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Some of The Basics You Need To Know About Premarital Agreements.

The Basics of Entering Into A Valid Prenuptial Agreement

The Basics of Entering Into A Valid Prenuptial Agreement

WHO ARE INTERESTED IN PREMARITAL AGREEMENTS?

Either people who have been divorced, who are young but know they will have large net worth later, who are going to get into a family business, or who have inheritance or trust income.

In addition to divorce, there are concerns about estate issues -- especially where not to have such an agreement would put a second spouse in business with children of the first marriage.

THE AGREEMENT MUST BE FAIR AND VOLUNTARY

Since a court might review the agreement is five, ten, or 15 years, it must be (1) fair and reasonable -- meaning adequate consideration must flow for the promises and waivers -- and (2) voluntary and entered without duress. In other words, itís not a good idea to present an agreement to a prospective spouse for signature on the eve of the wedding. It is necessary for both parties to have legal representation and enough time to negotiate the terms of an agreement.

Since these agreements can be complex and involve a lot of money, the negotiations leading up to an agreement should begin several months before the wedding so that there is no pressure applied -- either real or perceived.

FULL DISCLOSURE IS ESSENTIAL

Each state has its own requirements about premarital agreements, but one of the most important is that there is full and complete disclosure of both assets and liabilities before the agreement is signed. In order to give full disclosure, you must identify your assets, assign a value, and list all liabilities.

In addition, financial statements, balance sheets, and all tax returns should be exchanged -- not to mention copies of brokerage and bank account statements. A schedule to the documents reviewed should be attached to the Agreement itself to make sure everyone acknowledges that the disclosures have been made.

It is a good idea to either attach disclosure documents or have the lawyers keep them in their files so that, if the agreement is later challenged, you will not be faced with reconstructing records.

If one person has hidden assets or refuses to make full disclosure, there is no sense in entering the Agreement.

WAIVERS OF RETIREMENT CAN NOT BE MADE IN A PREMARITAL AGREEMENT

Even if a premarital agreement provides that one spouse waives all rights to the otherís pension, under federal law, this is not binding because only a spouse can sign such a waiver -- and when the premarital agreement waiver was signed, the parties were not married. Thatís why the premarital agreement should contain a provision requiring that additional documents be signed after the marriage -- including the waiver of pension rights.

CHILD SUPPORT CAN NOT BE BINDING UNDER A PREMARITAL AGREEMENT

Although you can put any language in the agreement you want about child support for children born to you, this is not binding on a court because of the need to protect children.

ALIMONY CAN BE HANDLED UNDER A PREMARITAL AGREEMENT

Generally speaking, a waiver of alimony can be valid under a premarital agreement so long as there is sufficient consideration -- ie, a large sum of money -- that is provided to the lesser economic spouse at the time of divorce. However, it is important to note that the Louisiana Supreme Court decision in 1995 said that a person can not waive alimony through a premarital agreement since it might put the lesser economic spouse at risk of becoming a charge of the state. In short, itís a good idea to try to structure the agreement so that if any part if found to be invalid, the rest will survive.

ONE ATTORNEY CAN NOT HANDLE BOTH PARTIES

No lawyer can serve two masters. When the premarital agreement is prepared, there are dissimilar interests and conflicts of interest.

WHAT IF THE PARTIES MOVE TO ANOTHER STATE?

Since each agreement should provide which state law will apply if there is a challenge, the terms of the agreement should be dispositive; however, there are provisions that can be inserted just in case.

COMMINGLING OF ASSETS AND INCOME IS A BIG ISSUE

If you put 50 pennies on one side of your desk and your friend puts 50 pennies on the other side of your desk and you then mix them together, it will be impossible for you to determine which were yours and which were your friendís. Thatís commingling. If you have $100 when you marry and itís your money, but you add to that account with money you earn during the marriage and then make a downpayment on a house, your private money has become a marital asset because you commingled it with other money. Thatís why itís important to make sure that you and your spouse clearly identify what money is separate, and what money is joint so you can avoid having your separate assets become marital property.

SOME ISSUES CAN NOT BE COVERED BY A PREMARITAL AGREEMENT

If you and your spouse file joint income tax returns and there are taxes or penalties due, regardless of what your premarital agreement may say, you are responsible. If your spouse goes into a nursing home and uses up all of his or her assets and applies for Medicaid, he or she will not qualify until you have spent down your assets, no matter what your premarital agreement says. If your spouse goes into a hospital and can not pay his or her bill, under the doctrine of "necessaries," you will be responsible Ė no matter what your premarital agreement says.

For these reasons, appropriate clauses should be included to at least put you in as good a position as is possible.

© 1997, Flying Solo



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