Prenuptial agreements allow the parties to a forthcoming marriage to “re-write” the laws of marital dissolution, so long as the prenup is executed in a procedurally fair way, and is substantively fair at the time of enforcement. But what is really involved in crafting a prenuptial agreement? This post addresses the wide-ranging issues you’ll encounter.
The Ways Marriage Comes to an End
As an initial matter, you should understand that a marriage can end in one of two ways – through either a divorce, or death of either party. Prenuptial agreements typically address both scenarios, but in a different way.
Marital and Non-Marital Interests
Before diving into things it is also important to understand difference between property that is “marital,” and property that is “non-marital.”
A non-marital asset is something that is typically brought into a marriage, or inherited by one spouse during the marriage. Non-marital assets can include home equity, cars, bank accounts and retirement assets. They also include assets that are acquired in exchange for property that is otherwise non-marital (like swapping an otherwise non-marital vintage Fender guitar for another’s vintage Gibson).
Marital assets are interests created as a product of the marriage. Because each party’s income is considered a shared interest, anything purchased during the marriage (absent a prenuptial agreement) will be subject to division as part of a divorce.
To add complexity, some assets have both a marital and a non-marital component to them.
Protection of Non-Marital Assets
Prenuptial agreements typically begin by affording protection to non-marital assets that goes above and beyond the divorce statutes in Minnesota. For example, the balance within a stock portfolio on the date of marriage is considered non-marital by law. However, growth on the portfolio, and dividends paid, may be considered marital in nature and, therefore, be subject to equal division among the parties. A prenuptial agreement can change that, and allow growth, and other returns, to remain non-marital.
Treatment of Income
Some parties to a prenuptial agreement choose to go even further, and consider one another’s income to be non-marital in nature, contrary to Minnesota’s divorce statutes. By doing so, parties can specify that anything they invest in, or purchase with, their earnings will not be subject to division if there is an action to dissolve the marriage.
Many choose to set up three bank accounts to accomplish their goals: (1) an account for Husband; (2) an account for Wife; and (3) a joint account. The parties then specify that the only marital assets that will be created from marriage are those that are purchased from the joint account. Some say the marital asset is subject to equal division, regardless of the relative contribution of each. Others choose to divide marital assets directly in proportion to their contribution toward the asset.
The Issue of Spousal Maintenance
Beyond property interests, a prenuptial agreement can address the issue of spousal maintenance (alimony) following a divorce. Some agree that no alimony will be paid. Others agree to a cap concept, limiting the amount of alimony, and the duration of payments. Quite often the duration of an alimony award is capped at one-half of the length of the parties’ marriage. Still others agree to a lump sum payment to one spouse, based on the length of the parties’ marriage, as consideration for an outright waiver of spousal maintenance.
Death of a Spouse
The foregoing assumes that the parties are planning for divorce – an acrimonious end to a marriage. But what about a situation in which the marriage ends because of the premature death of one spouse? Most often, people wish to treat a surviving spouse differently (better) than in a divorce situation.
While there are many options available, some agree that their surviving spouse may inherit their non-marital assets. Some allocate a percentage, based upon the length of marriage at the time of death.
Still others allocate a percentage, based upon whether the parties have children. Another alternative involves maintaining the non-marital nature of the decedent’s assets, but providing for significant life insurance for a surviving spouse.
The Elective Share
One thing to keep in mind is that the elective share exists under the probate code. The elective share allows a surviving spouse to claim a certain portion of the decedent’s assets, if the surviving spouse is disinherited. If you intend to avoid application of the elective share, the prenuptial agreement must specifically provide as such.
Questions? Contact Us for Answers
Lots to think about.
Over the years, our lawyers have had the privilege of helping clients from all walks of life draft a prenuptial agreement. Some have been family farmers and business owners, while others are entering into a second marriage later in life. Regardless, you should understand that no two situations are the same and we are prepared to work with you to craft an agreement that is tailored to your needs and concerns.
You are invited to contact our law firm if you have further questions about a prenuptial agreement. Our Minnesota prenuptial agreement lawyers are here to help. Call (763) 323-6555 for a consultation.