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Do we need a Prenuptial Agreement?

One of the toughest conversations that an engaged couple has is when one asks the other, "will you be willing to sign a prenuptial agreement?"

Often times this question will lead to tears, mistrust, and anger, as the last event that an engaged couple wants to consider is the possibility of a divorce. Notwithstanding the result of the conversation, a prenuptial agreement is an important document, especially in the case of a second marriage when one or each of the parties have children from a prior relationship.

A prenuptial agreement is a contract between a couple which is entered into prior to their marriage and sets forth not only their present assets and liabilities but also predetermines each parties’ property rights if a divorce were to occur. While New York State has laws regarding the division of property upon a dissolution of a marriage, parties have every right to enter into a contract opting out of those laws in favor of their own agreement.

One of the main function of a prenuptial agreement is to protect each parties’ separate property (i.e., the property owned at the time of the marriage) As an example, if a prospective spouse has an interest in a family practice, or owns assets at the time of the marriage, that party may want to ensure that their new spouse waives any interest in those assets, either wanting the assets to remain in the family or to be later owned by their children from a prior relationship. The prenuptial agreement will address how this separate property will be handled in the event of a divorce.

Without a prenuptial agreement, a spouse may receive a portion of these separate assets. As an example:

The Husband and his brother were equal owners of a business, prior to the marriage and each of their interests in that business was valued at $1,000,000. After 10 years of marriage, the parties decide to divorce. At that time the Husband’s interest is now valued at $2,000,000. The Wife could be entitled to a percentage of the increase in value.

If these parties had a prenuptial agreement, the agreement could ensure that not only would the separate property (the business) belong to the Husband but that any of the increase in the value would belong to the Husband as well.

As another example:

The Wife owns a house prior to the marriage which is valued at $1,000,000. After the marriage, the parties reside in that house and after a few years, they decide to sell the house and buy a new one.

What happens to the proceeds? Do they belong solely to the Wife? Is she using that money to buy a new house and who will own the new house? Will the new house continue to be the Wife’s separate property? Does the Husband have any rights to the proceeds because he resided there and the value increased? These are all issues that can be addressed in a prenuptial agreement.

Entering into a prenuptial agreement should not be looked at as an escape hatch, but instead, should be viewed as a partnership agreement. Partners have only good intentions when they enter into an agreement, but agree to the terms of dissolution. A prenuptial agreement should be viewed in the same manner.

While it may be extremely uncomfortable to broach the topic, a couple needs to be pragmatic. Since the divorce rate is high in New York and since statistics show that the percentage of divorce increases in second marriages, parties should enter into a prenuptial agreement to ensure that they both understand each other’s intentions before they marry. Divorce is a very costly and lengthy path, which causes emotional turmoil to the family. Having a prenuptial agreement, the parties should be able to resolve this process quickly which should decrease some of the angst that a long and torturous divorce can cause.

As I tell all of my clients, a prenuptial is a contract whereby each agrees to the terms of what will occur if and when their marriage fails. It is a contract that should be kept in a safe place and will hopefully never be read again.

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