A Quick Overview of Prenuptials
The sooner that the parties begin to contemplate the contemplated agreement, the more satisfied they will be. The fewer outside pressures that the parties have at the time of negotiation, the more likely the agreement will be satisfactory to both parties. The parties must discuss, plan and bargain as reasonably and fairly as they would do in a business deal. Usually, these discussions will be done with both parties separately represented by counsel trained in the field of matrimonial law. The principal reason for having separate counsel is not only because that is what trained matrimonial lawyers usually recommend, but because the most significant aspect of a prenuptial negotiation is the disclosure of each parties assets. For a party to voluntarily disclose everything that he or she has requires a great deal of trust. Such trust is even more difficult to establish when the attorney is aware that his client has hidden assets. A second reason is that a lawyer has a duty of professionalism, confidentiality and privacy.
In negotiating such a document, each party will set the tone for the scope of the negotiations . For instance, to highlight the importance of a specific point, such as maintenance payments or property rights in the event of death or divorce, one party may initially make an extreme concession, such as foregoing maintenance or waiving the right to inherit which will signal to the other party how important that point is to him or her. The concessions of the two parties are a sequential series of offers and counter-offers, each based on the prior offer or counter-offer of the other party. The process requires compromise, and hopefully bargaining will lead to agreement.
It is recommended that the agreement not be entered into by married persons. Although many people have engaged in that practice in the past, and have been successful in defending the enforcement of such agreements, the lawyer engaged in drafting prenuptial agreements does not believe that that practice is wise. That is the reason why he has used the term "contemplated agreement" in the title to this chapter. He has drafted prenuptial agreements for clients who were already married, but not yet divorced! That is a situation that can be avoided.
The difference in the terminology is not academic. A prenuptial agreement is entered into prior to marriage. If the marriage is not performed, the contemplated agreement is irrelevant.
Requirements for Prenups
In many states, the law requires that both parties have ample time to review the contents of the agreement before signing it. Some laws specifically state that a spouse must have independent legal representation or that an agreement will be voided if one party did not have an opportunity to consult with his/her own legal counsel.
If a party can show that he or she signed a prenuptial agreement under duress or coercion, or that the spouse was unduly influenced by the other spouse, the agreement may be voided. It is generally considered good practice to hire an attorney before signing a prenup. The intent of that requirement is to ensure that both parties understand what they are giving up and that they signed the document voluntarily. One party can even waive that right. If you want to include a waiver, it should be clearly stated in the document. Raw language will likely not stand up in court.
The agreement must also be made voluntarily and without fraud or misrepresentation. If it appears that either party withheld information about income, assets owned or obligations, the agreement may be voided. If there is no reasonable basis for the terms contained in the agreement, that also can be used to void it. For example, if a soon-to-be husband was a star athlete with a gross annual income of $15 million, and the terms of the agreement only provided for the wife to receive $300,000 in the event of a divorce, a court might throw out the agreement or order a new, fairer one.
There is also generally a waiting period before the agreement can be effective, depending on your state’s law. That time period may be three days or longer. The purpose is to give both parties time to review and understand the agreement prior to signing it. Any funds contributed to the agreement during the waiting period may be returned to the party who contributed the funds.
Pros and Cons of a DIY Prenup
Considering how long it took you two to come to the decision that getting married is less like putting on your shoes and more like buying a house, you might be looking for ways to cut costs on your new life together. A Do-it-Yourself (DIY) approach to your prenuptial agreement could save you legal fees, but perhaps at the cost of making your divorce that much more complicated.
Pros. Depending on where you live and what you do for a living, meeting with an experienced family law attorney before getting married can cost anywhere from $250 to $600 per hour. If your spouse also meets with an attorney, this could add thousands of dollars to your pre-wedding expenses to get your prenup drafted. If your goal is to stay within your budget, drafting your own prenuptial agreement could save the day. The forms are available in any bookstore or online; just fill in the blanks and voila! You’ve got a prenup.
Another benefit to drafting your own prenup is that it forces you and your spouse to talk about finances before tying the knot – something many couples avoid because money issues often lead to fights. Even if you don’t end up using the agreement, trying to agree on terms such as alimony, division of debts and assets, and maintaining or relinquishing homeownership is an excellent way to avoid financial fights later down the line.
Cons. The biggest downside of a DIY prenup is that you don’t know what you don’t know. As family law attorneys, we’re trained to look for the kinds of loopholes that would land our clients in hot water, and this training often allows us to spot areas that need more explanation in the agreement. We also know how the law affects things like business ownership and the division of retirement benefits, so even if you and your spouse are on the same page regarding the terms of the agreement’s enforceability (what happens in case of divorce), you may not have the legal knowledge to fully enforce those terms at the time of your divorce. The prenup is meant to operate in the same way as other legal documents, which is how judges and mediators interpret it during a divorce, so any vagueness increases the chances of misinterpretation, revision or nullification by a judge. Again, some things that seem clear to you may not be clear to a third party.
Another issue with DIY prenuptial agreements is that they’re typically done without the benefit of an attorney, so state laws that protect people from being taken advantage of during the agreement process – such as requiring the parties to have independent counsel or waiving counsel – may not be enforced, allowing for the possibility of fraud or duress. If one of you is wealthy, and she has her dad’s attorney from his prior divorce complete the forms for her and he refuses to sign until she buys him a car, that may be enforceable in your state, but it will likely be overturned if you have a prenup drafted by an attorney. This is the kind of thing that may put your spouse in a position to be victimized by the agreement, so that the marital agreement can be easily overturned years later – nullifying all of your carefully laid plans.
Although prenup forms that you fill out yourself seem like an easy solution, the cost of not using an attorney isn’t worth the money you save. In the end, the money saved may be worth far less than you expected when you find yourself having to hire an attorney to represent you not only in the divorce negotiations but also in challenging the prenuptial agreement.
The Essential Elements of a Prenup
In drafting your own prenuptial agreement, you must be sure to cover certain essential components. It is not enough to cover this information only "in spirit" or to have just one spouse agree to it. Such provisions can be challenged in a court of law at a later date, and your prenup may be invalidated. Make sure to include the exact portions below that are relevant to your relationship with your soon-to-be spouse. If certain parts do not apply (e.g., there is no alimony or spousal support in your state), then adjust accordingly. Here are 6 aspects you should cover:
- Commencement and Integrating Language. This goes at the beginning of the agreement to ensure that specific, agreed-upon points are included (and may not be altered, either). It might be something as simple as: "This agreement is made as of the ___ day of _______ 20__. This agreement is in full satisfaction of support, property and all other claims either spouse may have against the other. This agreement accurately sets forth all of the mutual promises between the parties."
- Assets rights and obligations. It’s important to specify what assets each party will receive (including a schedule for dividing those assets if the marriage terminates). Describe assets in detail (homes, bank accounts, investment accounts, pensions, personal property, etc.). You may also include debts. Describe how these debts will be divided upon divorce (you may also include debt that is not a joint obligation).
- Spousal Support or Alimony. Some spouses chose to waive their right to spousal support or alimony in the case of a divorce. If so, it is important to specify this in the prenup agreement. Likewise, some couples choose to provide some spousal support after divorce – it is important to specify the exact amount and duration here.
- Insurance Provisions: In other words, if one spouse has exceptional insurance coverage, does it apply to both spouses? Do they both share an obligation to provide health insurance to the other spouse? Will one or the other spouse have life insurance coverage in case of death? Be as specific as possible.
- Tax Matters. It’s good to specify who gets what tax benefits from children and the marriage. If you choose to file separately, that may be specified here as well.
- Other Considerations: Consider including custody arrangements for children. Specify what will happen in the event you do not have a child at the time of divorce – will you contribute to a college fund or trust for them? What about pets? How will pets be divided upon divorce?
Too often spouses think a prenuptial agreement is only about the money. A prenup is about the future of your relationship – if you take the time now to work out all of these details, you and your soon-to-be spouse can avoid future heartache (and court dates) down the road.
Common Pitfalls to Avoid
One of the most common mistakes people make when they draft their own prenuptial agreement is that they do not get full and honest financial disclosure before drafting any agreement. Without full disclosure, there cannot be a fair agreement to be signed. This is one of the biggest pitfalls. Without full disclosure, it would be very difficult to uphold a signed agreement presumably for one party’s benefit. In fact, even without disclosure, an agreement can be set aside as being done under duress and for lack of sufficient consideration.
Another common pitfall is that people spend too much time searching the internet for the "best agreement , " and they spend very little time on the process of having a good discussion with their fiancé/fiancée. This is also a mistake. Many people agree to routinely sign whatever their spouse wants, and therefore, spend very little time really delving into what they want. They take their chances with the "best agreement found on the internet." With any luck at all, that may work out. However, whatever the "best" of those are, they will not be customized to you, your spouse and your finances. Even if the wording is similar, you are unique and the agreement should be unique.
Getting Legal Guidance
Even if you borrow a form from a website or create your own, it is always wise to have a lawyer review your prenuptial agreement before you sign it. Among other things, a lawyer can make sure that the agreement meets the legal requirements of the state you reside in. Courts have the discretion to invalidate a number of terms in prenuptial agreements, including those that are unclear or were unconscionable when the parties signed the contract. How does a court decide these matters? It looks at many factors, such as whether each party had independent legal advice, whether there was full disclosure of assets, and whether the agreement was entered into under duress.
Plainly, you don’t want to give a judge a reason to invalidate your prenuptial agreement. Even lawyers need to get another lawyer involved if they want their agreement to be legally airtight. It is also helpful to consult a lawyer after the agreement has been signed to make sure both of you have followed through on your part of the bargain.
Conclusion: Weighing the Options
When considering whether to draft your own prenup, forgo counsel altogether, or retain one attorney to draft the agreement that both spouses will retain, we urge you to tread thoughtfully. Either your do-it-yourself document will be invalidated (a poor outcome, as described above) or, even if valid, it may fall far short of what a lawyer might accomplish on behalf of each spouse. Here, we outline a few reasons why it is prudent to have a lawyer draft a prenuptial agreement, as well as the steps to take to make the prenup a valid one that serves its intended purpose.
First, we hope that our readers understand that the persuasive words employed by professional wordsmiths should not be employed to defeat the ascertainable intention of the parties. We urge you to consider the following:
The foregoing are non-exhaustive examples. Further, this litany does not account for the psychological aspect of hiring counsel to craft a prenup, as well as the emotional toll that may be suffered by the future spouse if they do not engage the services of a divorce lawyer. As a general rule, our future clients are less offended by the prospect of a prenup drafted by our office than they are with the prospect of submitting to a "home crafted" version of the same.
In order to make an informed decision regarding the drafting of pre nuptial agreements, we have outlined the steps to take before undertaking to execute such an agreement.
- – Be Sure of Your Choice: To our readers contemplating a prenup, we urge you to consider the foregoing, very thoughtfully, before making a choice. And when you decide that it is wise to consult an attorney to draft your agreement, secure at least three referrals from friends and family to attorney(s) with prenup experience who you would feel comfortable interviewing. Get to the interview early and be ready with an outline of what you are hoping to achieve with the agreement. Be willing to discuss the timing of the marriage and the wedding crowds who may be inbound. If you are convinced that the fees being quoted are not exorbitant and the lawyer assuages your fears , you may wish to runaway with this lawyer rather than the one to whom you were initially betrothed.
- – Go Beyond "He Said, She Said": As we have said previously, things can get acrimonious in a hurry when the future spouses are unaware of the requirements for an enforceable agreement. Each spouse may have a lawyer, who already told them that the agreement was valid and that it was all signed willingly. And the other’s lawyer told his or her client the same thing. But he or she was not able to give a damn about the spouse’s story because he had too much respect for his own work product. It was only later, after the lawsuit commenced, that the spouses discovered how the process went awry and why their agreement was deemed unenforceable.
- – Get It Right: Drafting a prenuptial agreement is not brain surgery, but it is law. We urge you to hire an attorney who specializes in drafting prenups. A lawyer who specializes in drafting estate plans may not be the best fit, as the issues, while somewhat overlapping, are unique to prenups. The objective of hiring a prenuptial agreement lawyer is to do it right the first time so that you can hope for the best but plan for the worst.
Finally, we hope that you will discuss any prenuptial agreement you may draft with family members whose inheritance may be affected by the agreement. Rather than getting their blessing after the facts are in writing, simply inform them that you will soon be getting married. You may also wish to let them know whether you plan on having a prenuptial agreement and whether you may be relying on an "excluded property provision" in the agreement, which will protect property which may later be discovered.
We so appreciate your time and we hope that you enjoyed our blog post and that it will be an aid to you in getting smarter about prenups.