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Prenuptial Agreements
We all want to believe in true love, especially around Valentine's Day. But sometimes it doesn't work out. A pre-nup may be the best wedding present.
by Melody Z. Richardson
February 1, 2007
W ith increasing frequency, it is the bride who initiates the discussion of a prenuptial agreement instead of the groom. However, as more women achieve financial independence before marriage, they want to protect their substantial economic achievements. Even if the husband has substantial assets, one should never rely on a promise that she will be “taken care of” if the marriage does not work.
A
prenuptial agreement can protect wealth accumulated before a marriage, as well as designate how
income and assets earned during a marriage will be divided in the event of divorce. Since a
prenuptial agreement is negotiated when the couple is contemplating a long and happy life time
together, both partners are willing to be much more conciliatory in reaching an agreement than
either will be when the hurt and anger caused by the divorce may cloud good judgment.
Although prenuptial agreements are not romantic documents and should be discussed and negotiated long before the actual wedding date, the value of a thoughtful prenuptial agreement truly can be immeasurable. A prenuptial agreement can resolve all issues that may arise in the event of a divorce except for child custody and child support issues. Those decisions must be determined based on the best interests of the children at the time of the divorce.
However, to be enforceable, the prenuptial agreement must not be obtained through fraud, duress or mistake, or through a misrepresentation or nondisclosure of material facts. Further, the agreement must not be unconscionable. Finally, the facts and circumstances must not have changed so significantly at the time the agreement is sought to be enforced that is would be unfair or unreasonable to enforce it. However, in Georgia, an agreement is not unconscionable just because it perpetuates the already existing disparity between the parties’ estates.
The first consideration is to decide what issues will be addressed in the prenuptial agreement. Alimony, homes, retirement accounts, investment accounts, business enterprises, confidentiality, duration of the agreement and the effect of children on the agreement are all typical provisions. Once the couple determines the issues, it will be clear what information needs to be disclosed to increase the chance that it will be enforced. The best practice is to make a full and complete disclosure of income, assets and liabilities. As prenuptial agreements are not filed with the court, the financial information disclosed remains confidential.
Both parties should have an attorney since having independent counsel will be extremely beneficial should the issue of enforceability arise at the time of divorce. An attorney experienced in drafting and enforcing prenuptial agreements also will help the client determine what issues should be addressed in the agreement.
One important issue to contemplate when negotiating a prenuptial agreement is what will happen to the marital residence in the event of divorce, particularly if one spouse owned the home before the marriage, but both spouses contributed to the monthly mortgage payments or improvements to the home during the marriage. To simplify matters, it is becoming increasingly more popular for the parties to agree that title to the property controls its distribution at divorce or death. Thus, if a spouse wants to maintain a home owned prior to the marriage, title should remain in the name of that spouse, even if the home is refinanced after the marriage. If a home is titled in the name of both spouses, the agreement can provide that the home be sold and that the net equity be divided 50-50 (or some other percentage), or even provide that each spouse has the option to buy out the other spouse's interest for an agreed upon amount.
Under that simplified “title” approach, careful record keeping is essential for property that is not titled, such as furniture, artwork or jewelry. The same theory would apply to retirement accounts, checking accounts, saving accounts and other investment accounts, such as mutual funds. The funds in a joint checking account could be split 50-50, but the funds in an individual checking account would belong to the spouse in whose name the account is titled. Retirement accounts are not held typically joint, so unless the parties intend for retirement accounts to be divided upon divorce, retirement accounts will be awarded to the title owner, regardless of funds contributed to the retirement account during the marriage. Cars should be titled in the name of only one spouse so that the driver of the vehicle will keep the vehicle at the time of divorce.
However, should one spouse wish to protect her premarital contribution to a home, business or any other asset, that too can be spelled out. Careful consideration should be given to what will happen to a privately held business owned by one of the spouses, particularly if the other spouse begins to work at the firm without acquiring any ownership interest in the business. If both spouses are contributing to the success of the business, the couple should consider whether alimony will be paid to the economically disadvantaged spouse and, if so, how much and for how long. Alternatively, a buy-out plan or any other fair and reasonable arrangement for the marital interest in the business can be resolved in the prenuptial agreement.
Under recent Georgia law, it appears that a substantial increase in one spouse's net worth, between the time of the marriage and the time enforcing the prenuptial, is not such a change of circumstances that would cause the agreement to be unenforceable. Accordingly, if the value of the premarital business increases dramatically and the other spouse is left under the prenuptial agreement with little or no interest from that increase in value, the agreement may still be enforced.
When entering a second marriage, a marriage to someone who has children from a prior marriage, or a marriage to someone who has a bitter former spouse, a carefully crafted prenuptial agreement can help protect both marital and non-marital assets from claims of the former spouse and stepchildren. It also can protect one's own children from a prior marriage from the claims of the surviving spouse. Prenuptial agreements should always be done in conjunction with estate planning. If one spouse dies while the couple is married, both spouses will probably want the disposition of their assets controlled by a Last Will and Testament rather than the prenuptial agreement.
Finally, keep in mind that the cost of a prenuptial agreement is far less expensive than a contested divorce.
