Yours, Mine, and Ours: What Every Couple Should Know About Premarital Agreements
by Julie Crawford as published by DMagazine.com
Premarital agreements are commonly known as “prenups”–and we’re willing to bet that word conjures images of celebrity couples like Brad and Angelina. Premarital agreements, however, are not just for celebrities. Anyone who will soon be married, or is already married, can benefit from a clearly defined plan for asset splitting in the event of a divorce. D Best-winning family lawyer Julie Crawford, of renowned Texas-based firm KoonsFuller Family Law, answers common questions about these agreements and offers advice to couples in all stages of marriage.
What is the importance of a premarital agreement? Why should I consider drafting one?
The goal of a premarital agreement is to take any doubt or speculation out of the equation. You’re trying to prevent the courts’ involvement in a potential divorce. We address property each spouse owns before the marriage, and address property accrued during the marriage.
What are some common misconceptions you hear related to premarital agreements and asset splitting?
Sometimes a client will say, “That’s his account, and this is my account.” That’s not the case. We start with the presumption that everything is “community” or “ours,” if you will. I often hear, “that’s his retirement fund.” Unless there’s a marital property agreement in place, or the retirement funds were earned before marriage, it’s still divisible in divorce. Another common misconception is regarding restricted stock units and stock options. Employed spouses often say, “they’re not vested,” or “they’re not worth anything today, and I can’t even touch them.” I also hear, “if I get fired, I don’t get them.” We have a formula that still divides and takes into account what portion was earned during the marriage.
In the event that a couple gets divorced and they don’t have a premarital agreement, what are the likely outcomes?
Without a marital property agreement, the courts will presume that every bit of property is “community” and therefore subject to division. Clients often think assets will be split 50/50, but sometimes that’s not the case. If one spouse didn’t work during the marriage and doesn’t have the same business acumen or future opportunities, that person may get a bit more than 50% of the assets. Additionally, a short-term marriage will more likely be split 50/50, as opposed to a 20- or 30-year marriage where one spouse has been a stay-at-home parent. Finally, if one spouse is found to be at “fault” for the dissolution of the marriage, he or she may get less than 50%. The most common fault is adultery, and then there is also what we call “cruel treatment” (emotional or physical abuse).
If a couple is already married and they don’t have a premarital agreement in place, is it still possible to draft one?
Absolutely. You can, after you’re married, enter into a “postmarital agreement” (also called a partition and exchange agreement) that tells creditors, the other spouse, the courts, etc. how your estate is going to be divided.
If one spouse inherits money and this wasn’t part of the initial agreement, what would happen to those funds?
Inheritance is considered separate property. That would not be part of the “our” division of estate. However, in a divorce, there is an issue of tracing those funds. No one just gets the inheritance, puts it in an account, and doesn’t touch it. They want to invest it or buy something. The burden falls on the spouse with the inheritance to trace that money, and to establish that it retained its separate property character.
Do you have any advice for approaching this topic with a future (or current) spouse?
It’s easier to approach this prior to marriage, when both parties are in that rose-colored glasses stage. It’s easy to say, “Let’s just do this now to make sure we’re always together for the right reasons.” If you have any family money, you can say, “It’s going to be more comfortable for my family to know we have this in place.” Or, “I have this trust and my family isn’t going to be comfortable unless I protect it.” Some people draft agreements if they have large amounts of debt, as a way to say, “My new spouse is not going to be responsible for this debt.” For individuals who have businesses that could be sued, it makes sense to say, “Let’s do an agreement so that you’re not going to be subject to any liability that I might have with my business.”
I don’t handle my family’s finances–my spouse does. How can I protect myself and ensure that I get my fair share of our assets in the event of a divorce?
So many people come to me and say, I have absolutely no idea what my spouse has in his/her retirement fund, if he/she has stock options, et cetera. Just stay current with your information. Try to determine what you have and what you don’t have, try to be organized, and keep a file of tax returns. This will put you a step ahead if you’re facing a divorce.
The good news is, you’re entitled to all information regarding your family’s financial situation at the time of a divorce. You can take depositions; you can send discovery. It’s difficult to hide accounts or to hide assets. It’s easy to hide a little cash here and there, but if your spouse withdrew a large sum of money, we can see the withdraw on the bank account. Additionally, tax returns are like a road map. If you and your spouse have bank accounts, you will get a 1099 that shows the interest on that account. If your spouse sold stocks, cashed out retirement funds, et cetera, all of that is in a tax return. That’s one of the most important pieces of information I can get to start to analyze the estate.
Can I have my business lawyer draft this agreement, or do I need to consult a family lawyer?
If you’re taking the time to draft a premarital agreement and it’s that important to you, it would be foolish to go to anyone but a family lawyer. This is our specialty–it’s all we do.
I would strongly recommend that a family lawyer, and specifically a board-certified one, draft the agreement, and consult with a specialized lawyer in a particular field if it involves an essential part of the agreement.
While you’re here, check out our other prenuptial and postnuptial agreement posts.