Do Prenuptial Agreements Lessen the Financial Risks of Marriage?

by David Montoya
Both parties should seek legal advice to prevent an unfair arrangement.

Both parties should seek legal advice to prevent an unfair arrangement.

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The prenuptial agreement, a legally binding contractual agreement between two people about to enter marriage, outlines the manner of asset distribution at divorce or death. This gives both parties more control over their financial circumstances, since the agreement has authority over pertinent state laws. Despite lessening financial risk through more control over asset distribution, prenuptial agreements have limitations. Contact an attorney for help negotiating and drafting a prenuptial agreement.

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Basic Elements

The laws controlling prenuptial agreement formation vary by state, but several baseline requirements exist. Typically, such agreements must be in writing and agreed upon by both parties voluntarily. Additionally, prenuptial agreements must be notarized, require both parties to provide full financial disclosure and cannot include unconscionable or unreasonable terms.

Invalid Agreements

A prenuptial agreement can only reduce financial risk if executed properly. Any defects involving the basic requirements may render the document invalid in family law court. Furthermore, wrongdoing can also invalidate the agreement. This includes fraud, coercion and misrepresentation of facts. If any defect occurs, the court has the authority to invalidate the specific terms containing the defect or the entire agreement itself. After invalidation, state law regains control over property distribution at death or divorce.

Non-Negotiable Issues

Prenuptial agreements cannot cover every financial matter. In fact, these agreements typically cannot contain terms specifying a spouse's right to child support, visitation or custody. The agreements also cannot contain any illegal terms, financial or otherwise.

Negotiable Issues

Despite several off-limits issues, prenuptial agreements cover a wide range of topics. Both parties can agree to terms covering assets acquired before the marriage, designate responsibility for debt brought into the marriage and waive rights to retirement plans. Prenuptial agreements also allow couples to determine which assets belong to each spouse, determine who pays for certain assets, such as the mortgage, and outline business management responsibilities if a business is brought into the marriage.

Who Needs A Prenuptial Agreement?

Several types of individuals benefit from prenuptial agreements. Individuals with children from a previous marriage, for example, may want assets to pass to them that would otherwise pass to the spouse under state law. Those with valuable assets, or high earning ability, may also consider such agreements to limit spousal support payments, thereby preventing one spouse from making future claims on the other spouse's wealth. Business owners can also draft prenuptial provisions to ensure that a spouse does not retain ownership in the business in case of divorce or death. A person about to marry someone with significant debt can also draft an agreement to ensure no obligation to pay for their future spouse's debts.