While not every couple needs a prenuptial agreement, under certain circumstances these documents are essential. This is especially the case for high-net-worth couples and second marriages, but there are other circumstances that call for a prenuptial agreement as well.
Prenuptial agreements clearly explain what would happen to a couple's finances in the event of death or a divorce. Depending on the couple's financial situation, this document can be relatively simple or more complex.
Following are the situations where a prenuptial agreement is necessary:
Significant assets: If one of the parties enters the marriage with a significant investment account or real estate, the agreement can explain what will happen to those assets in the event of a split.
Significant debts: If one party has significant debts, the agreement can ensure that those debts are kept separate in case of a divorce. However, be aware that if your spouse owes money in federal student loans or taxes, you could be held liable for that debt after the divorce, even if you have a prenuptial agreement.
Vastly different income: It's not uncommon for one spouse to earn significantly more than the other spouse. In the event of a divorce, a prenuptial agreement can set a limit on how much the lower-earning spouse gets providing the agreement is reasonably fair. While a couple can write an agreement that says that alimony will not be awarded under any circumstances, enforcing it can be difficult, especially in a long-term marriage.
Owning a business: If one of the parties owns a small business, it's wise to draw up a prenuptial agreement that will protect the business' assets, and shield the non-owner spouse from liabilities.
Subsequent marriages: While prenups do not replace estate plans, they can dictate who will pay for certain expenses for children from a previous marriage and outline how each spouse's assets will be split upon death or divorce.
Inheritance situations: In California, an inheritance is not considered community property, meaning it belongs strictly to the spouse who inherited it.
Cash inheritances are not problematic, but inheriting real estate can be, especially when the married couple moves into the home and both spouses contribute to the house payments. A prenuptial agreement can explain how separate interest in the home is to be maintained, even if both spouses pay the mortgage.
To learn more about prenuptial agreements, contact Claery & Hammond, LLPfor a free consultation with a Los Angeles family law attorney.