If, for whatever reason, you don’t want a prenup or cannot get one (maybe your future spouse is refusing one), you may be wondering how you can protect yourself financially without a prenup. We’re here to tell you that there’s no better way to protect yourself financially in the event of a divorce than with a prenup; however, there are some second-tier alternatives you can look into. In this article, we’ll dive into some of the other ways you can protect assets without getting a prenup. Let’s dive in.
But first…what is a prenup?
Just so we’re all on the same page, let’s talk about what a prenup is. A prenup is a contract between two future spouses outlining certain financial aspects of marriage, and what should happen in a divorce, and sometimes death. Most people get a prenup to make sure they protect their assets. For example, making sure that a certain real estate property or retirement fund remains separate property. Why? Because under certain state laws, this real estate or retirement fund could be considered joint, marital property subject to division in a divorce. The fun doesn’t stop there. There are other reasons for prenups, too, such as making sure debt stays separate and even inheritances/gifts from parents or grandparents. And don’t forget about our friend alimony. Alimony can be waived (in most states) in a prenup, which means the spouses are agreeing not to pay the other financial support if the marriage comes to an end.
What happens in a divorce if you don’t have a prenup?
The truth is, your assets will be governed by default state laws, leaving a judge to dictate your financial fate, not you. “But it’s my money; shouldn’t I have a say?” Well, not quite… unless you and your partner can reach a mutual agreement, but that’s essentially leaving it to chance. Predicting the future and anticipating the state of your relationship in the event of a divorce is risky.
Now, what are the exact laws that will dictate your financial fate? That depends on what state you are in. There are two legal frameworks that any given state follows: it’s either equitable distribution or community property. Most states are equitable distribution. There are only nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. The rest are equitable distribution.
Community property states (the nine states listed above) generally split assets acquired during the marriage 50/50 with very few exceptions. On the other hand, equitable distribution states split the assets equitably, not necessarily 50/50, based on a set of state factors, such as the length of the marriage, the contribution of each party, etc. If you’re in an equitable distribution state, you are leaving things up to a judge’s discretion to determine how to split up your assets. Scary! On the other hand, you can pretty much count on a 50/50 split in community property states, regardless of how much either party had to do with the asset…also scary!
Alternatives to prenups
Now, if you are still on the path to no prenup, even knowing the dangers of doing so, let’s talk about some ways to protect your property without getting a prenup.
Postnuptial agreement
Depending on the reason why you can’t get a prenup, getting a postnuptial agreement (“postnup”) may be an option. In many states, postnups may not be as enforceable as prenups, but they can still be helpful. A postnup is exactly what it sounds like an agreement “post” nuptials (a.k.a., a contract signed after you are already married). In contrast, a prenup is signed before you are married. A postnup and prenup are very similar in terms of what can be included. Postnups can protect your assets, protect you against alimony (or make sure you have alimony), protect you against debt, and more. Also, it’s important to note that your state may require different formalities for a postnup than a prenup, such as requiring a lawyer for a postnup, whereas a prenup doesn’t require one. The bottom line? You can still protect your assets with a marital contract without a prenup, although postnups can be more difficult to obtain and can be less enforceable in certain situations and states.
Keeping property separate (avoiding commingling)
Fair warning: this won’t work for every state. Even though every state is either equitable distribution or community property, they still have their own loopholes, exceptions, and rules within such frameworks. With that said, in some states, the assets you owned before marriage may be considered separate property even without a prenup (they also may not). However, this separate property can quickly change into marital property though in various circumstances, such as commingling. To avoid commingling and effectively turning your separate property into marital property, you should make sure separate property stays separate. What does this mean? “Keeping property separate” means not mixing funds, not adding your spouse as a joint owner on any accounts, not adding your spouse on the title of a deed, maintaining separate accounts, etc.
Let’s look at an example to demonstrate this concept. Tom and Julie are married without a prenup. They live in a state where property owned before marriage is considered separate property, not subject to division in a divorce. However, if separate property is commingled, then they have to split the asset, even though it was one person’s separate property at one time. Julie owned a rental property prior to marriage and receives income from it (which is presumed to be separate property in this scenario). However, during the marriage, Julie frequently deposits rental income from this property into Tom and Julie’s joint account. She is effectively commingling her separate property income this way. On the other hand, had Julie kept the rental income separate, they likely would have remained her separate property in a divorce.
Irrevocable trust
An irrevocable trust is also a legal instrument that outlines your preferences for managing and distributing assets on your behalf. For an irrevocable trust, it designates a person (trustee) to oversee and distribute your property. It also specifies beneficiaries who will inherit your assets after your passing. However, because it is irrevocable, you do not maintain full control–you give up certain rights to the trustee to manage such assets and eventually pass them on to the beneficiary (if you want to maintain control, you can get a revocable trust).
In some states, an irrevocable trust might offer a strategy to prevent specific assets from being divided in a divorce, as technically, you don’t personally own the assets held in the irrevocable trust; the trust does. However, it’s crucial to establish the trust before entering into marriage AND to ensure it’s funded by your own separate property. Creating the trust after marriage and expecting it to safeguard your assets may not be sufficient, as certain states allow the court to adjust marital assets due to attempts to conceal funds, or if the trust is funded using property acquired during the marriage or simply because a trust exists and is considered marital property. For instance, imagine you have $100,000 in a trust created during the marriage. In such a case, a judge might (depending on the state laws) balance things out by assigning a comparable portion of other assets to your spouse. This means that $50,000 of the $100,000 in the trust could be allocated from other sources to benefit your spouse.
The bottom line
In conclusion, while a prenuptial agreement remains the most effective way to safeguard your financial interests in the event of a divorce, there are alternative options worth considering if a prenup is not an option for you. Alternatives such as postnuptial agreements, careful management of separate property to prevent commingling, and the establishment of trusts can provide some level of protection. However, it’s crucial to approach these alternatives with caution, as their effectiveness may vary depending on state laws and individual circumstances. Ultimately, consulting with a lawyer versed in family law and estate planning in your state can help you make informed decisions to protect your assets and financial well-being.
Sara is a bilingual Spanish-speaking attorney and legal advisor from Orange County, CA. Sara is the co-founder of Ovando Bowen LLP, along with her husband Chumahan Bowen, Esq. As a legal advisor, Sara helps her clients navigate the complexities of both business and personal affairs. Sara has been assisting individuals and families since 2009 when she worked at the Long Beach Courthouse, Self-Help Center. Book a Q&A or Full Representation with Sara here
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