The Benefits and Limitations of Prenup Agreements

You’ve decided to get married, and you’re considering a prenuptial agreement. Congratulations! The idea of sharing your life with someone is certainly something to celebrate. Before you sign on the dotted line, however, consider that there are limitations and benefits to entering into such an agreement.

Prenuptial agreements, also referred to as “prenups,” are generally made between spouses before their marriage as a way for them to clarify property ownership should they separate or divorce.

Prenuptial agreements do not come without controversy. Some view them as archaic and reflective of an unequal balance of power between men and women. Even today, some people view them as an attempt by one party (typically the wealthier party) to take advantage of the other.

Regardless of how you feel about them, prenuptial agreements are common, and couples entering into marriage must know their rights if they decide to divorce in the future.

Benefits of a Prenup Agreement

The most obvious benefit of a prenuptial agreement is its protection for your property and other financial interests in case of divorce or breakup. For example, if you own a business your partner isn’t involved with, you could protect that business interest by having it listed as separate property in the event of separation.

Prenups can also deal with spousal support (alimony), child support, custody, and visitation rights. Typically, these issues are decided at the time of separation.

But since they can be potentially complicated and lead to hard feelings about money matters, especially if one person feels the other gets more than they deserve, it’s often helpful to agree upon them before marriage. You might even wish to include provisions dealing with the division of property during the marriage or in the event of your death.

Keep in mind, though, that a will and prenuptial agreement are different. A will becomes effective upon your death. A prenup might not become effective unless there is a divorce, separation, or breakdown of the marriage relationship.

The Limitations of a Prenuptial Agreement

Several limitations or provisions will likely cause a prenuptial agreement to be ruled invalid if they were challenged in court:

1. Sudden “Proposal”

Courts have rejected prenups where there was no significant time for negotiation and consideration by both parties before signing. In most states, courts view this as fraud or coercion under certain circumstances. A provision stating that either party has been counseled by an attorney on the agreement can invalidate this claim.

2. Lack of Full Disclosure

Courts have invalidated prenuptial agreements where one party did not fully disclose all assets when the agreement was being negotiated and signed by both parties.

3. Duress or Undue Influence

If it can be shown that there was some form of coercion, pressure, or influence present when signing the agreement, a court can rule it to be invalid under these circumstances.

4. Unconscionable Agreements (Gross Disparity in Value)

Prenuptial agreements will likely be held unconscionable (hence, invalid) if they do not fall within certain guidelines set forth by state law, including gross disparity in the value of assets. For example, a prenuptial agreement leaves the spouse with little means to support themselves should the marriage end. It can be considered unconscionable in some states.

5. Fraudulent Conveyance (Transference of Assets)

If it is determined that a significant portion of one party’s wealth was transferred to another party before or during the negotiation and signing of the agreement, the agreement will likely be ruled invalid by a court if challenged. This is often referred to as “fraudulent conveyance.”

6. No Independent Counsel (Attorney)

If no attorney was present when either party signed the prenuptial agreement, there is a chance that it could be ruled invalid because neither party received legal advice before signing.

7. Ambiguity

If courts cannot determine the exact intent of the agreement, or they see that it is not clearly defined in some way, then it can be deemed invalid by a court if challenged. This can occur due to poorly drafted language or a lack of specific requirements (as mentioned previously).

8. A Lack of Capacity (Age, Mental State)

If one party did not have capacity at the time of signing because they were underage or did not have the mental capacity to understand what they were doing, the prenuptial agreement would likely be ruled invalid by a court if challenged under these circumstances.

9. Improper Venue (Location for Signing)

Courts generally require that prenuptial agreements be signed in the state where both parties currently reside or at a location reasonably close to their current place of residence. Therefore, if an agreement is signed in another state where neither party resides, a court can deem it invalid if challenged under these circumstances.

It is important to know your rights before entering into marriage. If you are considering marriage, make sure that both of you have a solid understanding of the terms if one or both of you decide to get divorced in the future.

This way, no matter how strong your feelings are today about prenuptial agreements, there won’t be any surprises when it comes time for divorce proceedings.