Do you have a prenuptial agreement? Your experience in a divorce proceeding, if it ever comes to that, will differ greatly if you have a prenuptial agreement, particularly in terms of the way your claim will be resolved.
A “prenuptial agreement,” also called an antenuptial agreement, is negotiated and executed prior to a marriage. There is also a similar document executed after the wedding; it is called a “postnuptial agreement” and is often created when there are inheritances or large gifts to one spouse during a marriage. The following analysis weighs the benefits of prenuptial agreements. Much of the following information also applies to postnuptial agreements.
Without a prenuptial agreement, you will find yourself with less control over the division of financial assets and the legal divorce process. Instead of having your own preordained governing process to dictate what occurs upon divorce, you will be subject to state statutes and prior court rulings, which will leave you with lack of certainty as to whether your non-marital asset claims will be granted by your divorce judge.
In a divorce, all of your property is deemed either marital or non-marital. How property is categorized determines how the court will divide the property.
“Marital property” includes any interests in property and money acquired by the parties, jointly or individually, during the marriage, regardless of whose name is on the title or account. It is presumed that all property held by either party is marital property until that party overcomes the presumption by a showing that the property is non-marital in character.
The start date for marital property classification is the wedding. However, the end date can vary if you don’t have a prenuptial agreement. In a normal divorce, the end date for when asset grown ceases to be marital is the “pre-trial date”. This date could be 4-9 months after the divorce has started. Sometimes this date is earlier, but without a prenuptial agreement, there is no assurance that the date of valuation (pre-trial date) will be closely aligned to the separation or when the divorce pleadings are served.
The definition of “Non-marital property” includes 1) property and money acquired as a gift, bequest, devise or inheritance made by a third party to you but not your spouse; 2) property or money that was acquired before the marriage; 3) assets acquired by you after the valuation date; 4) assets that have been excluded by a valid prenuptial agreement; or 5) assets acquired in exchange for or is the increase in value of otherwise non-marital property described above.
Even if an asset would qualify as non-marital under the statutory and judicial definitions, it may still lose its special status through failure of proof. This one of the reasons a prenuptial agreement is so valuable. Without an agreement, the burden of proof is on the party claiming the non-marital characterization to show that it is more likely than not that the asset is traced from a recognized non-marital source. What evidence qualifies as sufficient proof varies and is very unpredictable. The premarital interests of a spouse are often unprovable given the lack of documentation, the manner in which the moneys or asset was managed through the divorce, and the lack of agreement preserving the non-marital character of the asset.
If property is marital, it is to be divided equitably. In more than half of cases this means equally but that is not the absolute rule.
If property is non-marital, it may be awarded to the owner and is generally not considered in the overall property division. This is made greatly easier with a prenuptial agreement. The award of non-marital property without an agreement depends on the burden of tracing the asset, described above, and whether the court choose to invade the non-marital asset.
If the court finds that either spouse's resources or property, including the spouse's portion of the marital property, are “so inadequate as to work an unfair hardship”, the court may, in addition to the marital property, invade the non-marital claim by apportioning up to one-half of the property to the non-owner spouse. In my experience, invasion of non-marital property occurs only in extraordinary circumstances, especially when there is a prenuptial or postnuptial agreement.
In sum, consider the court’s view of marital estates at the time of the divorce: without a valid documented agreement, the court presumes that over the years the parties jointly made all financial decisions and each spouse expected to share in the assets if the marriage were ever to end. The court is constrained by the law and the parties have little control.
When there is a prenuptial agreement, the court is more inclined to protect existing non-marital assets as the other spouse knew all along that they could not reasonably rely on a share of them, and signed away any right to claim them. The court must yield to any pre-agreed date of valuation. And the parties have preordained governing process to dictate what occurs upon divorce.