Prenuptial Agreements: Domestic Planning Tool, Estate Planning Tool, or Asset Protection Tool?

Written by: Wills, Trusts, & Estate Administration

A prenuptial agreement, also known as an antenuptial agreement, is a written agreement or contract between parties prior to entering into a marriage. The underlying purpose is to define the rights that each spouse has in the income, property or assets of the other at various times, particularly: during the term of the marriage, in the event of the dissolution of the marriage, or upon the death of either party. If an agreement is entered into after marriage, it is termed a post-nuptial agreement.

It is not just a domestic planning tool, not just an estate planning tool, and not just an asset protection tool. It is in fact all three.

Pre- or Post- nuptial agreements generally limit the rights of one spouse in property and income of the other. The reason this is important is this: generally, income earned and property acquired during a marriage is “marital property” regardless of which spouse earned the income and regardless of whose income gave rise to the property. As “marital property”, it is subject to an equitable division in the event of the dissolution of the marriage. (Cue the old joke about “half your stuff”). This is true even if the spouse uses his or her separate income to acquire property only in that spouse’s name. Without a prenuptial agreement, even that is considered “martial property”. Also, from an estate planning perspective, it is subject to claims of Year’s Support by a surviving spouse, and/or in the event of intestacy (where a person dies without a Will), entitles the surviving spouse to a statutory intestate share, which in Georgia is either ½ or ⅓ depending on how many children the decedent has. A valid prenuptial agreement can overcome each of these default rules.

Who should prepare such an agreement for you? A qualified domestic and family law attorney? Or a qualified estate planning attorney? Each of these attorneys will tell you that he or she should be the one to prepare it for you! And both may be correct, as there is no one correct answer here, other than a qualified and competent attorney.

From a domestic or family planning attorney’s perspective, this is a family law matter, and thus a domestic planning tool. And granted, prenuptial agreements will of course provide a framework in the event of a divorce.

From my perspective, as an estate planning attorney, I would just as strongly argue that it should be prepared by a competent estate planning attorney. This is because a prenuptial agreement is a tool not only to establish a framework of ‘what happens’ in the event of a divorce or dissolution of the marriage, but also a tool to provide asset protection planning, retirement benefits planning, planning related to administration of your estate, and a framework for provisions that often, by the terms of the document itself, must be referenced or included in your Last Will and Testament.

Whichever type of attorney you choose, the key is to make sure it is an attorney with high competence and experience in drafting these agreements. Failure to follow certain formalities can have dire consequences regarding the enforceability of the agreement. For example, case law in most states have established a framework of what needs to occur for the agreement to be enforced, and not be deemed unconscionable, procured through fraud or failure to disclose, and like issues.

For example, it is essential that both parties be represented by separate counsel (or be given the opportunity to have separate counsel, and clearly and unambiguously waive that right in writing). It is also important that all assets, income and sources of income be fully disclosed and attached to the agreement. These are but a few of the key details that must be properly handled.

Prenuptial agreements can and generally should address what happens both in the event of divorce, and in the event of death. For example, such an agreement might include provisions on alimony, or even graduated alimony payments the longer a marriage lasts. A prenuptial agreement might provide steps one spouse will take immediately upon marriage (ie, title the home in joint names, or take out a certain amount of insurance benefitting the other spouse). It might also provide what steps a spouse will take under his or her Last Will and Testament in favor of the other spouse upon death.

Many view a prenuptial agreement as a negative thing. What I often hear clients say is “I don’t want to go in to a marriage planning for divorce”. That is understandable. However, prenuptial agreements can actually serve to lay a solid foundation, setting forth what provisions will be made for the other spouse both in the event of divorce, and in the event of death. This can be all the more important where there is a large disparity in the net worth of the spouses, where it is a second marriage or marriage later in life, where there are children from a prior relationship, and in many other situations. It can also be helpful to avoid Will contests or expensive probate litigation by clearly defining what (at minimum) a spouse will provide for the other upon death.