What is a Prenup?
A prenuptial agreement is a financial contract signed by two people before they get married. It spells out the terms of what will happen in the event that the marriage ends, whether by death or divorce, and can also address what happens in the event of separation. Prenuptial agreements can cover all of the couple’s assets, such as bank accounts, real estate, pensions, and retirement accounts. Because these assets can be significant and/or may have been acquired when one person was single, some people believe prenuptial agreements are unromantic or unloving, like putting on a raincoat when you’re at the beach or wearing a parachute while jumps out of an airplane. But with the divorce rate still hovering around 50%, many couples are more relaxed and pragmatic about discussing the potential for dividing assets (and debt) in the hopefully unlikely event of divorce. The fact is that many premising and later-married couples have mixed, diverse, or complicated assets. Some have been married previously and have children or grandchildren. Many have created significant assets before meeting their current spouses. Others have a family business that is intended to stay in the family. As to assets, the parties may not have equal assets or be in the same financial position. In North Carolina, in most cases, if either party should die, the remaining spouse is entitled to, at a minimum, one-quarter of the other spouse’s estate. However , this is not automatic. Particularly for spouses with children by previous marriages, a very small percentage of estates are actually probated and wills are followed. A prenuptial agreement may not only protect the assets, it may omit the surviving spouse from inheriting at all (in fact, there are several different types of marital agreements that have different results). A prenuptial agreement set forth different entitlements to assets or property. For example, a prenuptial agreement may be particularly helpful in clarifying the type of marital property and separate property premised spouses each can keep. Assets may have been acquired before marriage and just need to be identified. Other assets may have been acquired during marriage through a third party (such as an inheritance) or other means that is identified. Other considerations include: There is no official form for prenuptial agreements in North Carolina. However, there are certain requirements for a prenuptial agreement to be valid. Some of these include: This is just a brief overview of prenuptial agreements in North Carolina. Each prenuptial agreement is different, focuses on different issues, depending on the specific goals of the parties. And most prenuptial agreements should be reviewed by a lawyer, each spouse represented by separate counsel. While some people may view a prenuptial agreement on the negative, well-thought out a prenuptial agreement can avoid confusion, disagreement, and stress down the road, which many couples appreciate.
Legal Requirements of a Prenup in NC
In North Carolina, the legal requirements for a prenuptial agreement are outlined in G.S. 52-10 and G.S. 52-11. For a premarital agreement to be enforceable in North Carolina, it must satisfy several specific criteria:
- Competition After Full Disclosure: The agreement must be signed voluntarily by both parties after the "full disclosure in writing of the property or financial obligations of each party . . ." If either party has not fully disclosed their assets and debts, the agreement may be unenforceable.
- Fair and Reasonable Provision: The agreement must make a fair and reasonable provision for the other party. However, Section 52-10 allows a prenuptial agreement to limit the amount one party may recover for a marital tort claim i.e. a personal tort claim that occurred during the marriage.
- Consideration: A marriage is considered sufficient consideration to support the enforceability of a valid prenuptial agreement.
- Oral Agreement: In general, a prenuptial agreement must be in writing and signed by both parties. However, the statute waives this requirement if it is not possible to sign the agreement before marriage due to circumstances. For example, if one party is overseas, there can be an oral prenuptial agreement valid after marriage.
- Statement of Independent Counsel: The statute allows for the inclusion of a statement by each party acknowledging receipt of independent counsel in connection with the negotiation and execution of the agreement.
- Capacity to Contract: Each party must have the capacity to contract in North Carolina.
- No Child Support Provision: The statute expressly states that a premarital agreement cannot make any provision for the care, custody, education or support of any children of the parties.
Exceptions to the Statutory Requirement of Notwithstanding the statutory requirements for a binding prenuptial agreement, the statute creates exceptions. In the event of fraud, misrepresentation, undue influence, mental incapacity or unconscionability at the time the contract was written, a court may set aside the agreement.
Advantages of Prenuptial Agreements
Entering into a prenuptial agreement can result in a number of important benefits, most notably:
The ability to protect assets from exposure to equitable distribution claims in the event of a future separation;
The ability to limit or preclude spousal support claims, regardless of the amount of time the marriage lasts;
The ability to set forth exactly what property will be considered marital and what will not;
The ability to protect a family business and perhaps keep it from being exposed to equitable distribution claims after a future separation;
The ability to protect an inheritance received during the marriage, except under very limited circumstances;
The ability to preserve the right to manage a premarital business or professional practice;
The ability to return to premarital financial conditions in the event of an untimely death;
The ability to protect a spouse from indebtedness unilaterally incurred by the other spouse, except to the extent that the spouse chose to benefit from the product acquired;
The ability to tailor financial expectations including provisions for the parties’ financial commitments to each other before and during marriage;
The opportunity to address carefully in advance the difficult issues raised in the event of a separation or divorce, while emotions are generally not involved.
Common Prenup Provisions in North Carolina
A prenup can include a variety of clauses, depending on the priorities of each party. The following is a brief overview of common clauses included in many premarital agreements:
Property Division
Two parties may agree that in the event they divorce, certain property set forth in an attachment will remain separate and not subject to equitable distribution under North Carolina law. If the property received during the marriage is less than the amount set forth in the attachment, the non-titled spouse receives as separate property the difference.
For example, assume a premarital agreement provides that 75% of all gifts and inheritances remain separate property and only 25% of property acquired during the marriage is subject to equitable distribution. If the parties’ non-retirement assets included $100,000 in gifts and inheritances, and $50,000 in acquired property, the titled spouse would receive his or her share (either 50% or 25%, depending upon the classification of assets) but the non-titled spouse would receive an additional $25,000 representing the amount of "separate property" assets that were not reached during equitable distribution.
Spousal Support
Wife and Husband may become involved in litigation shortly after the divorce. Therefore, they may agree that premarital support obligations will continue until the sooner of their deaths or their remarriage, or they may agree that such obligations are completely precluded. An obligation to pay support does not expire until the non-titled spouse remarries. Another common clause prohibits the parties from seeking spousal support in either a divorce or a post-separation support action.
Other Limits
In an attempt to ensure an enforceable contract, the parties may limit the types of claims of the parties. For instance, Husband and Wife may limit the types of claims each has against the other’s Estate, or waive any and all potential will and intestacy claims. They may also limit the types of claims that may be brought during their marriage against each other.
Disclosure
In order to ensure fairness, North Carolina law requires the parties to disclose all property owned, and debts owed, to the other before entering into a premarital agreement.
Challenging a Prenup
Enforcement of a prenuptial agreement is subject to challenge on a number of grounds. To be enforceable, the agreement must not have been obtained through fraud, undue influence, duress or mistake. For a premarital agreement to be fair, there must be full disclosure of assets and protections against overreaching and nondisclosure.
To be enforceable, a premarital agreement must be executed by the parties: (1) voluntarily; (2) without either party being under duress or undue influence; (3) with full and fair knowledge of the financial circumstances of each party; and (4) pursuant to proper execution requirements under North Carolina law.
The Uniform Premarital Agreement Act provides that a premarital agreement shall be enforceable without consideration. The parties negotiate in the absence of consideration and at arm’s length. North Carolina case law also suggests that the equal bargaining power of the parties renders the absence of consideration even less significant.
Section 52-10.3(b) provides that a premarital agreement shall be enforceable without consideration, as well.
A premarital agreement is unenforceable if the party against whom enforcement is sought proves that (1) such party was not provided a fair and reasonable disclosure of the property or financial obligations of the other party; or (2) such party was not given a fair and reasonable opportunity to acquire knowledge of the property or financial obligations of the other party; or (3) such party was not represented by or given the opportunity to consult with independent legal counsel; or (4) such party did not have adequate knowledge of such property or financial obligations .
In determining the unfairness of either a spousal waiver or a waiver of rights under a premarital agreement, the court shall consider the following factors: (1) the amount of property or financial obligations which would otherwise be available to the spouse in lieu of the waiver; (2) the contribution of the spouse as a homemaker; (3) whether each party has independent means; (4) the effect of the waiver on the spouse’s ability to provide for the continuing care of minor children; (5) the hardship which enforcement of the waiver would cause to the spouse; and (6) any evidence of voluntariness of the waiver.
Interested parties will sometimes attack the validity of a marriage after the fact in efforts to set aside the postnuptial agreement. For example, either party can seek to invalidate the marriage under N.C.G.S. 51-7.
The party seeking to invalidate the agreement has the burden of proof. The standard of proof is a preponderance of the evidence.
Premarital agreements are contracts; what makes them unique is that they contain both pre and post marital provisions. There are those that would argue that post-nuptial provisions should not be enforced after the marriage because that raises issues of overly broad provisions that propose to waive bad behavior in the marriage. However, another view is that if an agreement is created at arm’s length, under duress or fraud, then it would remain subject to review for reasons of public policy like any other contract.
How to Execute a Prenup in North Carolina
When creating a prenuptial agreement in North Carolina, there are several steps that must be followed. The first step is to find a qualified attorney who understands the intricacies of these contracts. Because a prenuptial agreement is a legally binding contract, it is essential to work with an attorney who specializes in family law and has experience drafting such contracts. Your attorney can help you navigate the legal complexities and create a document that meets your specific needs.
Once you have found an attorney, the next step is to begin full financial disclosure. This step is crucial to the process, as it allows both parties to understand each other’s assets and income. Providing full financial disclosure can help prevent problems down the road and ensure that the agreement is fair and equitable. It is essential to be honest and comprehensive in your financial disclosure, as any omissions or misrepresentations could make the agreement invalid.
After full financial disclosure, you and your fiancé can begin negotiating the terms of the agreement. It is essential to communicate openly and negotiate in good faith to reach a mutually beneficial contract. The agreement should be in writing and signed by both parties. After both parties have signed the contract, it becomes legally binding and must be filed with the court as part of your divorce proceedings, if necessary.
Revoking and Modifying Prenuptial Agreements
The terms of a prenuptial agreement are not set in stone. North Carolina law allows prenuptial agreements to be amended or even revoked after the marriage takes place. Any provision of the original agreement—which is now referred to as a "separation agreement"—may be changed by mutual agreement of both parties. However, to be enforceable, changes must be made in writing and signed by both parties. Amending the prenuptial agreement effectively creates a new separation agreement, which, like all separation agreements, may be orally or written.
If you and your spouse desire to keep the separation agreement’s provisions exactly the same, but without the prenuptial agreement’s legal protections, you can simply revoke the prenuptial agreement in writing, and continue with your marriage. A completely new agreement is not necessary.
Prenuptial agreements are generally automatically revoked in the case of divorce. However , if you want the content of your prenuptial agreement to carry over into your divorce proceedings—as opposed to being automatically revoked—you will need to indicate this in the agreement terms.
In certain circumstances, a prenuptial agreement may be unenforceable, at least in part. If you signed the prenup without the benefit of a full financial disclosure, it may be unenforceable. You can challenge the validity of the agreement based on fraud, duress or lack of knowledge of financial circumstances or assets. If you had no lawyer to help you understand the provisions of the agreement, it may also be unenforceable.
In the event of any extreme changes in your circumstances, such as a sudden increase in wealth, the prenuptial agreement will not be automatically nullified. Rather, you will need to consent to changes in the contract, or to revoke it.