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MARITAL ACCOMPLISHMENT &

AGREEMENT DOCUMENTATION

SPOUSAL-SHIP PRENUPTIAL
AGREEMENT

A prenuptial agreement is the


contract that two parties got into in
contemplation of marital affairs. It
can also be referred to as a
“premarital agreement, antenuptial
agreement, It’s simply called a
“marriage contract”
In most states, until the 1980’s, prenuptial agreements
were deemed against public policy and not valid to the
extent they pertained to divorce or separation. They
were considered against public policy because it was
thought that they encouraged divorce and allowed the
husband to thwart his legal obligation to support his
wife. Prior to that time, they were valid to the extent that
they pertained to the death of one spouse.
A postnuptial agreement is similar to prenuptial
agreement except that it is entered into after the parties
have married. In some states, postnuptial agreements
are not valid if either spouse is contemplating divorce or
separation.

Canadian law also recognizes cohabitation agreements


for couples of the same or opposite sex that currently, or
intend to, live together.

First, a brief overview of U.S. law, In community-


property states like (Arizona, California, Idaho,
Louisiana, Nevada, New Mexico, Texas, Washington,
and Wisconsin), any assets that are acquired during the
marriage are marital assets and divided equally
between the spouses upon divorce. In equitable-
distribution states, any assets acquired during the
marriage are divided between the spouses in a fair and
equitable manner. In many states, the appreciation in
value of a separate asset during the marriage is a
marital asset.

Generally, a prenuptial agreement sets forth how the


marital assets will be divided in the event of divorce or
either spouse’s death. It can also address what assets
remain the separate assets of each spouse and what
happens to the appreciation in value of the separate
assets. For instance; Man has an IRA worth $200,000 at
the time he marries Woman. When they divorce, six
years later, the IRA is worth $500,000. In some states,
$200,000 would be considered man’s separate
property and $300,000 would be considered a marital
asset to be divided between the couples.

Woman has a home worth $250,000. Man moves in


after they marry, and they use the home as their marital
home. When they divorce, the home is worth $400,000.
The court is very likely to decide that Woman made a
gift to the family, classify woman home as a marital
asset, and split the entire asset. If the couple both
created a prenuptial agreement, they could have agreed
that Man’s IRA – including any appreciation during the
marriage – would have remained his separate property
and that Woman home – including any appreciation –
would have remained her separate property.

Although there are limitations in many areas, prenuptial


agreements may also cover issues of spousal and child
support. The spouses can agree not to contest any
estate-planning documents prepared by the other
spouse and to give up certain statutory rights upon the
death of one spouse. They can also agree to le joint or
individual tax returns during the marriage.

Some couples also cover issues that arise during the


marriage, such as their children’s religious upbringing,
how household duties will be divided, how nances will
be handled, and sometimes even how often the couple
will have sex. These provisions are best left out of the
agreement, because a judge has no mechanism to
enforce them. In addition, you have to be very careful
with these provisions, because if they are too unusual,
the entire agreement may be deemed invalid by a
judge.

In addition to addressing how the assets will be divided,


it is also important to decide how debts, particularly
those acquired before the marriage, will be divided.

LIMITATIONS
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Generally, two parties can agree to anything that does
not violate any law or oppose public policy (interest).
For Instance, contractually encouraging someone to
divorce would be against public policy and invalidate
the agreement. A prenuptial agreement has several
limitations; some are unique to prenuptial agreements:

The parties must fully disclose their assets to the other


party. Otherwise, one spouse is giving up rights to
assets that he or she knows nothing about.
Some states do not allow prenuptial agreements to limit
or eliminate spousal support. In addition, the agreement
may be deemed invalid if the spousal support is very
high, because the agreement then encourages divorce
and is against public policy. In Canada, spousal support
provisions are valid.
Child support cannot be limited pursuant to a prenuptial
agreement. In some states, child-support provisions will
be upheld as long as the support is not less than the
statutory guidelines. In other states and in Canada,
provisions regarding child support are invalid. Anything
limiting child support to less than statutory amounts
cannot be enforced. Child support is governed by state
guidelines in all 50 states.
In both the U.S. and Canada, any agreement regarding
child custody or visitation in a prenuptial agreement is
invalid.
A judge could deem the agreement void based on
typical contractual theories such as fraud,
misrepresentation, duress or coercion. A unique
circumstance with the prenuptial agreement is the
timing of the signing of the agreement. If the groom
takes the agreement to the bride the night before their
wedding, then she could certainly argue that she signed
the agreement under duress, or that she was coerced
into signing it. To avoid the argument that the
agreement was signed under duress, it should be
signed long before the wedding takes place. Some
would argue at least 30 days and others recommend
before the wedding invitations are sent to the guests.
The prenuptial agreement cannot be unconscionable. If
one spouse is left destitute, the court may decide that
the agreement is not valid, because it is unconscionable.
In Canada, any provision in the prenuptial agreement
regarding the right to live in the matrimonial home, or
the right to sell or transfer the matrimonial home, will be
invalid.
Bene ts

Prenuptial agreements are not just for the wealthy. They


are particularly useful in second marriages, where one
or both spouses have children from a previous
marriage.

Mike and Carol are going to be married. Mike is a


widower and has three sons. Carol is a widow with three
daughters. Both of them have assets that they are
bringing to the marriage, including the death bene ts
they received upon the death of their rst spouses. Mike
and Carol are contemplating hiring attorneys to prepare
a prenuptial agreement to ensure that the assets they
received from their deceased spouses will go to their
respective children.

A prenuptial agreement has numerous bene ts. Some


of these bene ts include:

• The certainty it provides as to what happens in the


event of a divorce or the death of either spouse.
• Protecting children from a prior marriage.
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• It is prepared, in theory, when there is harmony
instead of at a point when the relationship is very
contentious.
• The parties can negotiate the terms of the agreement;
instead of having a third party (a judge) and state and
provincial laws decide how to divide the couple’s
assets.

NOTE
If you’re going to have a prenuptial agreement, you should
each hire a lawyer to ensure that it is valid and will hold up
in court. Do not try to prepare one yourselves!

A prenuptial agreement can be successfully


challenged in the following ways:

If it has not been signed. Most states require the


prenuptial agreement to be signed by the party to be
charged with the agreements.
✓ By proving the other party did not fully disclose their
assets.
✓ By proving that you were not represented by
independent counsel. Each party should be
represented by his or her own lawyer. Generally, this
alone will not be suf cient to invalidate the agreement.
✓ By proving that the agreement was unconscionable
when it was signed.
✓ By proving that the agreement is now unconscionable
based on today’s circumstances.
The agreement can be challenged based on duress, due
to the timing of the signing.
It can be challenged on any other typical contractual
theory such as fraud, misrepresentation, or coercion.

Additional Issues to Consider


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Each spouse should draft their estate plans so that they
conform to the terms in the prenuptial agreement. You
do not want to force your children and surviving spouse
to get involved in litigation involving your estate. The
costs could result in everyone getting signi cantly less.

You may also want to consider using life insurance to


replace assets that go to either your children or your
spouse. For Instance: Mike and Carol purchased a new
home with the proceeds from the sale of Mike’s
previous home. Mike wants Carol to have the home
upon his death. He can purchase insurance, naming his
sons as bene ciaries, to replace the proceeds from the
sale of his previous home.

Prenuptial agreements can be amended or revoked at


any time. Some couples add a sunset provision
terminating the agreement after a certain period of time,
such as ten years.

Case Study: Sarah and Brad

Sarah has a technology business that she thinks is worth


approximately $1,000,000. In 2003, it had gross sales of
approximately $750,000 with pro ts of approximately
$300,000 (including Sarah’s compensation). The income
has steadily increased at about 20% annually. She is
about to marry Brad. This will be the rst marriage for
both of them, and neither of them have children. Brad’s
net worth is approximately $50,000 and his annual
income is approximately $40,000 and increases at about
3% per year. Should Sarah have Brad sign a prenuptial
agreement to protect her business?

If Sarah wants to protect her business and its future


growth, then she should have Brad sign a prenuptial
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agreement. Otherwise, any future increase in the value
of the business during the marriage would likely be
split between both parties. Without a prenup in place, if
Brad sometimes helped Sarah with the business, then a
judge may nd that the business is a marital asset and
split the business. Sarah must hire an expert to perform
a business valuation; better still, she and Brad could
jointly decide on the expert that will perform the
valuation, or each of them could hire their own expert
and then average the two valuations. If this is done, then
Brad would have a dif cult time challenging the value
of the business.

CAREFULLY READ AND UNDERSTAND WHAT THIS


DOCUMENTATIONS ENTAILS ALTERNATIVELY
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