"Prenups" - They may not be what you think they are

Many people think that a “Prenup”, formally called a Premarital or Antenuptial Agreement, can show distrust and take away from the romance of a marriage.

But there are others ways to view a Premarital Agreement.

You hope you won’t get sick or have an accident or have a fire in your house, but you buy insurance “just in case”.

You certainly don’t plan on having your marriage end, as you know you will be together until death does you part, but…….what if your marriage does end?

Interestingly enough, California courts have viewed Premarital Agreements as vehicles to help encourage and preserve marriages. A Premarital Agreement requires a complete disclosure of each party’s assets. An agreement on how finances will be handled is an integral part of a Premarital Agreement. These disclosures and agreement typically result in fewer matters being litigated in the unlikely event of a dissolution of marriage (divorce).

California is one of the handful of states that follows “community property” laws. This means that, without a Premarital Agreement, you will be bound by those community property laws. In the unlikely event of a divorce, you will have to untangle all of your assets and debts to determine how to distribute the assets, and how to allocate the debts between the two of you. One example should suffice:

If you had a retirement account on the date of marriage (separate property), and made contributions into that account during the marriage from your earnings (community property), it will typically be necessary to determine the value of the account back on date of marriage, the change in that portion of that value during the marriage, and then determine the value of the community property portion as of the date of trial. This can be a costly, cumbersome, contentious process.

But you and your spouse have another way to take care of your business. You can essentially “opt out” of community property laws by way of a properly drafted Premarital Agreement. If you have a valid Premarital Agreement, you can choose how your property is characterized. You can hold property in either or both of your names, make gifts to each other, and have separate or joint bank accounts, without being bound by California’s community property laws. And it is much easier to agree before marriage as to how to handle your financial affairs.

If you can reach a mutually acceptable agreement before marriage, after each of you has been fully informed of all facts, financial information and options, you can usually reduce or eliminate the impact of California’s community property laws in the event of a divorce.

Disclaimer -

The information in this blog is general in nature. The law is constantly changing, and exceptions, and exceptions to exceptions, run rampant throughout the legal system. Every case is different. You are advised to contact an attorney with any questions you may have about your individual case.