Ten Reasons Why Prenuptial Agreements Make Sense

Prenuptial agreements are now common, even for first marriages.  They are especially common for those previously married.  While prenuptial agreements may be viewed with skepticism by some, in the majority of cases, prenuptial agreements are fairly drafted and requested for understandable reasons.

Properly drafted prenuptial agreements often alleviate financial worries or pressures, which would otherwise deteriorate a marital relationship.  Such agreements are written codifications of what the parties believe to be a fair result in the event of death or divorce, as determined in advance of marriage.  In the event of death or divorce, such agreements save the parties from the money, time and emotional energy spent on probate or divorce litigation.  Prenuptial agreements can protect a party’s assets and/or income, both at present and in the future.  The most common reasons that parties seek prenuptial agreements are:

1. To protect children, grandchildren, parents or other dependents and loved ones in the event of death or divorce.
2. To protect a closely held business from intrusion, disputes, battles over valuation and, potentially, dissolution upon death or divorce.
3. To provide comfort to family members that a family asset, business or legacy will be protected.
4. To protect assets, gifts, trusts, or inheritances from an undesired distribution or sale in the event of death or divorce.
5. To protect present and future income from various sources.
6. To define how each spouse will manage his or her separate finances during the marriage and to establish how joint investments, expenses, debts and other obligations will be handled.
7. To protect substantial wealth or to protect against substantial debt.
8. To provide expeditious and agreed-upon result in the event of death or divorce, negating the need to negotiate or litigate such matters under the applicable laws after a dispute arises.
9. To ensure that, upon death, an estate is distributed according to the wishes of the deceased, rather than by statutory rights to property.
10. To reduce a party’s fear of protracted litigation in the event of death or divorce.

In the absence of a valid prenuptial agreement, the legal definition of marital property is “all tangible and intangible property and assets, real or personal, belonging to either or both parties, whether title to the property is held in the name of either or both parties.” However, prospective spouses may enter into a prenuptial agreement to alter that definition, by limiting or excluding assets, income and expectancies. For example, a prenuptial agreement could segregate one party’s interest in family assets from distributable marital property, thereby protecting the family assets from distribution in the event of death or divorce. In the absence of such protection, a court could award marital property to either party or order the sale of any asset. Establishing expectations in advance also avoids or minimizes the intensity and length of divorce or probate litigation. Prenuptial agreements can avoid years of litigation and significant legal fees.

The content of individual prenuptial agreements can vary dramatically, from limited agreements that address only a specific event or asset, to agreements that address all present and future income and property. Prenuptial agreements can be rigidly structured or flexible. Some agreements apply only in the event of death or only in the event of divorce or only to assets acquired before the marriage. Other prenuptial agreements include so-called “sunset provisions” that terminate the prenuptial agreement upon a date certain or the occurrence of an event. Most prenuptial agreements are designed to provide a fair outcome to both parties in light of their circumstances. Each prenuptial agreement should be custom designed to specifically address the financial interests of the parties and their goals. Such agreements can be as standard or creative, or as liberal or restrictive, as the parties wish.

 

About the Author: Margaret Kerouac

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