What are prenup and postnup agreements?
Prenuptial (“prenup”) and postnuptial (“postnup”) agreements are financial contracts that proactively delineate how marital property will be divided and what financial responsibilities will be assumed by each spouse in the event of divorce. The main difference between the two is when they are executed: prenups are enacted before marriage (thus called “premarital agreements”), and postnups are enacted during marriage.
Are prenup and postnup agreements legal in California?
Yes. The 1983 Uniform Premarital Agreement Act (UPAA) was adopted by California in 1986, with some provisions later updated in 2012. In 2005, California passed the Family Law Code 1500. Establishing the rights for spouses to create postnup agreements if no prenup was in place or if it needed to be altered due to changing circumstances. Both the UPAA and Family Law Code 1500 establish the legality of these agreements and provide for their enforceability when they meet specific criteria.
What criteria must be met to make prenups and postnups enforceable?
- They must be in writing, and be clear and unambiguous;
- It must be voluntary. Each party involved must be mentally capable of making their own decisions, and any indication of agreement by coercion or under duress will nullify the agreement;
- They must include full disclosure of all assets and liabilities by each spouse;
- The agreement must not be “unconscionable” or extremely and unfairly favor one spouse over the other;
- Terms must not violate applicable state or federal law;
- Each spouse must have had independent legal counsel;
- Signatures must be notarized.
A postnup agreement must also be approved by a court before it becomes valid.
The point about legal counsel needs some elaboration. California law includes a “7 Day Rule,” meaning that final agreements must be presented to each spouse at least seven days before they sign it. The purpose of that rule is to give them time to have it reviewed by an attorney. However, any agreement in which either spouse lacked appropriate legal representation has a higher risk of the agreement being voided later by a judge.
When would a prenup or postnup agreement be advisable?
The reality that many marriages do not survive justifies the desire for many engaged or married couples to ensure that each spouse’s financial interests are protected upon divorce.
Some specific situations that may make prenup or postnup agreements more advisable might be:
- Children from a previous marriage. Assets from the original marriage that produced the children can remain separate property of that spouse, ensuring that those children are able to retain what is rightfully theirs.
- Significant debts acquired before marriage. While these are usually separate property, some circumstances may cause them to become community property. A prenup or postnup can ensure that they remain the responsibility of the spouse who acquired them.
- The expectation of significant inheritance. Similar to the debts mentioned above, an inheritance received by one spouse typically remains their separate property but may become community property in some cases. To ensure that these inheritances (including heirlooms that may not have monetary value but are important to the family heritage) remain in the bloodline, they need to remain separate property.
- Ownership or partnership in a business. Many businesses now require prenups to protect the company from the financial or reputational harm that may come from a disgruntled ex-spouse who suddenly receives a percentage of their former partner’s stake in that business.
In summary, prenup and postnup agreements can significantly reduce the time and expense of divorce litigation, and make the process much less contentious by proactively assigning specific financial responsibilities to each spouse.
When should a prenup or postnup be created?
No laws dictate exactly when these agreements should be made. Generally, a prenup agreement should be made well ahead of the wedding. If it is signed too close to the wedding, an argument can be made that it was not signed free of duress or emotional stress (see the 7 Day Rule above). Such an agreement has a high risk of being voided by a judge if it violates the 7 Day Rule.
A postnuptial agreement should not be created once a decision to separate or divorce has already been made or is likely to be made. In addition to the question of signing under duress, a judge may interpret that as an attempt to hide assets.
What can be included in a prenup or postnup?
The primary function of prenup and postnup agreements is to establish who owns what. Examples of items that should be included would be:
- Personal assets
- Bank and investment accounts;
- Retirement accounts;
- Real estate, including primary homes, secondary or vacation homes, rental properties;
- Cars, boats or airplanes;
- Personal valuables;
- Personal liabilities
- Mortgages or other bank loans;
- Student loans;
- Credit card debts
- Business assets and liabilities that are owned by one of the spouses
There is no limitation to the scope of property to be included, whether it is acquired before marriage or after marriage, or is real or merely anticipated. It is important, though, that no attempt be made to purposefully hide known assets or liabilities in order to deceive the other spouse. Such non-disclosure can render the agreement void.
Other items in a prenup or postnup may include:
- Spousal support (formerly known as alimony). Terms of the agreement will supersede normal formulas, unless, as mentioned above, those terms would be considered “unconscionable.” An example of unconscionability would be if a spouse signs an agreement that opts them out of receiving spousal support, but that would result in their dependency on government assistance while the other spouse would live comfortably.
- Child support. An agreement may not artificially reduce or eliminate child support that may otherwise be mandated by law. Any enhanced forms of child support – support that would be beyond what the law requires – are permissible (for example, provisions to pay for college education or to continue support for an adult child).
- Inheritance rights. One spouse may request that the other spouse waive their right to inherit portions of their personal estate to ensure it goes directly to their children.
Prenup and postnup agreements may also include non-disclosure agreements, non-competition clauses, and social media clauses. These are generally designed to protect the intellectual property and reputation of a spouse and his or her business.
What cannot be included in a prenup or postnup?
- Any provision that incentivizes divorce. An example would be a spouse who comes from modest means signing an agreement with their significantly wealthier spouse that results in a major part of that wealth being transferred to them if they divorced.
- “Fault clauses” that may seek to punish one spouse if they are unfaithful. California is a “no-fault” divorce state, and infidelity is not a crime. Those provisions would not be enforceable.
- Child support or child custody clauses that would violate the best interests of the child or impact the visitation rights of the parent.
When a judge reviews a prenuptial or postnuptial agreement, they are looking at the document through the lens of whether the end results are more or less fair and within the bounds of applicable law.
Create your prenuptial or postnuptial agreement.
The family law firm of Hoover Krepelka maintains an experienced team of attorneys who can guide you through all the steps of creating your legally sound prenup or postnup agreement. Contact us today for a consultation.