What are prenuptial agreements?

A prenuptial agreement or premarital agreement (often referred to or abbreviated as a prenup) is a legal contract that is entered between couples that intend to marry each other. This enables the couple to select and monitor the legal rights that the couple acquire upon marrying or when the marriage is dissolved either through divorce or any other means. In this article, we will understand more about the same and also discuss the advantages and disadvantages of entering into a prenup agreement. It is just the thing you need to read if your wedding is right around the corner and want to secure your finances or assets and know about your legal rights. We will also be discussing different countries’ stand on prenuptial agreements.

Similar to a pre-nuptial agreement, we also have a postnuptial agreement which is the same thing but happens after the couple is married. When divorce is imminent, postnuptial agreements are referred to as separation agreements.[1] Laws regarding prenuptial and postnuptial agreements depend on state to state and country to country. In some countries, the concept of a prenuptial agreement is not legally recognized.

Legislation in Different Countries:

1. Canada’s laws regarding prenup are governed based on different provinces and territories. For instance, in Ontario, prenuptial agreements are called marriage contracts, and they are recognized by section 52 of the Family Law Act.[2]
2. United States: All fifty shades in the United States recognize and enforceable prenups as well as the District of Columbia. It has been reported that the demand for prenuptial agreements in the United States has increased in recent years, particularly among millennial couples.[3] In a 2016 survey conducted by the American Academy of Matrimonial Lawyers (AAML), member attorneys reported seeing an increase, with the strongest interest in protecting increases in the value of separate property, inheritances, and division of community property.[4] In a 2015 case law,[5] that granted legality to same-sex marriage and considered it equal to opposite-gender couple marriages. As such the effect of prenups in same-sex marriage holds the same validity that prenups hold in opposite-gender marriages.
3. California: In a 1990 California case, the court of appeals enforced an oral prenuptial agreement in the probate of the estate of one of the parties because the surviving spouse had substantially changed her position in reliance on the oral agreement.[6] However, following changes in the statutory law, it has become much more difficult to change the character of a community or separate property without a written agreement.[7] Parties must wait seven days after the premarital agreement is first presented for review before they sign it, but there is no requirement that this be done a certain number of days before the marriage.[8] In California, through a prenuptial agreement, a couple may waive their rights to share property (community property).[9]
4. Australia: Prenuptial agreements are recognized in Australia by the Family Law Act 1975 (Commonwealth).[10] In Australia, a prenuptial agreement is referred to as a Binding Financial Agreement (BFA).[11] For a BFA to be binding and enforceable, both parties must be provided with Independent Legal Advice from a legal practitioner about the effect of the agreement on the rights of that party and about the disadvantages and advantages, at the time that the advice was provided, to that party entering into the BFA.[12]

“How Prenups Work

Each state has rules for prenups, but the American Bar Association notes that “all mandate that such agreements be procedurally and substantively ‘fair.’ Determining whether an agreement is fair requires knowledge of basic principles of contract law such as capacity, duress, fraud, and undue influence.”

Reasons for entering into these agreements vary, though wealthier spouses typically initiate prenuptial agreements to protect property. In addition, older couples may each want such an agreement because they may have assets or retirement income to preserve and protect and may want to see that children from prior marriages are awarded part of their estate.

Prenups can be a source of contention for couples, especially if one partner has much more wealth than the other. A percentage of prenups wind up in court when the marriage dissolves. A judge will be asked to decide whether the agreement was fair and not coerced. Courts generally take a dim view of prenups that are sprung on a spouse on or near the wedding day. 

A prenup generally contains a listing of each partner’s individual assets, some indication of which individual assets will remain the property of each spouse in the event of a divorce, guidelines on how property acquired during the marriage will be divided in a divorce, language on responsibility for debts acquired before and during the marriage, and some outline of spousal support such as alimony should the marriage end.”[13]

At one time in American legal history, courts in the United States did not enforce prenuptial agreements that addressed what would happen upon divorce because courts viewed them as agreements that contemplated divorce, and hence encouraged divorce.[14] The United States, as a general matter, highly values contractual freedom—so much so that the concept of the right to contract and to have those rights enforced is enshrined in the United States Constitution.[15] Unlike other countries that prohibit or refuse to enforce prenuptial contracts, most courts and legislative bodies in the United States now take the general position that prenuptial agreements are enforceable if they meet certain formal procedural requirements and are otherwise valid contracts under general contract principles.[16] Given that most states have enacted statutes addressing prenuptial agreements, there is also the complex interplay between the common law and statutory law.[17]

There is a Uniform Prenuptial Agreement Act (UPAA), which approximately 26 states have adopted but, each of these states has included its own modifications to the UPAA.[18] The UPAA requires no other formalities beyond the agreement being in writing and signed by both parties.[19] The UPAA favours enforceability, so that not only must the agreement be unconscionable when executed but there must have been no disclosure or waiver of disclosure or other imputed knowledge of the other party’s assets and income.[20]

Case Law: “In Gottlieb v. Gottlieb, the Supreme Court of New York, Appellate Division, First Department noted that the prenuptial agreement in question was the product of months of negotiations among the parties and their attorneys. This agreement contained the distribution of assets, spousal maintenance and health insurance, inheritance rights, etc., in the event of a divorce. The court emphasized that public policy is in strong favor of parties defining their own interests through premarital contracts; a duly executed prenuptial agreement has the same presumption of legality as other contracts. In fact, in Anonymous v. Anonymous, the same court declared that a prenuptial agreement is presumed to be valid and controlling unless and until the party challenging it meets their high burden to set it aside.”[21]

Pros and Cons of Prenuptial Agreement

1. Couples need not bring their separate lawyers as long as they have a good understanding between them of how their assets will be divided.
2. More often than not, although bringing up the topic of a prenup might be awkward or uncomfortable but in the long run it can avoid emotional strain and unnecessary tension.
3. A prenuptial agreement will be beneficial at times of unforeseen future changes,
4. One can avoid legal complexities in the future if there is a simple prenuptial or postnuptial agreement drafted,
5. It is the most logical step and securing oneself even though it might look as and or be perceived as unromantic or illogical,
6. A prenuptial agreement often provides financial clarity and outlines financial responsibilities as well,
7. An agreement will save you cost and time in cases of future divorces and any additional court or lawyer fees,
8. One can protect their assets as well as avoid any future legal battles.

[1] Alexander Lindey and Louis I. Parley, Lindey and Parely on Separation Agreements and Antenuptial Contracts 1.21[1] (1998). See, e.g., Combs v. Sherry-Combs, 865 P.2d 50, 54 (Wyo. 1993). ("A postnuptial must be distinguished from a separation agreement. A separation agreement, entered into by parties in anticipation of immediate separation or immediate separation or after separation, is favored in the law.")

[2] "Prenuptial Agreements by Province".

[3] Grant, Kelli (January 10, 2019). "Jeff Bezos didn't have a prenup. But maybe you should". CNBC.

[4] "Prenuptial Agreements on the Rise Finds Survey". American Academy of Matrimonial Lawyers. 

[5] Obergefell v. Hodges, June 26th 2015.

[6] "Hall v. Hall, 271 Cal. Rptr. 773, 222 Cal.App.3d 578 (1990)". Google Scholar. 

[7] "In re Marriage of Benson, 32 Cal.Rptr.3d 471, 36 Cal.4th 1096 (2005)". Google Scholar. 

[8] See Cal. Fam. Code § 1615(c)(2).

[9] Tour-Sarkissian, Christine (7 July 2016). "When Does Separate Property Become Community Property (or Vice Versa)?". Real Property Law Reporter, Continuing Education of the Bar. doi:10.2139/ssrn.2912717. S2CID 168829073.

[10] "Family Law Act 1975 - Sect 90C". Commonwealth Consolidated Acts. Australasian Legal Information Institute. 

[11] "Family Law Act 1975 - Sect 90C aa". Commonwealth Consolidated Acts. Australasian Legal Information Institute.

[12] "Finances and property: Financial agreements". Federal Circuit and Family Court of Australia.

[13] Prenuptial Agreement: What it is, How it Works (investopedia.com)

[14] See AMERICAN LAW INSTITUTE, PRINCIPLES OF THE LAW OF FAMILY DISSOLUTION: ANALYSIS AND RECOMMENDATIONS § 7.01 (2001).

[15] U.S. CONST., art. I, § 10.

[16] See, e.g., UNIF. MARITAL PROP. ACT §§ 3, 10, 9A U.L.A. 115, 131 (1998); Hrudka v. Hrudka, 919 P.2d 179, 186 (Ariz. Ct. App. 1995). See also Allison A. Marston, Note, Planning for Love: The Politics of Prenuptial Agreements, 49 STAN. L. REV. 887, 898 (1997)(noting that “prenuptial agreements that include divorce provisions are now generally enforceable in all states”).

[17] See P. André Katz & Amanda Clayman, When Your Elderly Clients Marry: Prenuptial Agreements and Other Considerations, 16 J. AM. ACAD. MATRIM. LAW. 445, 462 n.2 (2000)(listing state statutes).

[18] UNIF. PREMARITAL AGREEMENT ACT, 9C U.L.A. 48 (2001).

[19]  Id at Section 6.

[20] UNIF. PREMARITAL AGREEMENT ACT, supra note 12, at § 6.

[21] prenuptial agreement | Wex | US Law | LII / Legal Information Institute (cornell.edu)