Prenuptial Agreement Basics

Prenuptial Agreement
Prenuptial Agreement

Previously in this blog, we have touched upon the use of a prenuptial agreement to shelter business interests and alternative legal mechanisms to achieve the same, or similar, results (i.e. shareholder agreements and trusts). However, prenuptial agreements, or colloquially “prenups,” may be appropriate even when there is not a business interest to protect. For people entering into a second or third marriage, and who as the primary breadwinner earn significant income, they may wish to limit their exposure to lengthy, and costly, litigation over alimony. In other instances, the prenup may specifically insulate one spouse from substantial debt either brought into the marriage by the other or anticipated to be incurred by the other sometime during the marriage. In any event, parties should have a basic understanding of how a prenup functions to better understand how it may, or may not, be a worthwhile investment.

Initiating the discussion of a prenup with your fiance’ will force you to confront some potentially difficult questions. This can no doubt chill the heat of a romance. However, parties avoid this discussion to their own detriment and true love should be able to survive the reasonable concerns that a prenup is intended to address. Much of the negative reputation comes from a lack of basic knowledge regarding the intent and mechanics of the process. As with many things, knowledge is power and can allow the parties to broach the subject of a prenup as rational adults.

Obviously the purpose of a prenup is to fix and establish the rights of each spouse as to the division of property and/or support upon death or divorce. In New Jersey, the standards of such agreements and their enforcement are governed by statute (N.J.S.A. 37:2-38). To be valid, a prenuptial agreement must be in writing. As it is a contract, it must also be supported by proper consideration. That is, there must be a bargained for exchange of the terms. It must be entered into voluntarily, without coercion, and the parties must represent their competence to enter into such agreements. Importantly, the statute provides that the parties must each make a full and fair disclosure of assets, liabilities and income. Finally, it is critical that the parties consult with independent legal counsel, or else waive their right to do so in writing. Once these requirements are met, it is difficult to set aside the agreement, whether in part or in its entirety, though it is possible per the statute. (See N.J.S.A. 37:2-38 (a) – (c)).

The results of prenuptial agreements when put into effect can be far reaching. But people are marrying later in life after having already established careers and accumulated sometimes significant asset portfolios.  Since it is good planning, and with a desire to limit costs of divorce, there is no reason that prenuptial agreements should not become more commonplace – and lose some of the negative connotations that they invoke.

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