To Prenup or Not to Prenup

Prenuptial agreements, also known as antenuptial agreements, have been the source of much discussion in the world of wedding planning. These agreements generally determine how assets are to be divided between spouses in the event of either divorce or death. We use the term “spouses” rather than “husband and wife” to recognize same-sex marriages and include all forms of marriage and civil unions. Are these agreements appropriate and recommended for all marriages? To properly address the issue, we must discuss the circumstances of the parties to the marriage, then the various forms of prenuptial agreements, and finally, divorce versus death.

A prenuptial agreement is most often desired where one or both parties have children from a previous marriage. Either or both parties to the marriage may wish to leave an inheritance for their children from a previous marriage. Either or both parties may have already lived through a contentious divorce and do not want to make the same mistake again. Virtually every marriage begins with the belief that the union is forever. Individuals previously married may have already experienced disillusion with this belief. Well-drafted prenuptial agreements can ensure that children are not denied their proper inheritance and result in a fair resolution of most financial issues in the event of divorce.

Prenuptial agreements can also prove helpful in certain first marriages. If a potential spouse has a significant trust fund or pending inheritance, a prenuptial agreement can offer a calming effect on both the monied spouse as well as that spouse’s entire family. Both premarital trust funds and inheritances are typically considered separate property that are not subject to division in the event of divorce. A prenuptial agreement establishes the agreement of the parties that these items are separate property, not subject to division.

In divorce, courts may invade the separate property of one party if the court determines that the marital assets are “insufficient for the suitable support and maintenance” of the claimant and any children in his or her care (MCL 552.23; Pickering v. Pickering, 268 Mich App 1, 8-9, 706 NW2d 825 (2005). This is often referred to as the “insufficiency test.” Currently, in the State of Michigan, a prenuptial agreement pre-empts the insufficiency test. When a prenuptial agreement is entered by the Court, it eliminates the Court’s ability to invade separate property protected by the valid prenuptial agreement. Separate property may be invaded by the Court absent a prenuptial agreement, but separate property protected under a valid prenuptial agreement should be safe and not subject to invasion.

Just as there are many different circumstances surrounding marriages, there are also many different types of prenuptial agreements. A prenuptial agreement may be all-encompassing, addressing every financial issue related to divorce and death, or it may simply protect a single premarital item, such as a trust fund or ownership of a family business. The most common prenuptial agreement drafted by the Berlin Family Law Group defines property by categories and then discusses the disposition of each category of property in the event of divorce or death. Examples of categories of property include premarital property, property earned during the marriage, inheritances, and gifts.

Even without a prenuptial agreement, premarital property is not typically subject to division. A prenuptial agreement can ensure that the parties agree on property that is designated as premarital by simply listing the property in the agreement. A prenuptial agreement can also designate additions to the premarital property and/or appreciation in the value of a premarital property as protected and not subject to division in the event of divorce. A prenuptial agreement can help avoid common errors with premarital property, such as the other spouse contributing to the premarital property (contribution test) or invasion of separate property by the divorce court (insufficiency test).

Marital property is property earned by a spouse during the marriage. This property is typically subject to division in the event of divorce. A prenuptial agreement can provide for equal or equitable division of this property or that any property earned by a spouse during the marriage that is deposited into a separate account in the name of only one spouse remains the separate property of that spouse. Currently, Michigan courts allow parties to decide these issues on their own and enter into valid prenuptial agreements determining how property is to be divided in the event of divorce or death. Such agreements typically require the parties to maintain strict and formal accounts with appropriate designations of ownership. It is common for the parties to maintain three accounts. Each party maintains his or her own individual account, and the parties maintain a joint account. Ownership of funds earned during the marriage is determined by the account into which the funds are deposited.

Finally, many prenuptial agreements treat divorce and death differently. In drafting a prenuptial agreement, a spouse may want to leave everything to the surviving spouse in the event of death but may want his or her spouse to have nothing in the event of divorce. In the case of a second marriage, one party may want his or her children from a previous marriage to receive their intended inheritance, yet they likely want his or her surviving spouse to be able to live happily and certainly not be left homeless. It is important to note that a will or trust can typically be amended or terminated at any time before the death of that party, but a prenuptial agreement, once signed, is not modifiable except with the mutual consent of both parties and then only under certain specific circumstances.

The negative side of premarital agreements is obvious. On the verge of marriage and during the planning stages of the wedding, the last thing a loving couple wants to discuss is death and divorce. While the couple is in the midst of choosing a wedding venue, caterer, band, flowers, and clergy, they do not want to discuss property division. These discussions can hurt relationships not just between the parties but also between both families. Typically, one spouse introduces the idea of a prenuptial agreement to an unwilling or hesitant spouse. This can create a terrible future for the entire marriage. This is especially true for first-time marriages. Along the same lines, prenuptial agreements almost always favor the wealthier spouse and harm the spouse with lesser means. This creates a situation where one spouse must coerce the other spouse into a likely inequitable agreement. A prenuptial agreement requires the parties to have a crystal ball. Nobody knows the future, and a prenuptial agreement requires the parties to predict the hereafter.

In planning my youngest daughter’s wedding, I considered the necessity of a prenuptial agreement. In our case, the groom is 30 years old and has a significant and successful work history in residential real estate. While he was previously married, he has no children. My daughter is 22 years old and just earned an undergraduate degree in teaching. She has virtually no work experience but does have a trust fund. After reviewing all the facts as they apply to prenuptial agreements, I came to the conclusion that there would be no prenuptial agreement. While I was concerned about protecting my daughter’s trust fund, I also recognized that it would be highly unlikely that this formal trust fund, with a long history, would be invaded in the event of divorce. I also consider that my daughter and her fiancé are religiously observant and plan to have several children. It will likely be my daughter who stays home to care for the children while her husband builds the family’s financial dynasty. Like most parents, I have great hopes, financially and otherwise, for this young family, and a prenuptial agreement does not appear to be part of their future.

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