Volume 9 • Issue 7 • July 2019
The Counselor is a monthly newsletter of Hallock & Hallock dedicated to providing useful information on estate planning, business succession planning and charitable planning issues. In this month’s issue, we will discuss the importance of prenuptial agreements in estate planning. If you are interested in learning more about the ideas and processes discussed in this newsletter, please contact us for an initial consultation.
When it comes to marriage, few topics evoke a more uncomfortable discussion than the Prenuptial (or Premarital) Agreement. Often misunderstood, it may be considered a “romance killer” or as demonstrating a “lack of trust.” The reality is that these agreements are often the best and sometimes only way for couples to achieve their financial and estate planning goals. Most states give the surviving spouse rights to a substantial portion of the deceased spouse’s estate, regardless of the terms of the Will. In community property states the surviving spouse receives all community property, which includes most property acquired during the marriage. Most states also give the surviving spouse the right to an elective share of the deceased spouse’s estate that supersedes any contrary provision in the Will or Trust. Many retirement plans provide for a spousal right upon death or divorce. These rights can easily derail your planning, but a carefully drafted Prenuptial Agreement can override them and ensure your wishes are carried out.
What is a Prenuptial Agreement?
The Prenuptial Agreement is a written contract entered into between two individuals prior to their marriage. While each Prenuptial Agreement is unique, the agreement will generally include the following:
- An inventory of what each spouse owns and is bringing into the marriage;
- How assets will be shared during the marriage;
- How assets will be divided in the event of a divorce;
- Whether either spouse will be entitled to alimony; and
- What rights each spouse will have upon the death of the other.
What are the Benefits?
The benefits of a solid Prenuptial Agreement cannot be underestimated. Some of the more important benefits are:
- You can protect the inheritance of your children from a prior marriage/relationship;
- You can protect yourself from a potential predator if there is a disparity in wealth;
- You can protect business interests from claims in a divorce or upon your death;
- You can minimize or eliminate litigation in a divorce or probate case saving thousands in legal fees;
- You can protect your assets against claims of your spouse’s creditors (and vice versa) by clearly defining each spouse’s separate property.
- You can ensure that your estate plan works as planned and will not be subject to attack by your spouse or his/her family after your death.
Is There a Downside?
As with any tool used in planning, there is always a burden that comes with any benefits. Here are a few cons of getting a Prenuptial Agreement:
- You will likely need to give up your right to inherit from your spouse.
- If you contribute to an increase in the value of an asset that belongs to your spouse, you may not be able to claim a share of the increase in value.
- Some don’t get married as a result of hard feelings that develop from having to address sensitive topics.
- It can be difficult to know what the future holds, what seems like an insignificant concession now, may seem substantial down the road.
While these are the downsides, in any second marriage, a marriage where there is a business with other owners, or if there is a significant disparity in wealth, the Prenuptial Agreement should presumptively be included as part of the planning.
If you didn’t draft a Prenuptial Agreement before you were married, many states still allow a Postnuptial Agreement. While beneficial, the fact that Postnuptial Agreements are permitted should not be an excuse to avoid entering into a Prenuptial Agreement. Postnuptial Agreements are generally more difficult to negotiate because the marriage has already occurred. They are also subject to greater scrutiny from the Courts because of increased concerns of fraud or undue influence.
Properly drafted, a Prenuptial Agreement or Postnuptial Agreement can help you achieve a variety of financial and estate planning goals and add an element of certainty to your plans.
This Newsletter is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.