Prenuptial Agreement

Don’t prenups indicate a lack of trust? Even though one in ten couples enter into some kind of prenuptial or premarital agreement (“prenups”), many fiancés remain reluctant to consider a prenup because they believe it seems unromantic and indicates a lack of trust. There are several reasons why this reluctance is misplaced.

You can gain control over your future financial situation

If you don’t sign a prenup, your marriage will be governed by a complex set of laws. In California, these laws are the California Family Code and Probate Code. The choice is between a set of rules negotiated by you and your fiancé, or those imposed by the State, over which you will have no control. And remember, prenups can be drafted to protect both spouses, not just a wealthy spouse.

You’ll learn how to communicate with your partner about money issues

Far from undermining trust, the process of drafting and negotiating a prenuptial agreement may, in fact, strengthen your relationship. The process requires a full disclosure of your financial situation and involves an open and honest discussion about how you will handle your money and plan your future. One psychiatrist states: “Openly agreed-upon rules are likely to be a better foundation for growth than are those latent rules that surface and prove to be either disagreeable or downright outrageous (‘What do you mean, you don’t do dishes?’)”

Also, prenups prepare you for marriage. Sooner or later you and your sweetheart are going to have to talk about money. Why not do it now and save potential heartache and trouble later on? After your honeymoon is over, you will soon find out that earning and spending money is an integral part of your marriage.

Prenups can provide peace of mind

It just makes sense. No one plans on their house burning down, ending up in a nursing home, or suffering a disability, but they still take out insurance. As Dr. Ruth says: “We live in such a litigious society. Nobody knows what life brings. Hopefully we will never need it. What’s the big deal? Let’s do it and give it to the attorneys…for the new millennium, a prenup is part of a mature relationship, based on love, mutual trust and optimism.”

What are the limitations of prenups?

California prenups cannot regulate child custody or child support – these are areas that are left to the court’s authority based on what is in the child’s best interests and, at least in part on the California child support guidelines. Child support is a child’s right, not a parents, so parents cannot contract away a child’s right to support.

For information on how child custody and support are determined in California, see Child Custody in California: Best Interests of the Child, by Susan Bishop and Child Support in California, by Teresa Wall-Cyb.

 Can we make agreements about spousal support?

California law allows you to waive or limit spousal support as long as the provision is not deemed unconscionable (unreasonably unfair). It’s hard to know exactly what a court will consider “unconscionable,” but, for example, let’s say a prenup contains a complete prohibition on spousal support, and one spouse to the contract has substantially more assets and income. If that spouse tries to enforce the spousal support waiver after a long-term marriage, and the provision would leave the other spouse destitute, a judge may think twice before upholding that agreement.

If there is a significant disparity in the amount of wealth between the parties, instead of completely waiving spousal support, one alternative is to place limits on the amount and duration of support. The amount and duration can be based on a formula which takes into account the income of the parties and the duration of the marriage.

How do prenups affect community property?

In the absence of a prenup, California community property law provides that all community property (any property acquired during the marriage that is not a gift or an inheritance) is divided equally upon divorce. It usually doesn’t matter if the property is in one party’s name – if it is acquired during marriage, with some exceptions, it is community property.

Property owned before marriage (or acquired by gift or inheritance) is considered “separate property” – which means it belongs exclusively to the spouse that acquired it and doesn’t fall under the 50/50 community property rule. However, efforts to improve, enhance, or contribute to separate property can create a community property interest in that separate property. This is where a prenup can come into play. A prenup can provide that your spouse never acquires a community interest in your separate property.

If you don’t have a prenup, the determination of what is separate and what is community property often requires the use of forensic accountants that can trace dates of purchase, purchase prices, contributions, and increases or decreases in value over time. In high-asset cases, the accounting and legal fees over these matters can run into the hundreds of thousands, or even millions, of dollars.

Furthermore, earnings are community property. If you married without a prenup and earned $50,000,000 during your marriage, that entire sum would be community property. That means your spouse would own one-half of that property and anything purchased with that property.

A prenup can regulate all aspects of how separate and community property assets and liabilities are treated. In the case of a financially independent couple with their own resources, a prenup can provide that all income, assets and debts acquired or incurred remain separate property. On the other hand, a couple might agree that all property accumulated during the marriage remain community property but that certain property brought into the marriage, such as family businesses or funds, always remains separate. Since each situation is different, a prenup should be carefully tailored to meet the circumstances of each couple.

The 7 days rule

Although prenup’s may not limit child support, spousal support may be limited if certain conditions are met. One of the conditions for limiting spousal support in a prenup is the “7-Day Rule,” which requires that prenup’s be presented at least seven calendar days in advance of signing.

California Family Code §1615(a)(1) states that a prenup not enforceable if the party did not execute the agreement voluntarily. §1615(c)(2) states that a prenup was not executed voluntarily unless the court finds that the party had not less than seven calendar days between the time that party was first presented with the agreement and advised to seek independent legal counsel and the time the agreement was signed.

The California Court of Appeal recently decided a case interpreting the “7-Day Rule” for prenup’s. In the case In re Marriage of Cadwell-Faso & Faso, the Court of Appeal held that the seven-day waiting period mandated by FC §1615(c)(2) does not apply to parties who are represented by counsel.

In Faso, both parties wanted a prenup. In December 2005, Husband’s attorney drafted the prenup. Husband provided it to Wife and advised her to obtain her own attorney, which she did. Wife requested her attorney prepare an Addendum to the prenup providing money to her in the event of divorce. Husband rejected four different versions of the Addendum. On May 17, 2006, Wife called off the wedding because they could not agree to terms for the prenup/Addendum. The parties subsequently spoke, agreed to terms, and Wife’s attorney prepared a new version of the Addendum. The revised Addendum was faxed to Husband on May 19, 2006 and forwarded to his attorney. The parties signed both the prenup and the Addendum. Prior to signing, Husband was advised by his attorney that the Addendum was not enforceable because it was not being signed seven days after he received it (it was being signed 6 days after). Wife was not told this information. Wife signed the prenup/Addendum and married Husband believing the Addendum was valid. Husband signed the prenup/Addendum believing it was invalid.

Although the trial court condemned Husband’s behavior finding that he “shrewdly” maneuvered Wife to the alter “in a manner that frustrated her desire to reach a mutually acceptable agreement,” it ruled that the Addendum was unenforceable due to the seven day waiting period. The fifth version of the Addendum was not presented to Husband seven days in advance of signing.

Wife appealed and the Court of Appeal reversed, holding that the Addendum was enforceable and that the seven day waiting period only applies to unrepresented parties.

How Does a Spouse’s Death Affect Community Property?

In community property states, a spouse is free to transfer all of their separate property through a will in the event of his or her death. However, a spouse may only transfer one-half of the marriage’s community property by will. The surviving spouse still owns the other half.

If the spouse has not left a will, property is inherited according to the laws of intestate succession. The deceased spouse’s half of the community property will pass to the surviving spouse. The deceased spouse’s separate property will pass:

  • Entirely to the surviving spouse if there are no surviving children, grandchildren, or immediate family members.
  • Half to the surviving spouse, and half to a single surviving child or any other immediate family members.
  • One-third to the surviving spouse, and two-thirds to multiple surviving children and/or grandchildren.

Should I hire an attorney?

When Steven Spielberg and actress Amy Irving divorced after four years, she argued that their prenup, which was written on the back of a napkin, was not enforceable because she was not represented by an attorney. The judge agreed and she received a $100 million settlement. When Spielberg married Kate Capshaw, both were represented by attorneys.

The moral of the story is both parties to a prenup should be represented by their own attorneys. If you have questions about a premarital agreement, contact an experienced family law attorney for help.