The Anatomy of a Prenuptial Agreement
A prenuptial agreement, or a “prenup”, is a written agreement entered into by two people planning to marry in the near future. When the subject of a prenuptial agreement comes up, many people think it is something celebrities and billionaires use to handle a second spouse. In fact, there are many benefits to negotiating a prenup for “regular” people. Understanding more about the process of a prenup and its contents may reveal that you and your fiancé should consider one for yourselves.
By going through the process of creating a prenup, couples have important conversations about their expectations and their financial situation and intentions. A good family law attorney will work with their client to obtain and clarify a large amount of detail in order to make sure that the final prenup covers the issues that are relevant and important to the couple. It begins with a lengthy inquiry into many facets of the couple’s lives. Issues like present and future earning capacity, care and support of children from a prior marriage, significant premarital assets and debts, and expectations about the budget and division of labor in the marital relationship are discussed in order to craft an appropriate prenup. These matters should be a normal subject of any couple’s premarital discussions, but often they are avoided as awkward and difficult.
3 Financial Categories: Assets, Income and Debt
When compiling the prenup, couples primarily focus on the finances. Both halves will likely have some premarital assets and/or debts, that without careful planning, may unintentionally become marital in nature. Each state, including Virginia, has specific family law provisions for the division of finances in a divorce. Premarital assets may include inheritances, real property purchased using separate funds or owned prior to the marriage. Assets also cover valuable personal property like patents, art, or jewelry, as well as investment and retirement accounts earned prior to the marriage. Income includes both earnings as an employee as well as from investment property like stocks, real estate or a business. Finally, debts can include credit cards, school loans, a mortgage, or personal loans that will continue to be paid during the marriage.
As time passes in the marriage, finances that the couple intended to keep separate can be unintentionally or carelessly commingled (mixed) with marital property, which changes their character in ways the parties never intended. All too frequently, we have seen scenarios where a person has some separate property, but they end up commingling it in a way that the separate property can no longer be traced back out. In these scenarios, it becomes incredibly difficult, if not impossible for that person to keep their separate interest.
Customized for Each Couple
Once all of the information has been acquired, the prenup itself helps a couple decide how they feel about the possible end of the relationship through separation, divorce or death. Rather than being bound by the family law provisions of their particular jurisdiction, couples can build their own agreement that is fair and equitable to them. Issues like changes in employment, infidelity, ownership of property, support, and custody of children living at the time of the prenup can each be addressed specifically. Couples can build in triggering events and address how the length of the marriage impacts the division of finances.
The prenuptial agreement allows people to waive specific claims and fix financial allocation in the event of a divorce. For example, if there is a family-owned business, the couple might agree that the person who is marrying into the family will waive all claims to the business in exchange for other provisions in the agreement. Where there is significant income disparity, the couple might agree, in exchange for a fixed amount of support, that the lower earner waives all claims to future income of the higher earner. Or, to the contrary, a couple with one half earning no income while obtaining a degree might agree that the other spouse is entitled to a percentage of the student’s income instead of fixed amount to reflect income-earning potential over time.
While prenups have a requirement of fairness, and it is important that both halves of the couple review the terms with their own respective attorneys, the flexibility of the agreement makes it attractive for many couples. Since the couple should have important discussions about their finances and other significant aspects of their relationship prior to marriage, a prenup offers an opportunity for honesty and disclosure.
Are you contemplating marriage to your significant other? Contact Reese Law today for a consultation about a prenuptial agreement.
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