When most of us hear the phrase, "prenuptial agreement", we think of marriage. These agreements are usually signed before the wedding, in an effort to help avoid confrontations if there is a divorce, keep the marriage running smoothly, and strengthen family bonds. While it's true that these agreements are most commonly associated with marriage, they are also useful in estate planning.
The Pre-Nuptial Agreement
A pre-nuptial agreement is a contract that is signed by both spouses and then notarized. They do not need to be filed with the court, however there are two essential elements that are required. The first being "full disclosure"; you and your spouse must list all financial income, assets, and liabilities. This will help reduce the risk that the document could be set aside due to fraud or misrepresentation. The second element, is independent counsel. Both you are your spouse should be represented by your own attorney prior to signing the document, to reduce the risk of signing an unfair agreement. Agreements can also be in the form of a post-nuptial's, that is, signed after the marriage.
How does a Pre-Nuptial Agreement work?
When a person signs a pre-nuptial agreement, they can waive any rights given to them by law. One spouse can give to the other as much as they wish. The agreement can state that that funds from a certain source belong to one or both persons, and in what proportions. The spouses can also agree on how they will spend certain sums of money during their marriage. The agreement can also state who will run a family business, manage the investments, or receive the income from it.
The Pre-Nuptial Agreement in Estate Planning
In estate planning, the agreement can be used to; disinherit a spouse, settle property rights, or remove a family business from the marital estate. Every state has laws that prevent one spouse from completely disinheriting the surviving spouse. The "statutory spousal elective share" is a provision which allows the spouse to renounce a will and claim one third of the deceased's spouses probate estate. As an example, if John dies with a $300,000 probate estate, but his will says he leaves only $25,000 to his wife Mary, she can renounce, the will, and claim her one-third share of the estate, or $100,000, which is considerably more money. If John did not want Mary to claim her forced statutory share, and have this additional money, he would have had her sign a nuptial agreement, to waive her right to claim a forced share. If John decides not to leave her anything in his will, and Mary has also signed the nuptial agreement to waive her forced share claim, she could be disinherited. In addition, this waiver is useful, if John wanted to insure that his children or other heirs receive a portion of his estate that is far greater than the remaining two-thirds or $200,000.
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