Prenuptial Agreements in California
California recognizes the right of engaged couples to modify the rules of marriage that would otherwise automatically apply absent such an agreement. They are commonly called prenuptial agreements, prenups, or premarital agreements.
Premarital agreements (PMA’s) can modify, clarify or strengthen rules including those that determine how community property is accumulated, how separate property is protected, how title to assets will be vested during marriage, how assets will be divided if the marriage ends by divorce or separation and how spouses will support each other after marriage.
Premarital agreements are contracts between prospective spouses that foster an environment of trust and confidence between the parties by defining property and support rights and obligations that will develop during the marriage. At one time premarital agreements were looked at as an expression of greed and distrust at a time when affianced couples should otherwise be promising a lifelong bond. As the mechanics of premarital agreements have developed over the years and as the legislature and the courts have supported the enforceability of premarital agreements a consensus has developed that the “availability of enforceable premarital agreement may in fact encourage rather than discourage marriage.” Marriage of Pendleton & Fireman (2000) 24 Cal. 4th 39, 99 Cal.Rptr.2nd 278.
The existence of an enforceable premarital agreement provides a sense of certainty that allows newly married couples to enjoy marriage without concern that property rights and support obligations are developing in a way that is not designed by the parties or even understood.
Premarital agreements executed after January 1, 1986 are governed by the Uniform Premarital Agreement Act which was adopted in California Family Code Section 1600, et. seq. The statutes were amended in 2002 to reflect a legislative response to the court cases of Marriage of Bonds, , and the Marriage of Pendleton & Fireman, (2000) 24 Cal. 4th 39, 99 Cal.Rptr.2nd 278., both of which broadly supported the enforceability of premarital agreements.
Property and Income Rights
Premarital agreements frequently modify or supplement the way community property laws would govern assets and income accumulated or earned during marriage. Absent a premarital agreement, all income earned during marriage as a result of labor or efforts of a spouse and assets acquired other than by gift or inheritance is community property, i.e. owned equally by the spouses. A premarital agreement can change the way income is allocated between the spouses by confirming some or all earnings to the producer as separate property. Similarly, a premarital agreement can confirm assets acquired by the spouses during marriage to one or the other spouse either partially or entirely as that spouse’s separate property.
Premarital agreements can modify statutory and case law as it would otherwise define the obligation of the spouses to support each other after the marriage. As long as both parties are represented by counsel during the negotiations of a spousal support waiver or limitation, the parties are not suffering from undue influence, that a full, fair and reasonable disclosure of assets and relevant facts has been made and the parties have had at least seven days to review the premarital agreement before signing a spousal support waiver or limitation is not impermissible.
Notwithstanding the fact that such a waiver or limitation is not impermissible it is important to note that the waiver or limitation will be tested at the time of implementation for purposes of conscionability. In other words, an agreement that seems fair at the time of entry into a premarital agreement might not be found to be fair at the time of implementation. For this reason extra caution should be taken when a spousal support waiver or limitation is desired.
Parents cannot negotiate away the right to child support before, during or after a marriage. The right to child support follows the child and is not property of either parent.
Protections and Risks Applicable Without a Premarital Agreement
It should be noted that there are many automatic protections and risks applicable to spouses who do not have premarital agreements. The most notable protection is provided by California Family Code Section 2640. This code section returns separate property to a divorcing spouse who used that property to acquire community property. In other words, if a party uses separate property as a down payment to buy a house during marriage (which is community property because it was acquired during marriage) that person would get her separate property back at the time of divorce without interest or appreciation.
Likewise, there are statutes and cases that cause an erosion of separate property interests due to the use of community property to service the asset. For example, when community property is used to pay down the principal on a mortgage on separate property the community not only received an interest in the property equal to the principal pay down but it acquires an interest in the appreciation of the property as well.
Separate property can also be put at risk if caution and precision are not used when funding a joint estate plan with a spouse. Transmutation of separate property to community property can occur if common errors are made in drafting revocable trusts and related estate planning documents. Spouses should be careful to retain experienced counsel familiar with both family law and trust and estate planning before transferring separate property to a joint revocable trust.
There are many more automatic protections and processes of erosion of a separate estate that deserve review with a qualified family law attorney.
The commonality of second marriages has also helped bring premarital agreements into the mainstream. It is obvious that parents of children from previous relationships want to ensure the existence of an estate distribution plan to benefit the children of a previous relationship as well as children of the new marriage. A premarital agreement can confirm the separate treatment of property that is most appropriately designated for children of a prior relationship.
The premarital agreement can work with a separate or joint estate plan so as to ensure that assets owned prior to marriage or assets earned during marriage are available to provide for children of the prior relationship as well as children from the new marriage.
Frequently Asked Questions
These questions and answers are not intended to be legal advice to any person. This information is general in nature and an answer given may or may not be applicable to a particular situation. Family law issues are extremely complex and competent legal advice should be sought from a licensed attorney.
1. What is a premarital agreement?
A premarital agreement is a contract entered into by two people in anticipation of marriage which specifies how property, debts and other issues will be dealt with in the event of a divorce and how property is managed during marriage.
2. Why do I need a premarital agreement?
There are any number of reasons why you might need a premarital agreement. Often when one thinks of premarital agreements the scenario that comes to mind is where one party is wealthy and the other is not wealthy. In cases such as this, a premarital agreement is meant to both protect the wealthy spouse’s property and ensure a fair result for the other less financially able party. However, a premarital agreement is just as important whereby one party has substantial premarital debt, interests in partnerships or other business practices or when one party has wealthy family members and they expect to inherit a substantial estate.
3. Does everyone getting married need a premarital agreement?
No, not everyone needs a premarital agreement. However, a little planning can go a long way in any marriage. Negotiating a premarital agreement forces a couple to look at their current financial circumstances and evaluate the “what ifs” that might arise in a marriage and can be particularly useful in defining how assets will be managed during the marriage.
4. Are there specific requirements to make a premarital agreement valid?
Yes, and missing any one of the requirements can completely invalidate the entire agreement. If you intend to enter into a premarital agreement, it is imperative to discuss the agreement in detail with an attorney familiar with all of the requirements and have that attorney draft the agreement or review it for all of the requirements before signing it.
5. Are premarital agreements expensive?
Not typically. While there are some circumstances that require complex attorney time, experienced premarital agreements attorneys can handle premarital agreements rather routinely and inexpensively.
6. What is the difference between “post marital” and “premarital” agreements?
Aside from the difference in timing of these two agreements, the primary difference is the requirements of making these agreements enforceable. Both have specific items which must be included and completed to make them valid. You must consult with an attorney if you intend to enter into an agreement with your spouse. If any requirements are not met or included, the entire agreement can be unenforceable and you will not be provided any of the protections you thought you acquired.
7. Does a premarital agreement cover alimony?
Yes. One of the items that can be included is the type of support that will be paid if the marriage ends and how much will be paid. It can even include a complete waiver of spousal support. However, this particular issue can still be unenforceable if it is considered unconscionable by the court at the time of enforcement.
8. Does a premarital agreement affect child custody or child support?
No. A premarital agreement affecting child custody or child support is unenforceable as it is against the public policy of the state. The courts will always have the right to determine the best interests of the child in ordering custody and support.
9. How do I keep my separate property safe?
You can keep your separate property safe by taking precautions early. First, put a prenuptial agreement in place. Then avoid co-mingling your separate property with community property. This entails keeping separate accounts and not paying down encumbrances on separate property with community property funds. In California, it is somewhat difficult to change the character of a separate property asset into community property. The law allows for tracing and reimbursement, but you should be fully informed of the types of actions which can alter the character of property.
10. Do I need my own attorney if my fiancé’s lawyer prepared a premarital agreement?
In any case involving a waiver of spousal support, it is required that both parties be represented by their own attorney. California, in response to a ruling in the Barry Bonds divorce case, changed the law to require that parties waiving or limiting spousal support have legal representation when executing the agreement. You should always have your own attorney review any premarital agreement to ensure enforceability and that your rights are being protected.
11. If my spouse and I have a premarital agreement can we change the terms later?
Yes, provided that both parties agree to change the terms. You can always modify, terminate, or renegotiate an agreement between two parties. However, this is not the case if only one of the parties wishes to make changes.
12. Can a premarital agreement ever be invalid?
Yes. A premarital agreement can be invalid, or portions of it can be unenforceable, if any of the requirements for making the agreement are not met. Premarital agreements can also be unenforceable or invalid where it can be shown that the agreement was entered into by a party under duress or coercion, or where it is shown that the terms of the agreement are unconscionable.
13. Can I have my spouse agree that they will not be entitled to spousal support if we divorce?
Yes. Unlike child support a waiver of spousal support is generally enforceable in California. However, this particular issue is very complex and requires the advice of counsel.
14. Can a premarital agreement determine how my spouse’s property is distributed after his/her death?
Yes. A premarital agreement can provide for waivers of, or rights in, each of the spouse’s separate property interests, specific gifts upon death of spouse either to the other spouse, children, children of a previous marriage, or any other third party. In addition, premarital agreements can include provisions for life insurance for either or both of the parties upon the death of the other.