Congrats on tying the knot! Let’s be real, talking about money and assets might not be on the top of your wedding planning to-do list. Still, it’s super important to have open conversations about your financial rights and responsibilities, especially when it comes to your real estate. In this article, we’ll dive into why prenuptial agreements are a great way for you to protect your real estate and other practical tips to navigate this legal stuff like a pro. So let’s get started and make sure your future is secure!
What is a prenuptial agreement?
A prenuptial agreement (i.e., a prenup) is a legally binding contract that establishes how a couple’s assets will be divided in the event of a divorce or, in some cases, death. It covers a bunch of different things, including real estate assets, investments, bank accounts, and debts. However, a prenup is much more than just a financial document. It serves as an opportunity for you and your partner to align your life goals and financial aspirations. By engaging in deep and meaningful conversations about various topics such as divorce, marriage, death, property, children, and family, you are able to set clear expectations and ensure that you both enter into your marriage with complete alignment.
How do prenups work?
Let’s take a deeper dive into how a prenup works in order to protect your precious real estate properties.
State law requirements
State laws play a big role in how prenups work. Since every state has its own set of statutes and caselaw, what is accepted as a valid prenup in one state might not fly in another. There are some basics that most states agree on:
- The prenup has to be in writing. A handshake or a verbal promise isn’t going to cut it.
- Both people getting married need to sign it. If only one person signs, it’s pretty much worthless.
- Getting it notarized is a good move. It’s like getting an official stamp saying, “This is legit.” Plus, some states require this.
- Some states even want witnesses there when you sign, although that’s not the case across all states.
- Timeline requirements. A few states have strict requirements as to when you can sign a prenup prior to the wedding day.
If you don’t follow your state’s rules when putting together your prenup, you might be in for a surprise later on. If a court decides your prenup isn’t valid or cannot be enforced, then they’ll just fall back on the standard state laws to figure things out during a divorce. And that could be a whole lot different from what you had in mind when you made your prenup. So, it’s worth the effort to get it right from the start!
Enforceability of prenuptial agreements
Certain conditions must be met to ensure the enforceability of a prenuptial agreement. These conditions typically include full disclosure of assets, both parties entering into the agreement willingly and voluntarily, and the agreement being fair and reasonable. Every state has its own rules about what a prenup should look like and what it can include. So, it’s essential to make sure your agreement matches up with where you live. If there’s anything that is illegal or goes against public policy, like requiring one party to commit a crime, view that as a red flag and know that including something like that will very likely get your prenup thrown out. Sometimes, couples change the prenup after they’re married (that’s either called a prenup amendment or a postnuptial agreement, depending on which state you are located in).
How do prenups protect real estate?
A prenuptial agreement can clearly designate real estate properties acquired before the marriage as “separate property,” ensuring that these assets remain in your possession. This can also apply to the sale of the real estate, whether you take the proceeds and buy a new property or put the money in savings (or elsewhere). And don’t forget about that appreciation! Appreciation of your real estate can also be protected.
Real estate that is inherited or gifted to one partner or spouse before or during the course of the marriage can be categorized and protected through a prenup, as well. This means that even if a spouse inherits a family home or receives a property gift, the prenup can stipulate that this property remains their separate property, and not a marital or community asset.
How to create a prenuptial agreement to protect real estate assets
How do you go about creating a prenup that protects real estate assets? Let’s discuss below:
Full disclosure of assets
Both partners must provide complete and accurate information about their assets, income, and debts, including their respective real estate holdings. This includes property titles, mortgages, valuations, and any other relevant details. Full transparency ensures that both parties have a comprehensive understanding of the real estate assets involved. Not only that, but it’s legally required to share this information. If you don’t, you risk losing your prenup. And that, in turn, could result in your real estate assets being divided up in a divorce based on default state law.
Determining separate and marital/community property
A prenuptial agreement allows couples to designate certain assets/properties as separate or marital/community assets. Separate property is a categorization of property that means it’s one spouse’s property, not subject to division in a divorce. The marital/community property categorization means that it is subject to being divided in a divorce. Here are some assets to consider keeping separate in your prenuptial agreement to protect your real estate fortune:
- Premarital real estate
- Real estate acquired during the marriage under one person’s name
- Any real estate appreciation during the marriage (Whether a premarital property or later-acquired property)
- Any gifted or inherited real estate from family or friends
- Any real estate owned through a business
Keeping all of the above as separate property is one step in the right direction to protecting your real estate portfolio.
Benefits of prenuptial agreements in protecting real estate assets
Why protect real estate assets with a prenup? Let’s discuss:
Preserving family property
If you have real estate assets that have been in your family for generations, a prenuptial agreement can help ensure that those properties stay in the family. By clearly stating the ownership and division of such properties, you can protect them from being subject to division if a divorce ever happens.
Avoiding lengthy and costly legal battles
Without a prenuptial agreement, the division of real estate assets in a divorce can be a complex and contentious process. If you and your spouse cannot agree on what to do with real estate assets in a divorce, you could be looking at thousands of dollars in legal bills and months or years of time spent hashing these issues out with a court. By having a prenup in place, you can minimize conflicts and legal battles, usually saving significant time, money, and emotional stress for both spouses.
In addition, different states apply different frameworks for defining the division of property, including real estate. States operate under either a Community Property framework or an Equitable Distribution framework. In some states, real estate may be divided equally if acquired after marriage. In others, it may be divided equitably, based on a series of factors determined by that state. In either case, without a prenup, the fate of your property may be up to a judge.
Protecting business interests tied to real estate
If you own a business that is closely tied to real estate assets, a prenuptial agreement can safeguard your business interests as well. It can establish provisions that prevent your spouse from claiming a stake in any current or future business interests, including real estate. The frameworks that define the division of property, discussed above, include business interests. In some states, the value of a party’s business interest(s) may be divided equally if the business operated and generated revenue during the marriage, or was acquired after marriage. In other cases, that business interest may be divided equitably, based on a series of factors determined by that state, including the length of marriage and the earning potential of the parties. Without a prenup, the fate of your business interest in a real estate corporation or LLC may be up to a judge.
Updating and revisiting prenuptial agreements with real estate provisions
If you want to update your prenup, you typically can do so through a tool known as an amendment. An amendment to a prenup is a way to change or update your original prenup. To create a valid and enforceable amendment, you must follow the laws laid out by your state. Many states utilize the same validity and enforceability requirements as creating the original prenup. For example, if you were required to get notarization and witnesses to the prenup, it’s likely you’ll have to do that for the amendment, as well. Don’t forget–you BOTH need to actually agree to the changes, too! Couples may want to get an amendment for various reasons, a common reason is a change in financial circumstances. This may be because you purchased real estate, you inherited real estate, or you were gifted real estate that you hadn’t previously predicted when creating the prenup. This may change your mind about your previous decisions in the agreement.
Common misconceptions about prenuptial agreements and real estate assets
Several misconceptions surround prenuptial agreements, generally, and may have an impact on real estate assets as a result. After all, real estate is often the most valuable asset that a couple owns. People often think the following:
- “Prenuptial agreements are only for the wealthy.” Prenuptial agreements are not exclusively for the wealthy! Regardless of your financial status, a prenup can provide essential protection for your real estate assets, which can become very valuable over time with appreciation. It ensures that both parties’ rights, financial contributions, and interests are respected.
- “Prenuptial agreements are pessimistic or indicate a lack of trust.” Prenuptial agreements are not pessimistic or indicative of a lack of trust, because you must remember that without one, the state will make a determination of what happens to your assets. Instead, a prenup can serve as a proactive measure to establish clear guidelines and protect both financial contributions and equity in a property. A prenup fosters open and honest communication about financial matters, leading to a stronger foundation for the relationship. In fact, choosing to create a prenup can be a demonstration of commitment. It shows that both you and your future spouse are willing to have difficult conversations and prepare for all possibilities, even those you hope never to face.
Example scenarios of how a prenup protects real estate
To provide practical insights into the benefits and importance of prenuptial agreements for real estate assets, let’s explore a couple of “made-up” scenarios to demonstrate how this might look in the real world.
Example 1: Preserving Family Property
Sarah and John come from families with a long history of real estate investments. They both understand the importance of preserving these properties for future generations. Before getting married, they decide to create a prenup that clearly outlines the division of their family properties in the event of a divorce. The prenup states that what both John and Sarah come into the marriage with will remain separate property, as will any property accumulated during the marriage. By doing so, they ensure that the properties remain within their respective families.
Example 2: Protecting Business Interests
Emily is a successful entrepreneur who owns a thriving real estate development company. Before tying the knot with Mark, she wants to protect her business interests in the event of a divorce. Together, they create a prenuptial agreement that specifies that Emily’s business and any real estate assets tied to it will remain under her ownership, regardless of whether or not the assets are accumulated prior to marriage or during the marriage. This safeguards the future of her business and prevents any potential disruption or financial claims that could arise from a divorce.
The bottom line on protecting your real estate with a prenuptial agreement
The bottom line is that you can add a layer of protection to your real estate assets through a prenup. How? Making sure you declare what you want to happen to your real estate portfolio (whether existing or future) both during your marriage and in the event of a divorce. Just a friendly reminder: Having a prenuptial agreement doesn’t mean you’re being pessimistic or doubting your partner’s trust. It’s actually a smart way to protect your real estate assets and ensure your financial security.
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: Nicole@Helloprenup.com
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