You’ve created the perfect Pinterest wedding board, invited your friends to the Vegas Bachelor party, and booked your honeymoon in Fiji. What’s next? A prenup. Yes, you really should have a prenup.
Sure, prenuptial agreements aren’t very sexy or romantic, but what you may not realize is that even if you don’t sign a prenup you are already agreeing to one: the California state default. Even if you decide not to negotiate a prenup, it is absolutely necessary that you understand the financial implications of one of the most important agreements of your life: your marriage contract.
California is a community property state. This means that unless you create an agreement to the contrary, any property that you guys acquire during the course of a valid marriage is characterized as “community property,” and in the event of a divorce, each spouse is entitled to half of it.
This doesn’t include property acquired before marriage, after permanent separation, through inheritance, or as gifts: these types of properties are separate property and most of the time you get to keep this property in a divorce.
Risk, what risk?
There are other risks that you may take on if you don’t have a prenup. First, if you gain significant equity in a startup or business during the marriage and divorce without a prenup, your spouse may get half, possibly including that equity’s share of control over the company. Additionally, any increase in the value of separate property during the marriage (including capital gains), is considered community property if one spouse used his/her skill and effort to increase the value during the marriage.
Another reason to get a prenup is if one spouse is likely to acquire debt during the marriage. Community property rules mandate that assets and debts acquired during marriage are shared equally, so if you marry someone with a tendency to spend more than they earn, a prenup could save you money.
There are some protections in this default contract as well. Most notably, a spouse is entitled to reimbursement of any separate property he/she used to acquire community property. For example, if you use separate property--like the proceeds of sale of stock acquired before the marriage--as the down payment for a house bought during the marriage, then you are entitled to get your separate property without interest back at the time of divorce.
Alimony, sounds old school, didn’t we get rid of that?
Finally, California’s default system allows for a judge to award spousal support for both short and long term marriages. The amount of spousal support awarded by a judge at divorce is variable and not set by law. While marriages that are shorter than 10 years rarely have indefinite support awards, the standard constantly changes. Without a prenup, you cannot predict or control whether spousal support will be ordered by a Judge in the event of a divorce.
In short, the prenup details what happens to property in the event of a divorce. It is a negotiated contract that identifies rights, obligations, property division, and potentially spousal support in the event your marriage ends in divorce. Having an agreement in place can save expensive divorce litigation and more importantly, provide transparency to the finances in your relationship.
In order to create an enforceable and valid prenup, there are several legal formalities. (1) Both parties must be represented by separate independent attorneys, (2) disclose fully their finances (including any assets and debts), and (3) the final form of the agreement must be in the hands of each party at least 7 days prior to signing the document.
Want to learn more? Talk to a family law or estate planning attorney about the specifics of your situation.
A prenup typically takes several months to negotiate, so you’ll want to start the conversation well before your wedding date.
I understand that drafting a prenup does not sound fun. But prenups are crucial for numerous reasons. Most importantly, having a say in your financial future. You would never sign a contract without reviewing the terms, and marriage shouldn’t be different.
If you are considering a premarital agreement, contact email@example.com for more information.