You are going to get married (or re-married). You have minor children (or no children). You own a business. You own a house. You have substantial net worth. Since you already own your own house and business before the marriage, as you understand it, in the off-chance it does not work out you will be okay financially. Not exactly?
While it is true that assets that are acquired prior to marriage, or that are acquired through a gift or inheritance are non-marital property – during the marriage they don’t always remain so. If the business you are operating continues to grow through the marriage, the appreciation in the value of that business may become marital property. Many state have laws that say that active efforts of the owner spouse during the marriage can result in a non-marital assets becoming a marital asset. As a result, that growth that your business has experienced becomes marital property as well. It does not mean that the entire business becomes marital property, but some portion of it is jointly owned by you and your new spouse which means that if things do not work out – your new spouse is going to have his or her share of that business coming to them. This can create significant problems when it comes time to divide up the marital estate. It may be that most of your assets are tied up in that business and it may then become difficult to buy your new spouse out of it.
During the marriage, chances are that for one reason or another, you will refinance your homes. You will either take money out of the home or deposit it into a bank account shared with your spouse or for credit purposes (or marital pressure) add your spouse to the house title. All of these can convert your premarital home into a marital asset. Indeed, many state laws say that if a house (regardless if it was purchased prior to the marriage) is jointly titled at the time of a divorce, that house will be considered marital property. So if you own your own house before getting married, you want to make sure you are protected.
Monies in savings or investment accounts can also turn marital. If it is passively invested, then in theory there is no issue — you put no effort into causing it to increase in value after marriage, and provided that you never put it into a jointly-titled account, or transferred it to an account opened after marriage it will be safe. The problem is that in real life things don’t usually work this way. Inevitably, some effort may go into managing it or at some point money will be moved from one account to another. And in the course of a marriage that lasts many years, things may come up that require the use of funds for a joint purpose that came from a separate property source and now require extensive accounting to trace back to that source
There is one way to avoid these problems- sign a Prenuptial Agreement. A Prenuptial Agreement or “Prenup” for short, can ensure that what is intended to remain separate does. With a Prenup you can decided how assets are divided between you and your spouse and how much (if any) monetary support is exchanged between the two you. In essence, you and your spouse get to pre-determine the outcome of your divorce instead of a judge. There are some things that a Pre-nup cannot pre-determine- mainly custody of children and child support. But a seasoned divorce lawyer can help navigate this area of the law with some guidelines and procedures. Prenup also has some marital benefits as it forces the couple to discuss what they are going to do with their finances. It sets the stage for the marriage. It educates both parties about the other’s financial situation.
As unpleasant as the subject matter may be, in truth there are reasons to bring the subject up that may make the relationship going more smoothly, and offer the asset protection that either or both spouses are looking for. So who signs a Prenup?
Generally, there are three (3) instances that a Prenup is signed. The most common instance is a second marriage. The second is when one spouse has substantial assets to protect (such as a business or family inheritance). The third is the executive spouse.
But not all PreNups are rock solid. Most Courts have accepted Prenups when a) there is full financial disclosure (meaning both sides have provided accurate and complete financial picture of the their assets) b) the agreement is not unconscionable (a complicated legal concept but which in essence means the terms are fair) and c) both sides had independent legal counsel (each spouse had their own attorneys-or opportunity to obtain his or her attorney- and had ample time to discuss the terms with them). If you are going to sign a Prenup make sure that it is done correctly and it follow the law. Do your homework. Meet with a competent and trusted legal advisor well in advance of your wedding. Talk to your spouse and make sure that you are completely transparent. It is always better (and many times cheaper) to be safe than sorry.
If you are looking for a trusted divorce attorney, contact me directly at 240.399.7892 or by email at rgolesorkhi@jgllaw.com
