Congratulations, you’re engaged! That blissful time consumed by planning the details of your wedding, booking the honeymoon, and daydreaming about the perfect house. One thing you may have overlooked is having an open and honest conversation with your soon-to-be spouse about how you intend to manage your finances as a new family.
If you’ve shrugged off the idea of getting a prenuptial agreement, think again. While a prenup may sound unromantic, for the vast majority of marriages they are invaluable. Why? Because a prenup forces couples to talk openly about how they intend to manage their respective income, debt, assets, and expenses. And since the number one cause for divorce is money, the success of your marriage largely depends on how well you communicate the money management roles in your marriage.
If you or your fiancé own a business, own real estate, intend to be a stay-at-home parent, have received or expect to receive an inheritance in the future, have children from a previous relationship, have accumulated a significant amount of pre-marital debt, or want to leave assets to other individuals besides your spouse, a prenuptial agreement is right for you.
You own Separate Property Real Estate
If you have acquired real estate prior to marriage, that is considered your separate property. However, if you fail to specify how you intend to manage, pay for, and improve those assets, you may end up commingling with community funds, and in some cases lose or diminish the separate property characterization.
Take for example that first apartment that you bought and eventually turned into a rental property. During the marriage, you continued making mortgage payments on the property with income from your salary. Absent a prenuptial agreement in place, upon divorce, the community has a claim of ownership interest in the rental property, because community funds were used to pay down the principal mortgage, and thereby the community is entitled to the increased value of the home.
You Have a Separate Property Businesses
If you own a separate business, the stakes are especially high because in the event of a divorce, absent a prenup, the ownership and control over the business may become a contentious dispute. A prenup can ensure that in the event of a divorce, a business does not suffer as former spouses struggle over control. Absent a prenuptial agreement specifying ownership interest of a separate business, the business owner spouse may owe fiduciary duties to the other spouse, who essentially becomes “a silent partner.”
Furthermore, in the event of a divorce, the business owner spouse may find his or her spouse not only rendering partial ownership, but partial control over the business and its operations. Therefore, a prenuptial agreement can preserve management autonomy and ownership stake in a family-owned business.
You Anticipate One Spouse to Be a Stay-At-Home Parent
If one spouse intends to leave the workforce after marriage to stay-home and raise the children, you should strongly consider negotiating a prenuptial agreement. A househusband or a housewife who opts to stay at home and focus on the family, will ultimately forfeit years of earnings and job market experience. The stay-at-home parent will likely be heavily dependent on the wage-earning spouse, and a prenuptial agreement can determine what happens if the couple divorces and one of the spouses has no means of support.
One thing a prenuptial agreement cannot affect is the amount of future child support, since any limitation on child support is against public policy.
You’re Expecting an Inheritance
Although an inheritance is considered separate property regardless of when it’s acquired, like real estate acquisitions, inheritance proceeds can become murky if they are comingled with community property funds. A prenuptial agreement can make clear that those purchases acquired with inheritance funds also remain the separate property of the spouse.
You Have Children from a Prior Marriage
If either you or your fiancé have children from a prior marriage, a prenuptial agreement is strongly advised, because it can specify which assets will go to your children in the event of death or divorce. This method of protecting their future inheritance is good to spell out from the get-go, so that children understand that they are not being cut out of family assets.
In addition, a prenup can address how the payment of a prior child-support obligation will be made; specifically, whether the community will be reimbursed for any child support payments made with community funds in the event of divorce. Remember, absent a prenuptial agreement, your income is community property by California’s default community property laws. So, if you fail to otherwise distinguish the characterization of income during marriage, and how certain obligations are to be paid, you are operating under California’s default community property presumption.
You’ve Accumulated A Substantial Debt
For one reason or another, often times one individual may accumulate a large debt prior to marriage. This can be debt for medical expenses, caring for elderly parents, student loans, or general credit card debt. A prenuptial agreement can delineate how the payment of that debt will be made during the marriage and in the event of divorce. Moreover, this cause alone is good reason to establish the roles of money managements and each spending habits for each spouse during the marriage. A prenuptial agreement can specify how day-to-day expenses will be paid, and what kind of gifts are normal for the marriage.
You Are Preparing an Estate Plan
A prenuptial agreement can state how community and separate property assets will be divided in the event of divorce and death. In fact, a proper prenuptial agreement will compliment an individual’s trust and will documents (also known as an estate plan.) Sometimes one individual may opt to provide for their spouse with other resources, such as life insurance policies, in lieu of providing for them in their will. A prenuptial agreement will ensure that this was the deceased spouse’s intent, and that the surviving spouse is not an omitted spouse. A prenuptial agreement can also instruct one spouse to specifically create a will with instructions on the disposition of community and separate property assets for the surviving spouse.
What do you do if you fit the descriptions above but you’re already married? Consider creating a postnuptial agreement, which is similar to a prenuptial agreement except you sign the document after the wedding.
Of course,there are a number of other scenarios that a prenup can address, and consulting a San Diego prenuptial agreement attorney is advised.
Alana Braunstein is a San Diego family law and prenuptial agreement attorney. She regularly advises small business owners and entrepreneurs on drafting and neg
otiating prenuptial agreements. This article is intended for information purposes only, and is not intended to be relied on for legal advice.