Most people are familiar with premarital agreements. Premarital agreements (also referred to as prenuptial agreements) are agreements that are signed by parties prior to their marriage. Such agreements act in much the same way as cohabitation agreements act. The agreement provides for a determination of the respective spouse's interest in the other spouse's property. Agreements can even provide that there will be no community property created during the marriage. Recent case law also provides that the parties can even agree to waive a future right to spousal support (alimony). However, waivers of spousal support are a relatively new concept and it is yet to be determined exactly whether and under what circumstances they will be enforced in the future.
Premarital agreements should not be entered into lightly. Although the concept is that they are generally unenforceable, in fact the opposite is true. A well written and properly prepared premarital agreement is usually enforceable. One question that often arises with respect to premarital agreements is when to commence the preparation. Parties are customarily informed that premarital agreements prepared literally on the eve of a marriage will often be set aside. This is because the aggrieved Party usually asserts that he or she was "pressured" into signing the agreement and felt unable to avoid signing it due to the fact that the wedding was rapidly approaching. Many lawyers have a motto that once the wedding invitations have been sent out it is already too late to prepare a premarital agreement.
To enter into an enforceable premarital agreement, both parties must have the ability to seek independent counsel and there must be a full and complete disclosure of all of each party's assets and liabilities. A party cannot intelligently waive his or her right to an asset unless he or she knows of its existence. Declarations of Disclosure in addition to the accompanying documents must be exchanged well in advance of the wedding date.
Postmarital agreements (also known as postnuptial agreements) are utilized and prepared after the parties have already married but before they have separated. There are many reasons clients come to our firm to help them prepare post marital agreements. These post marital agreements must be carefully constructed because spouses owe each other a higher level of fiduciary duty than that which is owed between unmarried persons. On occasion, parties may receive inheritances or may be utilizing their separate property for community property purposes. Again, in order to set forth in writing the understanding and agreements of the parties with respect to separate property or even community property interests after the parties have married, parties enter into such agreements. These agreements may provide a preliminary division of community property to be implemented during the marriage but before the parties actually decide to separate or proceed towards divorce.
As is the case with Pre-Marital Agreements, Post-Marital Agreements require that the parties provide full disclosure to the other party of all of the community and separate property assets and liabilities of which they are aware or can be reasonably determined. Both parties must be represented by independent legal counsel. An agreement wherein one party is represented by counsel and the other is not may be voidable and unenforceable.
Many times, as the wedding date approaches, couples have not gotten around to discussing, preparing and/or signing their pre-marital agreement and thus, after they are married and have the relative peace of mind to come to an understanding, they might elect to cause a Post-Marital Agreement to be prepared. The principles, concerning these two different agreements are often times the same, except for the fact that one is executed prior to the marriage date and the other after the marriage date. It is important to understand that agreements which are entered into after the marriage are just as enforceable as those entered into prior to the marriage. However, once the parties are married, there is less urgency and/or incentive for the recalcitrant party to sign such an agreement. Furthermore, there is a higher level of fiduciary duty owed between two spouses than between unmarried persons and, therefore, such an agreement is subject to closer scrutiny and may be harder to uphold.
A. Confirmation of the Separate or Community Property Character of an Asset
Occasionally, something happens during the marriage which requires a specific agreement. For example, one party might inherit a substantial asset during the marriage which he or she wishes to preserve as his or her separate property. Although, an inheritance remains separate property, in the event it is commingled with community assets it may lose its separate property character. Therefore, it may be wise for the parties to reach an agreement with respect to how to handle that specific asset prior to depositing the funds anywhere.
B. Major Financial Difficulties for One Party
On other occasions, the parties wish to stay married but wish to divide their assets for whatever reason. These types of agreements are often utilized when one or both parties have major financial difficulties or one party is contemplating filing for Bankruptcy, or the parties are either close to terminating their marriage or wish to save their marriage by dividing their financial obligations and/or other assets in anticipation of and/or avoidance of greater financial problems. Rather than proceed with a divorce, however, many couples have found that clarifying their respective rights and obligations to each other and dividing their assets and debts can often save their marriage.
Additionally, in the future, if the couple nevertheless succumbs to divorce, they will have a clear document which reflects each of their respective rights and obligations to various assets.
C. Confirmation of the Separate or Community Property Character of an Asset
When a spouse buys or inherits assets, certain triggers can alter its separate property characterization by the automatic operation of California community property laws. For example, a spouse may use separate property funds to purchase property or may inherit separate property, but then commingle that asset with community property funds, thus compromising the separate property nature of that asset.
Conversely, there are also situations where a married couple uses community property funds to purchase a property, but for one reason or another, (for example, if one spouse has better credit to obtain a loan on a home), the asset is titled in one spouse's name.
During marriage, the character of an asset can often times becomes commingled or confused. Post-Marital agreements are often used to clarify each spouse's existing property rights.
D. Marital Property Agreements as Part of Comprehensive Family Estate Plan
Sometimes when a couple engages our firm with the task of creating an estate plan for their family, it becomes apparent that the couple may wish to either confirm or transmute their respective rights to certain assets. Reasons why a couple may want to confirm each of their rights to certain assets are listed above. Transmutation, by contrast, is the process by which property rights of married persons are changed or converted. Through a post-marital property agreement, couples may convert the separate property of one spouse either to the community property of both spouses or to the separate property of the other spouse. Couples may also convert their community property to the separate property of either or both spouses.
Sometimes a couple may wish to transmute their respective rights to a property, and wish to do so in a written agreement. This may include a situation where one spouse has a substantially larger estate than his or her spouse and wishes the other spouse to take full advantage of the applicable tax exclusions. Other times, as mentioned above, title to a property is held contrary to the agreement of the spouses. In order to avoid litigation as to these issues upon the death of one or both spouses, it is often a good idea to clarify and transmute property so that the understanding and agreement of the spouses is reflected in writing.
The issues stated herein become very important in situations where one or the other spouse has beneficiaries such as children from a previous marriage who they want to provide for in the case of their death.
Our firm is skilled in preparing all three of these types of agreements. The attorneys in our firm have prepared numerous pre- and postnuptial agreements as well as cohabitation agreements. We would be happy to consult with you regarding the preparation of any of these documents should you deem them to be appropriate for your particular circumstances. In order to avoid many of these legal problems, it is often a good idea for the Parties to enter into an agreement to memorialize their understandings as to what their intentions are. We offer initial consultations at a reduced rate.
Consultation with one of our attorneys will assist the Parties in understanding their various rights and clarify the exposure that one Party may have with respect to liability to the other Party. We can prepare an agreement to eliminate many of these legal problems and to establish exactly what the Parties' rights and obligations are.