Monthly Archives: September 2018

Effect of Pre-marital Agreements on Estate Planning

Posted on September 18, 2018

by Tavis R. Hasenfus, Esq.

A pre-marital agreement can be an effective way to determine what happens to each spouse’s assets upon the dissolution of the marriage or death of a spouse. However, for the agreement to be enforceable you must ensure that some important requirements are met.  First, each party must voluntarily enter into the agreement.  To satisfy this requirement, I always encourage the other spouse to seek independent legal counsel.  This step helps to ensure that both parties are completely informed of all the rights that that they are giving up by entering the agreement, as well as assisting both sides in understanding what the agreement means in the event of a separation, divorce or death.  In addition, each party must make a full disclosure of all his or her assets and liabilities.  Without a full disclosure, it is impossible for one to enter the agreement voluntarily, because he or she does not know all that he or she is giving up.  The best way to achieve a full disclosure of assets is to compile an accurate list of all your real estate, vehicles, valuable tangible property, bank accounts, investment accounts, stocks, retirements and other property of value.  Also included in this list should be liabilities — both secured and unsecured.  This “disclosure of assets” can then be incorporated into the agreement evidencing a complete knowledge of the assets a spouse may be giving up a right to by entering the agreement.

Once a complete disclosure is made and each party is informed of his or her rights regarding that property, the agreement itself can include but is not limited to contractual terms relating to the marital rights of each party to the use of specific property, including the right to buy, sell, encumber, etc.; the disposition of property upon separation or death; spousal support; death benefits and succession of property through each party’s estate planning documents. It is possible to craft the agreement in such a way that the happening of a certain event (one spouse abandoning the other for example) causes certain provisions of the agreement to take effect; unless that event is clearly defined and easily proved in court, however, it could create a huge wrinkle in a future divorce proceeding that the court may not be well equipped to handle.  A clause of this nature also may create undesirable consequences during the marriage.  For instance, a clause stating that if one spouse separated from the other that spouse receives nothing or pays substantially more, may encourage an undesirable marriage to persist when a separation is the best solution.  For these reasons, it is uncommon to include such terms, but not necessarily unworkable.

The most beneficial part of a premarital agreement is that it creates a mutual contractual relationship that sets in stone the proprietary rules, during the marriage and after the marriage. It is a document that can be referred to find a definitive answer on every aspect of the family’s assets, much like an operating agreement can be referred to when questions arise regarding the operation of an LLC.  It provides predictability, in a very unpredictable world.