A prenup (also known as a prenuptial, premarital, or antenuptial agreement) is an agreement between two people who are planning to marry. When most of us hear the word “prenup,” we envision a well-to-do man presenting his less wealthy and far younger fiancé with a document that states she will receive little or nothing in the event the couple divorces. This may have been the norm sometime in the past, but it is not the norm today.
More and more women are marrying later in life, or marrying a second time. And an increasing number of women, after an unhappy marriage or difficult divorce, are deciding to cohabitate in their next relationship and not marry at all. Many women earn a substantial income and have amassed assets of considerable value. For these women, entering marriage with a properly planned and executed premarital agreement is not only a smart business decision, but a smart relationship decision, as well.
[If you are a woman who is planning to live with a partner without a marriage contract, a cohabitation agreement can be set up to protect you and your assets in much the same way as a premarital agreement. Please see our article on cohabitation agreements.]
Why You Need a Prenuptial Agreement
If you are a woman contemplating a second marriage, you may have a career or own a business. You may have a pension plan, investments, and bank accounts, as well as children from a previous marriage. You may be earning, or anticipate earning, a lot of money and want to retain the right to do what you want with that income after you marry.
Without A Prenup, Most of Your Assets Will be Jointly Owned
In Pennsylvania, when you marry without a prenup, the assets you acquire and the income you earn during your marriage are considered the property of both you and your spouse (known as “marital property”). The only assets that remain your separate property are those you acquired before marriage and any gifts or inheritances you receive during marriage (known as “non-marital property”). Marital property also includes any income that is earned during the marriage on non-marital property, such as interest on an investment made before the marriage.
When a couple owns assets jointly (as they do any “marital property”), either spouse has the right to dispose of or use those assets in any way he or she wishes. For example, your spouse may execute a will that leaves all your marital assets to someone else. If he predeceases you, you may lose everything but the forced one-third share allowed to a spouse who has been disinherited.* Likewise, if you divorce, your marital assets will be divided between you in an equitable distribution and you may receive only half or less than half of everything you have worked for.
A Prenup Allows You to Designate Joint Assets as Separate Assets
A prenup can prevent these unwelcome (and often, unanticipated) developments. You and your spouse can agree to designate what would otherwise be considered marital property (and thus, owned by both of you) as non-marital property (and thus, owned separately). In fact, you and your spouse can agree to just about anything you wish in a prenup, as long as you fully and fairly disclose your assets to each other (to be discussed below). You may agree, among other things, to what will be included in your wills, who will own and receive what upon death or divorce, from which assets certain debts will be paid, and how expenses will be shared between you.
Things You Want to Protect
The following are among the issues women marrying a second time may wish to address in a prenuptial agreement:
- Assets for Children from a Previous Marriage
If you have children from a previous marriage, you may feel that certain assets you acquired during that first marriage should eventually go to your children, rather than to your second husband. Generally, these assets will be considered non-marital assets and, thus, your individual property, but the income on those assets that is earned during marriage will belong to both of you. You can agree in your prenup that the income as well as the assets will go to you if you divorce.
You can also agree that you will leave these assets and the income thereon to your children in your will, and that your spouse will not contest this disposition of your assets. In other words, you and your spouse can agree to the terms of each other’s wills and can also agree that you will not later contest these wills or force a share,* as would otherwise be allowed under the law.
In addition, you may anticipate acquiring assets during your marriage that would ordinarily be considered marital assets, but that you would also like to eventually pass to your children. You can agree in your prenup to preserve these assets for your children, as well.
- Payment of Spousal and Child Support from a Previous Marriage
Your fiancé may have spousal and/or child support obligations from a previous marriage. You can agree in your prenup that these obligations will be satisfied exclusively with your fiancé’s individually-owned assets.
- Asset Distribution upon Divorce
As stated above, you can agree in your prenup to which assets will go to you upon divorce. You can also agree that whichever spouse might be entitled to alimony in the event of divorce will accept a distribution of assets in lieu of such alimony. This will prevent you from being required to pay alimony to your husband if your income is higher than his at the time you divorce.
This may also be a wise decision, even if your husband is expected to have the higher income at the time you divorce. Women marrying a second time are generally older than those marrying for the first time, and may be in their fifties or beyond when they divorce. At that time of life, an asset distribution can be a more workable and safer solution than alimony, as your aging spouse may die or become unemployable before his entire alimony debt to you has been paid.
(For additional discussion of issues facing older divorcing couples, see Divorcing Baby-boomers: You Don’t Need to Lose Everything You’ve Worked For.)
- Separate Businesses
You and your fiancé may own and run separate businesses before you marry or may start separate businesses after you marry. You can agree in your prenup that these businesses and any income earned thereon will remain your separate property after marriage. They will pass to you alone in the event you divorce and can be willed by you to someone other than your spouse.
- Separate Debts
Your fiancé may come to your marriage with business or other debts. You may also anticipate that he will incur a certain amount of debt after you marry, and that you will not wish to be saddled with any portion of this debt.
You can agree in your prenup that certain of your fiancé’s debts will be satisfied from his business assets or his separate personal assets and not from yours.
Making Sure Your Prenup Will Be Enforced
In Pennsylvania, a prenup will generally be enforced as long as it was entered into voluntarily and each party provided the other with a full and fair disclosure of his or her assets and liabilities. If both these requirements are met, your prenup will be enforceable even if it is one-sided and strikes an “unfair bargain” for one of the parties.
The only difference between the law’s treatment of prenups and other contracts is in the requirement of full and fair disclosure. Because the parties to this particular sort of contract are in a relationship of trust beyond that existing between parties to a purely business-like contract, the law requires the parties to give each other a complete and honest appraisal of their financial situations before the prenup is executed.
Waiver of Full and Fair Disclosure
Yet, even the requirement of full and fair disclosure can be waived. In the recent 2013 Pennsylvania Superior Court decision, Lugg v. Lugg, one party waived full and fair disclosure and then later argued that it could not be waived. The court disagreed. It found that although full and fair disclosure is required for a prenuptial (or postnuptial)** agreement to be enforceable, when a party voluntarily waives this requirement in writing, the requirement will be seen to have been satisfied. This decision, thus, moves the treatment of prenups by Pennsylvania courts even closer to that of other contracts.
Specificity of Full and Fair Disclosure
Pennsylvania courts have also made it clear that the specifics of the financial disclosure need not be included in the prenup. If the prenup contains a statement that full and fair disclosure has been made by each party, it will be presumed that the disclosure was indeed made.
In the 2003 Pennsylvania Superior Court decision, Sabad v. Fessenden, the wife sought to enforce a prenuptial agreement during the couple’s divorce. The agreement stated, in part, that “each of the parties owns individually real estate and personal property, the nature and extent of the holdings of each party having been disclosed to the other . . ..”
The husband argued that the full and fair disclosure requirement had not been met because the prenup did not contain the financial disclosures of the parties and because the disclosures made were not detailed enough. The court found that the statement in the prenup that disclosure was made was adequate to create the presumption that such disclosure actually was made, and that the presumption could be rebutted (or proved to be false) only upon a showing of fraud or misrepresentation. The court also found that the specifics of the financial disclosure need not be exact and that they need not be included in a prenup or otherwise reduced to writing in order to satisfy the disclosure requirement.
(For additional discussion of the enforceability of prenuptial agreements, see How Premarital Agreements for PA Business Owners Help Protect Assets.)
Your Prenup is a Both a Smart Relationship and a Smart Business Decision
Prenuptial agreements for women marrying a second time are not only smart business decisions, but smart relationship decisions, as well. The full and fair disclosure required in order to properly execute a prenup can go a long way toward creating a sense of security and trust between you and your intended.
Honesty and openness can strengthen your relationship, eliminate uncertainty, and set your minds at ease regarding mutual expectations. Begin your new marriage with an agreement that will make your married life easier and lessen the difficulties of divorce, in the event your marriage does not survive.
*Unless you and your spouse agree to the contrary in a prenuptial or other agreement, your spouse is entitled under Pennsylvania law to one-third of your estate, even if you leave him nothing in your will. This so-called “forced share” is designed to protect spouses from being disinherited unless the disinherited spouse knowingly agreed in writing to the disinheritance.
**Although Lugg v. Lugg dealt with a postnuptial agreement (one made after marriage rather than before), the law relating to prenuptial and postnuptial agreements is the same, so that the analysis of Lugg will be applicable to both.