For some, getting engaged is the start of an extra legal step: discussing how to make sense of important financial issues through a premarital agreement or “prenup.” While navigating this unfamiliar process can seem daunting at first, addressing complex topics through communication and a clear understanding of the benefits of the contract can ensure that both parties have clarity on financial responsibilities and obligations going into the marriage. Lawyers can play significant roles in helping each party through prenuptial agreement negotiations.
At Claery & Hammond, LLP, we help individuals develop fair and equitable premarital contracts. If you are looking for legal counsel in Los Angeles, please schedule a consultation by calling us at (310) 817-6904 or contacting us online.
What Is a Premarital Agreement, and Why Is It Important?
A premarital (or prenuptial) agreement is a contract made between two people before they are married. It delineates their financial rights and responsibilities. These are legally binding documents developed after a couple makes honest and valid disclosures about their resources at the beginning of their marriage and clarifies expectations in case of a divorce.
Premarital agreements provide practical legal protections for and reduce the chance of arguments about wealth or debts. Although they are especially useful in situations where an imbalance between assets and liabilities exists between spouses, they can also be beneficial for any couple regardless of financial standing.
In addition to clarifying the division of assets and debts acquired before and during the marriage, prenuptial agreements can also assign responsibility regarding other issues, such as spousal support. Ultimately, these documents can provide peace of mind by clearly defining financial rights and obligations early in the marriage.
Financial Considerations When Negotiating a Prenuptial Agreement
Under California’s laws, when a couple divorces, their community property is split 50/50 between the spouses. This approach is intended to ensure that both parties walk away from the proceedings with an equitable share of accrued assets. If the couple has a valid prenuptial agreement, their predetermined division of assets and debts and spousal support obligations may override California’s laws.
Negotiating a prenuptial agreement in California might not be overly complex, but critical financial considerations must be kept in mind when drafting the document.
Fully Disclose All Assets and Liabilities
Disclosing all assets and liabilities before signing a prenuptial agreement is essential for ensuring that both parties understand the terms of the contract. A comprehensive disclosure of information should include important items like bank accounts and investment portfolios and other assets such as retirement accounts.
Agree on Distinctions Between Separate and Marital Property
Both parties should decide ahead of time which property will remain separate and which will be considered community. While the delineation might seem straightforward at the outset, it can become complicated during the marriage, as assets may become commingled.
Determine Debt Responsibilities
When discussing payment arrangements concerning existing debts and those acquired during the marriage, couples should ensure that they are aware of the other party’s commitments. Each must have a firm understanding of which debts are jointly held or taken on individually, as well as negotiated terms for repayment.
Resolving Potential Problems with Prenuptial Agreements
Drafting a premarital contract can be a practical investment for both parties entering the marriage. And although it was noted earlier that negotiations might not be complex, potential problems may arise when initially developing the document.
Possible issues concerning prenuptial agreements include the following:
- Difficulties raising the subject: Approaching the sensitive topic of a prenuptial agreement can be tricky, but it doesn’t have to lead to contention. It is important to articulate the intentions behind the agreement and how it may ensure financial security and protect the rights of both parties entering the marriage.
- Disclosing all financial assets: Attempting to disclose all financial assets can be an arduous task. As such, it can be advantageous to involve financial advisors familiar with the property of each party. They can provide a comprehensive list of assets and advice on which need to be protected.
- Resistance of the parties: Creating a prenuptial agreement can be a delicate process, especially if one or both parties resist. It can feel as if the negotiations are being conducted with an adversarial mindset. Still, it is important to remember that the document's purpose is to protect the spouses if they get divorced. Both partners should enter discussions with an open mind and negotiate accordingly.
When negotiating a prenuptial agreement, it is crucial that each party has their own attorney. Hiring a lawyer does not mean discussions are doomed to be contentious. On the contrary, leveraging their insights can help diffuse adversarial situations that can arise during this fragile time.
Each party’s attorney can facilitate a fair and effective process while being cognizant of their client’s specific needs. With their guidance, lawyers are invaluable for making sure that negotiations are focused and progress with little strain or stress.
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Having a premarital agreement can help couples stay on the same page before they exchange vows and start their life together. Open communication, mutual respect, and understanding between the parties are key to ensuring that negotiations go smoothly. Finding an experienced legal professional who can guide you through the complex process is beneficial.