What Is A Prenuptial Agreement?
What is a prenuptial agreement in general and why are they subject to special requirements and protections in California marriages? They were called "marriage settlements" for a long time, or "antenuptial" agreements, but prenup is the in term nowadays. As noted in Deutsch v. Deutsch, 187 CA2d 539 (Cal. App. 2 Dist. 1945), these agreements "are essentially contracts for the separation of the parties’ property, made at a period prior to the ceremony of their marriage."
The California Family Code §1612(a) provides a useful listing of what can be dealt with in a prenuptial agreement:
(a) A premarital agreement is not enforceable if the party against whom enforcement is sought proves that:
- (1) That party was not provided a fair and reasonable disclosure of the property or financial obligations of the other party;
- (2) That party did not voluntarily execute the agreement;
- (3) That party was not represented by independent legal counsel, or that the representation by independent legal counsel of that party did not satisfy the requirements of paragraph (2);
- (4) That party was not afforded the opportunity to consult with independent legal counsel of that party’s choice prior to execution of the agreement; or
- (5) That the design and terms of the agreement were unconscionable when the agreement was executed and, taking into account the facts known to that party or reasonably should have been known to that party, the provisions of the agreement were not within that party’s reasonable expectations.
"Unconscionability" comes up a lot, almost like justice and location with the United States Supreme Court. In the prenupt world, as in the land of the lawyers, you will generally find that that which is "unconscionable" is not going to be enforced by the courts, but that there is no set rule of what falls into the category .
Furthermore, we can see from Cal Fam Code §1612(b) that the provisions of a prenuptial agreement may not adversely affect the right of a child to support or support of a child so that the child would not otherwise be entitled to support from both parents. Period. The child’s interest is paramount. The agreement cannot violate public policy in this area.
Also, in California, a prenuptial agreement may not include a provision about:
(1) The modification or elimination of spousal support except that the court will override the prenuptial agreement where the provision would be unconscionable at the time of spousal support order or judgment;
(2) The ownership rights in any of the following:
(A) Marital residence;
(B) Other real property awarded to a spouse;
(C) Household items awarded to a spouse;
(D) Vehicles and bank accounts awarded to a spouse;
(E) Award to a spouse of amounts required to be paid for the benefit of a spouse or children living with that spouse by contract or statutory order, such as insurance and tax payments;
(F) Retirement allowance and pension funds; or
(G) Interests in privately held businesses
- (3) The revocation of a will or trust;
- (4) The requirement of a specific disposition of non-probate transfers;
- (5) The creation, revocation, waiver, or disposition of a right to any current or future benefits under the will or trust of the other party;
- (6) Life insurance beneficiary designations; or
- (7) Health care decisions.
The last two, relating to wills and trusts, beneficiary designations and health care decisions are often dealt with in other documents, or added to the bottom of the prenuptial agreement.
Why You Need A Prenuptial Agreement In California
Entering into a marriage is an incredibly important milestone, however, it is a misconception that a prenuptial agreement is only for those who are expecting divorce—this is an outdated perspective. The idea behind a prenuptial agreement, like a trust or will, is the implementation of a precautionary step. Crafting a prenuptial agreement before marriage can help possibly avoid misunderstandings and disputes during the marriage, which may lead to a much more difficult divorce process. If a divorce does occur, a prenuptial agreement could also facilitate an easier, less stressful divorce process.
The practice of entering into premarital contracts or ante nuptial agreements has been widely adopted by not only the wealthy, but also those who are merely comfortable. Due to the high cost of living in California and its cities like Los Angeles, San Diego, San Francisco and Oakland, many individuals of average means have considered signing or have already signed a prenuptial agreement. A California prenuptial agreement could be particularly beneficial for you and your spouse-to-be because a prenuptial agreement generally protects your premarital income and property from disclosures and claims by your spouse in the event of a bankruptcy, or judgments against your spouse by a creditor. If you are a business owner, this may also come into play if your spouse is a creditor or has interest in another business that might be intertwined with your business. Of course, there are other ways a prenup can be beneficial, such as avoiding a court procedure for property division in the event of a divorce, or debts that belong to one spouse. A prenuptial agreement defines the rights and duties of each party with respect to the other during marriage, and can help keep the spouse’s separate property and income safe from being part of a community property estate.
California Prenuptial Agreements: Legal Requirements
In the context of prenuptial agreements in California, the required legal elements that render a marital contract enforceable are 1) full disclosure, 2) voluntary entry and 3) in writing. The fact that no prescription exists for how much full financial disclosure is required in a prenuptial agreement in California does not negate the fact that full and fair disclosure is one of the three required components. In other words, full disclosure is one of the "three major players" that either leads to the prenuptial agreement being enforced or it being deemed invalid.
Full Financial Disclosure with Independent Legal Representation Relatively speaking, a full and fair disclosure of all assets and liabilities is necessary to establish a prenuptial agreement that is freely and fairly arrived at. In the context of obtaining full financial disclosure, one of the easier ways to dissect the restrictions regarding asset coverage is through a thorough preparation process. Know the assets and liabilities of both prospective spouses so that the financial disclosures are full and complete. In fact, in a presumed community property state such as California, a full and fair disclosure of the assets and debts is an absolute must if a prenuptial agreement is to be valid and enforceable.
There will always be a circumstance where a prospective spouse (i.e., a fiancée, to whom one is engaged), will not know the full extent of the other prospective spouse’s income and assets. Therefore, to sufficiently comply with a full disclosure requirement for a prenuptial agreement, be sure that your attorney knows as much about the prospective spouse’s assets and liabilities as possible. Of course, this is in the context of the fact that the prospective spouse does not have direct access to financial records for the other prospective spouse. (Certain concepts of presumptive community property in California, e.g., all earnings acquired during marriage, rewards and settlements of lost earnings, etc., will apply regardless of whether one knows the full extent of assets and debts at time of execution of the prenuptial agreement). In other words, know your financial situation, know your spouse’s financial situation and ensure that sufficient disclosure between you and your spouse occurs.
While full and fair financial disclosures may be difficult to achieve (i.e., because of resistance by a prospective spouse), the disclosure requirement must be met. So, if one spouse will not partake of full disclosure, a careful consideration of entering a prenuptial agreement may be warranted.
Sample California Prenuptial Agreement Provisions
A typical prenuptial agreement in California may contain some or all of the following provisions:
Separate Property
These clauses describe what is considered separate property, typically defining all assets acquired prior to the marriage date as separate property. The language will also address the treatment of premarital debts, specifying the responsibility for those debts as well as any related interest that may have accrued.
Community and Marital Property
Clauses in this section describe property that will be treated as community property. The parties can specify the types of property covered by this definition, which may include real estate, trusts, stocks, bonds, brokerage accounts, retirement accounts, pensions, income from separate property, and increased value to the separate estate due to community labor and effort.
Business Interests and Professional Practices
These clauses describe what will happen to business interests or professional practices, including how to divide businesses acquired during the marriage. This is particularly important if one or both spouses own a business or practice prior to the marriage and there is potential for valuable appreciation.
Establishment of Trusts in lieu of Spousal Support
Any trusts established in lieu of spousal support should be described in detail in the clause outlining the spousal support provisions.
Spousal Support Waiver
While not required in California, many prenuptial agreements will contain a waiver of spousal support or alimony. However, if either a prenuptial or a postnuptial agreement contains a valid waiver of spousal support, the court will generally enforce the waiver, notwithstanding any changes in circumstances.
Division of Property Upon Death or Divorce Without Spousal Waiver
If spousal support is not waived, the parties must include a discussion of the property division should they divorce. The language can be as simple as noting that upon divorce, the court will divide the community property according to the Family Code.
Estate Plan Provisions
It is advisable for the parties to have either existing wills or a clause in the prenuptial agreement that states that each spouse will change their wills or prepare new wills within a certain time period after the marriage. This is essential to ensure that any property divided at the time of divorce is actually in the estate of the transferor spouse at the time of his or her death. Without this, the division of property may have been entirely valid during the divorce, but invalid in terms of effecting transfers upon the death of one spouse. Therefore, intending to have enforceable rights upon death, the spouses should be sure to follow through with updating all estate planning.
How To Form A Prenuptial Agreement In California
When drafting a prenuptial agreement, there are several important steps that should be followed. While this is not an exhaustive list, anyone considering such a contract may wish to take heed.
Consult with Both Parties
Both parties to the marriage should consult with their own attorneys before entering into the agreement. The attorney isn’t necessary for the completion of the document, but each person should have their legal counsel review the final draft and provide their opinion on it.
Make the Agreement Fair
One of the most important aspects of a valid prenuptial agreement is that it should be fair. If the contract terminology is too one-sided in favor of one person, it will likely be seen as not being fair. This might make it more difficult or even impossible to enforce.
Negotiate Terms
The primary purpose of the contract is to clearly establish the property rights and division for each spouse if they should pass away or divorce. Things like child support, custody, or visitation can’t be outlined at this time since they are subject to change.
Write the Agreement
The written agreement should be as clear and straightforward as possible. An agreement that is hard to understand may be challenged and overturned by the court. It’s also important to make sure that all of the agreed-upon terms are included in the final version to avoid any dispute about what was agreed to later.
Disclose All Assets
Each person should disclose their assets and property to the other to ensure that everything is being addressed in the agreement. Secrets and omissions could render the agreement invalid.
Read the Contract Carefully
Before signing the agreement, each person should carefully read the document. Each should also consider having the final draft reviewed by their attorney.
Execute the Agreement
The final step in the prenuptial process is executing the agreement. Once both parties have signed and witnessed it according to state law, the agreement is effective immediately upon marriage.
While prenuptial agreements can benefit many couples entering into a marriage, they aren’t appropriate for all. Practicing family law attorneys can help to determine if they are appropriate in your case.
Sample Clauses And Language In A California Prenuptial Agreement
Both parties hereto covenant and agree that, at any time after the execution of this agreement, upon the other joint party’s written request, the party shall execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, and shall cause to be filed and/or recorded in the proper office in the appropriate county, such further documents as may be necessary or appropriate to carry out any of the provisions herein contained to their full extent and nature and to vest in the other party all right, title and interest the other party may have purchased or acquired under the terms hereof, it being the express intent and purpose of both parties hereto that this Agreement shall become their irrevocable deed of gift to the calculated advantage of the other party.
For purposes of this agreement, [] is the "date of marriage" and "separation" means the earlier of any one (1) year from the date of the marriage, or the dissolution of status by judgment filed with the court.
Each of the parties hereto shall and does hereby waive, release and relinquish any and all rights and claims, both of a civil and of a criminal nature, against the other party, and the other party’s spouse, heirs, executors, administrators, assigns, successors and administrators, in the following respects: That each party releases and waives those rights of inheritance which that party might otherwise have acquired in the other party’s estate if the marriage had been fully consummated and there is and there remains throughout the term of the marriage, a confidential relationship between the parties whereby the other party holds information, secrets and knowledge relating to his or her estate, assets, debts, property, income, receipts and expenditures, and further, the parties are working together in their mutual and common interest in their respective endeavours in trust in order to develop their own respective estates .
In the event of separation, the parties shall negotiate in good faith and shall use their best efforts to reach an amicable agreement regarding distribution of their assets. In the event of inability to reach an amicable agreement, any controversy arising out of this Agreement shall be submitted to the American Arbitration Association pursuant to the rules for Consumer Related Disputes.
The parties also agree to meet annually and enter into a qualified domestic relations order transferring a defined amount into a qualified trust.
The parties further acknowledge that any attorney fees incurred to enforce or defend this Agreement may not be recoverable in a court proceeding, and therefore agree that the costs incurred to enforce and defend this Agreement and attorney fees incurred by the parties in any litigation relating to this Agreement shall be paid by the party incurring such fees, but nothing in this provision shall preclude recovery of any fees of counsel as an "additional proceeding" incident to the divorce or dissolution of status. All issues respecting the terms and provisions of this Agreement including, without limitation, the rights and obligations of either party hereto, shall be fully enforceable, both during the lifetime of the parties, and in accordance with the terms hereof after the death of either party regardless of the circumstances surrounding said death.
Notwithstanding any law to the contrary, the parties agree that this Agreement shall be governed by and construed in accordance with the laws of the State of California.
Obstacles To Overcome…And Solutions
While prenuptial agreements are a great way for couples in different economic situations to protect their assets, they are not without challenges. One of the most common challenges in negotiating a prenuptial agreement is coming to an understanding on all aspects of the agreement, and having both parties leave the meeting feeling comfortable with what was discussed and agreed upon. The following are some of the most common challenges when discussing prenuptial agreements.
Research the needs of both parties The best way to overcome an uncomfortable negotiation is to consider the needs of both parties. Instead of approaching the agreement with the intent to protect only your assets, quickly express your intent to protect both parties’ assets. Identifying what you can do to help your partner’s needs will help her avoid feeling as if she has been backed into a corner.
Be upfront with your concerns Do not assume that your partner has considered the impact a marriage could have on his own assets. He may be considering what the marriage will do for your assets, and he may have lingering fears about a previous divorce. Talk about your concerns openly and candidly so that a clear picture can be formed on both sides. Both parties should understand the potential pitfalls of marriage.
You don’t know what you don’t know It is very possible that you are unfamiliar with employment and retirement benefits, how they are distributed, and what you have available to you. This is especially true if you both come from families where a prenuptial agreement was never considered. Research the marital rights against working and nonworking spouses. Familiarize yourself with your spouse’s lifestyle. When you understand the expectations of your spouse, you can begin negotiating from a position of fairness.
Be willing to compromise if you want your partner to be equally willing to compromise It is a natural reaction to become defensive when faced with the request to sign a prenuptial agreement. Rather than being defensive and worried that your assets will be stripped from you, be willing to listen to the needs of your spouse. He may be willing to provide you with more than you ever anticipated having.
Now that you are reading this article, you probably realize that the majority of your questions and concerns revolve around your partner. It is actually in your best interest to put yourself in the shoes of your partner for a moment and learn what you can do to make the experience less likely to give him buyer’s remorse.
To overcome some of these challenges, it is best if an experienced family law attorney is used to help guide you through the process.
How A Lawyer Can Help With A Prenuptial Agreement
Having legal counsel review a prenuptial agreement is not only important, but I would classify it as absolutely necessary.
First and foremost, the prenuptial agreement must be enforceable. In California, we only need to look to the famous case of Marriage of Pendleton & Fireman. That case provides one of many examples of when a prenuptial agreement is deemed unenforceable.
This agreement, like all other contracts, is subject to modification by the parties. The terms can be changed if both parties agree to the changes to the agreement. It is important to have legal counsel so that the agreement is drafted in a way that is enforceable before the court if the agreement is ever challenged.
Second, a skilled attorney has the experience to offer guidance on what provisions should or should not be in the agreement. A legal professional would know to explain the terms and make sure every party understands them. They must not go into a marriage without knowing exactly what they are signing and the rights that they are waiving.
Third, having an experienced lawyer draft the agreement or review the agreement ensures no unnecessary terms are included that could make the agreement unenforceable. It is really about careful drafting and preparation by your attorney so that the agreement would withstand the test of time.
Amending And Updating The Prenuptial Agreement
While prenuptial agreements are made in preparation for marriage, or more commonly, the second marriage and later marriages, they can and should be amended down the road as life happens. A good prenuptial agreement is written to allow the parties to amend the agreement in a method that they agree upon. Often an "amendment" or "ratification" simply restates the terms of the original agreement along with a new date. The restated agreement often specifies that the restatement is intended to operate as an amendment.
Clearly, as parties age, their circumstances change and needs may change as well . The issue with a "standard" agreement, such as the default agreement that is created by the California Family Code if the parties do not have an agreement prior to marriage, is that it is a lengthy and overly burdensome process to amend such an agreement. In addition, a standard form agreement is more likely to lead to subsequent litigation if the agreement is challenged because it is not custom tailored to the parties’ situation. Practical ideas to modify the agreement include:
The method to modify a premarital agreement is set forth in California Family Code section 1614. This code section simply requires that the modification be made in writing and signed by the parties.