement that works alongside other estate planning documents. Essentially, it outlines that if one or both spouses pass away while married, the terms specified in the prenuptial agreement will remain in effect, as they would if both individuals were alive.

In simpler terms, a death clause ensures that any separate property remains separate and is allocated according to the instructions in the dead spouse’s estate. By including a death clause, both parties agree to relinquish their rights to each other’s estate, which they would otherwise have as surviving spouses.

 

The Death Clause in HelloPrenup’s Prenup

At HelloPrenup, we offer the option to include a death clause in our prenuptial agreements, clarifying the distribution of both marital/community property and separate property if one spouse should die during the marriage (without any pending separation or divorce action).

According to this provision, all separate property and debts linked to the deceased spouse are assigned to their estate. Meaning, if your estate says all of your stuff goes to cousin Billy, then that’s what should happen.

It is important to note that the inclusion of a death clause does not prevent either party from receiving any property specifically given to them in the other spouse’s last will and testament. In other words, if a death clause exists and the deceased spouse’s will states that their separate property goes to their surviving spouse, then the spouse can still receive that property. 

 

How Can You Use a Prenup to Divide Assets? 

Okay, let’s get right to the point. The main way to use a prenup to divide assets is to (1) have your spouse agree to waive their right to your assets (i.e., “cut them out”) and (2) point to your will as how you want your assets to be divided when you die.

When you waive your right in a prenup to your spouse’s estate, that means you are giving up your right to an elective share. In other words, you get NOTHING! When you reference your will in your prenup, you are essentially saying, “look at my will, that will tell you how I want to divide up my assets.” 

So, you’re not really dividing up your assets with a prenup, you’re merely waiving rights as a spouse and pointing to your will. 

 

The Bottom Line 

Having a prenup AND a will is your best bet to have your assets divided up in the most efficient and accurate way possible. Remember, without a prenup, your spouse may have a right to an elective share. Without a will, your “stuff” will go through the state’s “default will” that determines how to divide your assets. 

You are writing your life story. Get on the same page with a prenup. For love that lasts a lifetime, preparation is key. Safeguard your shared tomorrows, starting today.
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