PRENUPTIAL AGREEMENT (AKA PRENUP)
Many couples marrying later in life or with age/wealth difference often decide to do a prenup to protect their individual assets, marital acquisitions, and terms in case of a divorce (for example spousal support). Anyone who considers a prenup should carefully review the applicable law and ensure that a qualified family law attorney drafts/reviews the agreement to avoid enforcement issues down the line. Prenups are presumed valid unless one party challenges it in court.
The Uniform Premarital Agreement Act (UPAA) codified in Family Code sections 1600 et seq., provides the parameters for California prenups. Under the UPAA, a prenup is an agreement dealing with financial matters (not child support, child custody & visitation, fault issues) signed by both parties before marriage with effective date on the date of marriage. The agreement does not have to have consideration i.e. one prospective spouse does not have to give or give up something in order for the other spouse to enter into the contract. After marriage, it can be revoked or amended in writing signed by both spouses.
So the following criteria must be met for the prenup to be valid:
- the agreement must be executed voluntarily
- he agreement must not be unconscionable (only the court can decide what is unconscionable)
- must be fair, reasonable, and full disclosure of the property and financial obligations by each prospective spouse (unless waived voluntarily and in writing)
- each party must have adequate knowledge of the property and financial obligations
- the non-drafting party must either have the agreement reviewed by independent legal counsel at the time of signing of the agreement or after being advised by independent legal counsel waive in a separate writing representation by independent legal counsel
- the non-drafting spouse must have at least 7 calendar days between the time being first presented with the agreement and advised to seek independent legal counsel AND the time the agreement is signed
- the non-drafting spouse, if unrepresented by independent legal counsel, must be fully informed of the terms and effects of the agreement and the rights and obligations s/he is giving up AND must be proficient in the language in which the explanation of the party's rights was conducted AND the agreement must be in writing. Furthermore, the explanation given must be memorialized in writing and delivered to the party prior to signing the agreement. The unrepresented party must then before signing of the prenup sign a document declaring that s/he received the information required by the Code.
- the agreement must be signed free of duress, fraud, undue influence and the parties must not lack capacity to enter into the agreement.
Terms of a Prenup
Parties can waive spousal support but if the result would be unconscionable the court will not uphold the provision. So, usually if both parties are of equal education, position in life, financial status, spousal support waiver is appropriate. If not, the area of spousal support should be carefully examined.
Parties can agree to hold and acquire property as separate or community. For example, earnings during marriage (normally community) can be agreed to remain separate property of the earner.
Parties can also include certain provisions in their wills and trusts provided that the rights of minors are not affected. Inheritance rights can also be waiver.
Inappropriate Terms of a Prenup
A prenup cannot include anything that is illegal or against public policy. Children's rights (child support) or the ability of the court to decide issues of custody using the best interest of the child standard are not enforceable. Provisions about raising children generally are not enforceable as well.
Agreements that include provisions that are encompassed in the general obligations stemming from marriage (i.e. domestic services or companionship) are not enforceable. Since California is a no-fault state, provisions about infidelity are also not enforceable.
Parties cannot waive disclosure in the event of a divorce.
Any agreement that encourages a divorce will also be scrutinize by the court as public policy prohibits such agreements.
Usually married couples enter into a post-nuptial agreement because they did not have enough time before marriage or they want to resolve disagreements about finances/inheritance/family business or an issue came up after marriage that is troubling (addiction, overspending, etc.). This agreement is signed after the parties marry. However, the presumption is that the agreement is invalid so drafting and execution must be carefully conducted for the court to decide otherwise.
The agreement must be in writing and notarized by both spouses, free of duress, fraud, or undue influence. It must not be unconscionable. There must be full and complete disclosure of all financial assets and obligations prior to signing it.
Spouses can include terms regarding the following:
- spousal support (amount or waiver)
- characterization and division of assets
- division of debts
- custody of family pets
There are provisions that cannot be enforced as follows:
- child support waiver
- child custody
If one spouse requests a post-nuptial agreement to be done, the other spouse should immediately seek independent legal counsel. In California, community property law requires 50-50 division of marital assets (assets acquired during marriage and before separation). If a post-nuptial agreement seeks to divide assets whereas one spouse receives a lot less than 50 percent, it may not be in that spouse's best interest to sign it. The agreement must be carefully negotiated and drafted to avoid bad outcomes. If the agreement leaves one spouse without any assets, the agreement will not be enforced (in whole or in part). It is important that the agreement is fair and not unconscionable.