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Do I Need A Prenup?

OLA_Eric

A prenuptial agreement is an agreement executed by two people who intend to marry, which sets forth the rights and obligations of the parties in the event of divorce, and, to a lesser extent, death.  The provisions of a prenuptial agreement generally fall into two categories: (1) provisions setting forth rights and obligations that already exist under applicable law and therefore do not materially alter the rights and obligations the parties would have in the absence of the agreement; and (2) provisions that modify existing legal rights and obligations.  A simplified example of the former category is a provision stating that the property that each party owns before marriage remains the separate property of that party; this is generally the same principle that a court would apply when determining the property rights of a divorcing couple who did not execute a premarital agreement.  A simplified example of the latter category is a provision by which the parties waive all rights to spousal support in the event of divorce, sometimes in exchange for payments in amounts and for periods of time negotiated and specified in the premarital agreement.

While a prenuptial agreement can be a useful tool regardless of the soon-to-be-spouses’ financial circumstances, and can save an enormous amount of time, energy and money in the event of divorce, most marrying couples choose not to enter into prenuptial agreements.  Thus, family law practitioners are often asked about circumstances under which a prenuptial agreement may be particularly important, or phrased another way, “Do I need a prenup?”

It would be impossible to catalogue those circumstances in one short article, but just to demonstrate some of the considerations that would go into thinking about the need for a prenuptial agreement, here are three common circumstances that may create a critical need for a prenuptial agreement:

  1. One Party Has A Very High Income. While property owned before marriage remains separate property, income that is earned during marriage becomes marital property under Florida law when it is paid to the earning spouse, regardless of whether it goes into a joint bank account or separate bank account or used to improve or reduce debt on a premarital asset.  The parties may modify this principle in a prenuptial agreement, and agree, for example, that each party’s income remains that party’s separate property provided that it remains segregated from marital property and is not comingled.
  2. One Party Owns A Small Business.    While property that one owns prior to marriage remains separate property, Florida law recognizes that there may be a marital property interest in that property in the event marital resources—including labor—are used to improve or enhance the property.  Thus, even though a business that one party owns prior to the marriage is separate property, Florida law recognizes a marital property right in the enhanced value of business during the marriage as a result of the labor of one of the parties.  This could create complicated valuation issues in the event of divorce.  The parties may modify this principle in a prenuptial agreement, and agree, for example, that in the event of divorce, each party is entitled to his or her premarital business, including any enhanced value resulting from the use of marital resources.
  3. One Spouse Owns A Home And Has Adult Children. As a general rule, every person is free to devise his or her property as he or she desires, but one notable exception concerns what is commonly known as the “homestead exemption.”  While the intricacies of homestead laws are outside the scope of this article, it is sufficient here to note that the homestead exemption gives a surviving spouse certain rights in the marital home, regardless of which spouse actually owned the home.  This could create undesired results, such as in this example: A man with three adult children marries and lives with his new wife in a house he has owned for twenty years.   Upon his death, he would like his surviving wife to have the option to live in the house for the rest of her life, but he wants his own children—and not her heirs—to inherit the house following her death.  The homestead laws would prevent this result, but the parties may modify this principle in a prenuptial agreement, and agree, for example, that the spouses waive their respective homestead rights, either unconditionally or conditioned upon the implementation of an estate-planning tool that gives the surviving spouse a life interest in the property.

To reiterate, there are countless circumstances under which a prenuptial agreement may be critical.  The foregoing examples are not necessarily the “top” or “best” or “most popular” examples of such circumstances.  They are merely illustrations, to demonstrate that answering the question, “Do I need a prenup?” is one that is highly dependent on one’s personal circumstances and requires careful consideration.

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