Pros and Cons of Executing a Prenup
All About Prenups
A prenuptial agreement is a contract made in contemplation of marriage that identifies the property interests of each party and often establishes financial responsibilities. It is designed to resolve certain issues prior to any marital discord. This is done with the belief that pre-addressing issues may eliminate, or at least lessen, the risks of a difficult and costly divorce. The prenuptial agreement may address issues of debt responsibility and property ownership. In addition, it can provide for alimony/maintenance, inheritances , and other support issues.
Most marriage contracts are oral, and the law recognizes most of these marriage agreements. Upon marriage, there is a presumption that the parties have waived and/or determined these issues resulting in a valid oral contract.
Under some circumstances, however, there is good reason to consider a written agreement such as a prenuptial agreement, rather than relying on an oral marriage contract. A prenuptial agreement is not for every person, but it serves a useful purpose in some instances.
Pros of Prenups
Prenuptial agreements, commonly known as prenups or ante-nuptial agreements, can provide a variety of benefits for soon-to-be spouses. Such agreements generally outline financial responsibilities and asset ownership that each spouse will be responsible for in the event they divorce. The creation an enforceable contract often means uncertain property and debt outcomes are avoided. Additionally, such agreements lay the foundation for a more organized divorce because property, assets and shortcomings have already been taken care of.
Adultery, annulment, bankruptcy and death can complicate divorces by making asset ownership and division difficult to determine. Prenuptial agreements can handle the due diligence ahead of time in order to make the process much simpler if it becomes necessary to separate assets in the future.
In addition to separating assets, many prenups stipulate individual financial responsibilities or expenses. While the financial arrangements are negotiable between both spouses, setting these expectations well before marriage allows each partner to plan ahead. These financial arrangements may cover a spouse’s personal expenses, including but not limited to, medical bills, credit card payments, student loans and other debts. Health insurance deductibles, housing-related expenses and tax returns may also be addressed in a prenuptial agreement.
Cons of Prenups
As much as prenups have their advantages, they are not without some potential drawbacks. Some critics believe that the process of defining a relationship in financial terms runs counter to the romantic notion of marriage and can signify a lack of trust between potential spouses. The reality is that youth and divorce rates are so high, that the idea of preparing for the worst makes sense. Many prospective spouses are not even having the cohabitation conversation until they’re having the premarital conversation. When they do talk prenups and cohabitation, unfortunately, some attorneys take an aggressive position, making it impossible to talk – which makes the prospects for a successful marriage not too good.
There’s also the perception that the courts will not enforce prenups in any event. As a practical matter, prenups are notoriously difficult to enforce once a marriage goes south. Prenups can be challenged both before and after a marriage ends, and some of these challenges are difficult to overcome. Depending on the timing, for example, a prenup may be considered a violation of the Statute of Frauds, which mandates that all real estate transactions involving greater than $500 be in writing. Likewise, if a spouse feels that he was pressured or unduly influenced into signing a prenuptial agreement, invalidating the prenup is a possibility. Further complications arise when determining whether adverse contract law defenses such as fraud, duress, misrepresentation, undue influence, etc. are available for consideration. And finally, although each case is different, courts may go to great lengths to find a reason to invalidate a prenup.
Who Might Need a Prenup
Not everyone stands to benefit from having a prenuptial agreement and many couples may find it unnecessary or even unwanted to address the issue in advance of their marriage. But for those who do, the cost of a prenuptial agreement is trivial compared to what a divorce would potentially cost. Generally, a person who should consider a prenuptial agreement is someone who is entering into a second (or third or even fourth) marriage and/or has children from a previous marriage. This person may have assets that they have accumulated over their lifetime and that they want to protect on behalf of themselves and their children from the prior marriage. Another person who should consider a prenuptial agreement is someone who is marrying later in life, and has significant wealth or assets – perhaps a business they have developed or a family estate that has been passed down for generations, or perhaps a sizable inheritance which they want to ensure they retain in their own family. And, of course, separating spouses who have significant wealth or complex estates may need to turn to financial professionals to help them unravel their financial affairs. In that situation, it is easy to imagine how, in advance of court, they might have benefited from the assistance of some form of estate professional and perhaps avoided much of the cost associated with that process. Having a comprehensive prenuptial agreement in place can save you both time and financial resources should your marriage fail.
Common Myths About Prenups
At the mention of a prenuptial agreement, most people have a negative initial reaction. Some of those reactions may be due to common misconceptions about these legal contracts. Prenups are for the Wealthy While setting up a prenuptial agreement is certainly important for the affluent who have substantial assets to protect, these agreements are not exclusively for the wealthy. A prenup can protect any asset acquired before or during the marriage, such as a home purchase, a business venture or an inheritance. Even if you and your spouse-to-be have similar financial backgrounds, it’s still wise to consider a prenup . For example, you might not want to be financially responsible for your spouse’s student debt once you are married. No matter your current financial status, it’s best to evaluate whether a prenup makes sense for you. Prenups Lead to Divorce Another myth about prenups is that having one means the couple must be planning on divorcing someday. In fact, you are much more likely to get divorced if you don’t have a prenuptial agreement and one spouse has significantly different financial assets than the other. A prenup helps both spouses feel secure in financial matters, which in turn can help your marriage to flourish.
Preparing for and Drafting Your Prenup
When it comes to drafting a prenuptial agreement, there are a few factors that one must consider. First and foremost, the parties to the agreement must execute it in a manner that renders it enforceable under New Jersey law. Specifically, as an essential prerequisite to enforcement:
- The agreement must be in writing
- Despite specific prenuptial agreement requirements, the enforceability of a prenuptial agreement also typically requires compliance with general statutory contract requirements. For instance, the general contract statute of frauds requires contracts of an indefinite duration to be ratified or acknowledged within 20 years, else they are unenforceable. Thus, a prenuptial agreement which purports to provide for a waiver of equitable distribution of property acquired beyond the 20-year time-frame is not an enforceable waiver of equitable distribution.
- There must be an adequate consideration, which can be present in the form of a waiver of any right to the other spouse’s property
- Each party must execute the agreement voluntarily.
Although not required, once parties affix their signatures to a prenuptial agreement, it is advisable to obtain the signature of a third-party witness. This is particularly true because, under New Jersey law, the burden falls on the party desiring enforcement of the agreement to demonstrate that the party opposing enforcement executed the agreement voluntarily.
– In order to execute the agreement voluntarily, the parties must have a fair opportunity to consider the terms of the agreement. A party’s "desire" to have the agreement reviewed by an attorney is not sufficient to establish that the party had a fair opportunity to consider the agreement – an express contemporaneous written waiver of the right to have the agreement reviewed by an attorney is required in order to seek enforcement.
Failure to comply with these rules renders a prenuptial agreement unenforceable. But there is more: It’s a common misconception that the only time prenuptial agreements face scrutiny is when one spouse attempts to enforce it upon divorce. Wrong. When drawing or executing a prenuptial agreement, individuals must also be cognizant of enforceability under rules that apply solely to post-nuptial agreements. For example, under the Statute of Frauds (N.J.S.A. 25:1-5), it’s clear that prenuptial agreements signed after the parties get married are unenforceable. And while I don’t doubt that the statute is intended to reduce the passage of time, it has purportedly been applied even where the post-nuptial agreement was executed only mere hours after the parties were married. Further: no matter the specific timing circumstances, post-nuptial agreements signed after marriage, without the presence of independent counsel, are typically viewed with disfavor and given little weight by the courts.
Thus, if you wish to discuss your individual situation or case, and properly navigate the legal considerations involved in drafting a prenuptial agreement, please do not hesitate to consult with counsel.
Conclusion – Weighing the Points
For some couples, a prenuptial agreement can serve as a valuable tool that can help them avoid costly problems down the road. It can help preserve your financial security and peace of mind, provide for your children from prior relationships, and even prevent long and painful litigation. However, there are also many drawbacks to consider, such as communication challenges and the very fact that drafting a prenuptial agreement can be unpleasant .
In the end, it’s up to each individual couple to weigh the pros and cons, and take a hard look at their particular circumstances, finances, and personalities. Whether an agreement is beneficial or a waste of time depends largely on the people involved. If a prenuptial agreement seems like a good option for you and your partner, start the dialogue about it both before and after your engagement, consult and collaborate with your partner to understand what would be best for both of you, and be sure to seek the guidance of an experienced family law attorney.