Is a Prenuptial Agreement for You?

Legal Eagles: How Property is Viewed in Case of Divorce

You and your partner are getting married. Do you need a prenuptial agreement?

You might. For both LGBTQ and straight couples, getting married automatically creates certain legal rights and obligations between you and your spouse concerning “marital property.” That’s true whether the “marital property” is land and buildings or cars and jewelry.

The legal rights and obligations may be contrary to how you’d like your property to be distributed if you ever get divorced.  That’s a reason to plan for the future if you want to retain control over your financial affairs should the worst happen.

A prenup, also called a premarital agreement, is a legally binding contract entered before marriage that gives you that control. Most commonly, premarital agreements resolve financial matters such as how property and spousal support will be handled should the marriage end in divorce. A prenup can waive any claims for alimony. Along with proper estate planning documents, a prenup can even outline what happens to financial interests, such as investments, when one spouse dies.

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If you own real estate, investments, retirement accounts or some combination of the three; if you and your partner wish to keep your respective financial commitments and estates separated; or if you or your partner have children, then entering into a premarital agreement with your partner may be the wisest financial decision you will make.

Contrary to popular belief, prenups are not just for the wealthy. They can be used to address other financial concerns, however modest. A prenup can also lay out guidelines on other issues, such as management of property during marriage or, less typically, allocation of household responsibilities between the spouses.

Each state has laws that address how property will be handled and distributed between divorcing couples. In North Carolina, the law is called “equitable distribution.” Under equitable distribution, property is classified as “marital,” “separate” or “divisible.” Property that you bring into the marriage, or that you inherit or receive as a gift from someone other than your spouse, is your separate property. Your spouse has no legal claim to your separate property.

However, depending on how your separate property is managed during the marriage, a portion or all of it may become marital property. If that happens, the marital portion of the property is included in the marital estate and your estranged spouse acquires a legal claim in what started out being your separate property.

Here’s an example. If you own a home that is titled in your name and is brought into the marriage, it is your “separate” property as of the date of marriage. But let’s say you use marital funds (such as your income earned during marriage) to pay down the mortgage while you’re married. The equity created as a result is presumed “marital” and subject to equitable distribution if you divorce.

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And yes, income you earn during your marriage is presumed to be “marital property,” not separate and, therefore, is subject to equitable distribution. Many people are surprised to learn that.

A premarital agreement is your solution to controlling the disposition of your property at divorce in a manner different than what the law provides. In my example above, you and your spouse-to-be could execute a prenup that classifies all increases in the value of your residence as separate property regardless of the source of the increase, so that the original homeowner would not have to share any increase in the home’s value with the estranged spouse.

Especially if you own substantial, valuable assets or have children whose inheritances you may wish to protect, it may be in your best interests to have a premarital agreement. A prenup enables both you and your spouse to avoid challenging legal consequences. A family law attorney can advise on your specific circumstances.

Planning for the possibility that your marriage might fail is hardly romantic. But there’s no guarantee that any marriage will survive. A properly drafted premarital agreement can protect and preserve your property and allow you to own and dispose of your estate in the way you choose.

Elizabeth Hodges is a family law attorney with Offit Kurman Horack Talley in Charlotte.  Her cases involve the litigation, negotiation and settlement of both financial and non-financial issues and disputes. She handles alimony, child support, child custody cases, equitable distribution, separation agreements, postnuptial agreement and premarital agreements, among other family law issues. Hodges is a fellow in the American Academy of Matrimonial Lawyers. She is also certified as a family law specialist by the North Carolina State Bar Board of Legal Specialization.

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