Prenuptial Agreement 101
What is a premarital agreement? A prenuptial (or premarital) agreement is a written contract, usually between two people contemplating marriage, in which they determine in advance how property, earnings and the debts (both marital and non-marital) of each are to be handled during marriage, upon separation or divorce, or upon the death of either party. In its simplest terms, it is a contract between the parties setting forth the terms of their property settlement and/or other terms to be utilized if the marriage comes to an end. Unlike a postnuptial agreement, which is created after the parties marry, a prenuptial agreement becomes operative only when the parties marry. Tying in to the concept of full disclosure , a prenuptial agreement must be fair, and include all assets and debt of the potential spouses; otherwise, the agreement could be set aside by a court. Maryland law requires that a prenuptial agreement must be signed by the parties and acknowledged before "the Secretary of State, a clerk of a court of this state, or before a notary public residing in this state." Because the general intent of a prenuptial agreement is to protect your rights and assets in the event of a divorce, as noted above, it is imperative that you discuss these types of agreements with a family law attorney who can answer your questions.
Maryland Legal Requirements
The legal requirements for prenuptial agreements in Maryland are relatively straightforward. The first requirement is the issuance of a document that is signed by both parties. Simply agreeing to a division of property or a child support arrangement in conversations is not enough to make a legally binding contract.
Secondly, under Maryland law the prenuptial agreement must be executed voluntarily, meaning neither party can be under duress or pressure to execute the agreement. If there is any indication that an agreement was signed when one of the parties was unduly influenced or otherwise forced into making the decision, the validity of the agreement can be called into question.
The third requirement of a prenuptial agreement is that the agreement be made with full disclosure. This means that both parties understand where each stands financially prior to agreeing to any terms. Without honest disclosure, the agreement can be invalidated.
Finally, agreements must be reasonable. In the case of divorce courts that do not uphold agreements that in their eyes appear to be unfair or unjust, Maryland courts tend to have a more flexible attitude toward the agreements. As long as the terms seem reasonable to both parties and no unfair undue influence can be proven to have taken place, the agreement is generally upheld.
Merits of a Prenuptial Agreement
Prenuptial Agreements can be one of the most important "insurance policies" that may be acquired in the course of one’s life. Like any other insurance policy, the hope is that a Prenuptial Agreement is never necessary. However, in the event that a separation, divorce or death is contemplated, no one wants to be caught off guard without knowing what their rights are, or without knowing if they are protected.
In terms of divorce, a well-drafted Prenuptial Agreement allows each party time to contemplate what would happen in the event that a divorce is filed. It allows each party to understand the other’s assets, their rights, and allows for the possibility of designing the manner in which assets will be divided in the event that a divorce occurs. For example, a spouse that brings a business into the marriage may want to permit non-business assets to be divided in the event of a divorce, but retain control over the business, and its appreciation over time.
Some spouses will own a significant amount of assets due to financial success prior to the marriage. In this situation, a prenuptial agreement may serve to exclude the increase in value of those assets during the marriage, and/or the income generated by those assets during the marriage, from marital property division. This permits the spouse who had significant wealth prior to the marriage to leave the marriage with the same wealth that he or she contributed to the marriage.
A significant portion of marital disputes that result in divorce relate to the children of the marriage: visitation rights, custody, and child support. A prenuptial agreement takes the guesswork out of these issues and provides for all of the elements of family support, including college education expenses and life insurance.
One of the elements that parties should consider when deciding whether to sign a prenuptial agreement is estate planning. A prenuptial agreement can exclude a spouse from intestacy distribution (note Maryland does not automatically revoke an inheritance after a divorce). If a spouse would like their children to inherit the estate, if the spouse passes away without a will, a prenuptial agreement can ensure that the surviving spouse is not a forced heir entitled to a portion of the Estate.
When parties consider marriage, they are excited about the future, and the joy that a new family brings. However, it’s important to plan for the possibility that the marriage will fail. A prenuptial agreement ensures that all of the important issues have been addressed, and that planning has been done to reduce future conflict.
Common Myths
They are for the wealthy – this is probably the biggest misperception I hear about a prenuptial agreement. While the ultra-wealthy may have more risk of a significant economic division in the event of a divorce, a prenup can and should be used by anyone with assets or debts of any amount. Even if you are a young, newly employed individual or a retiree, a prenuptial agreement could work for you.
We don’t believe in love – While many people think that a prenuptial agreement means that the couple doesn’t believe in marriage, it’s quite the opposite. A prenuptial agreement is a sign of communication between the couple and a sign that they are taking their relationship seriously. A prenup helps both parties set up protections in the event that their union does not last.
Prenups only work if both parties have an attorney – This is often false. Technically, one attorney can draft a prenuptial agreement for both parties. The business side of the prenup will require that there be full disclosure to the attorney drafting the agreement, as failure to disclose assets could lead to the agreement being voided. In many states, so long as the person signing the prenup acknowledges that he or she has had the opportunity to seek independent counsel from an attorney before signing the prenup, the agreement will be enforceable. To be safe, though, it is almost always in your best interest to consult with a trusted attorney throughout the negotiation and drafting of a prenuptial agreement.
How to Draft a Prenuptial
The process of drafting a prenuptial agreement in Maryland is relatively straightforward. Once the potential clients have engaged our firm to represent them in this matter, we advise them to make a thorough list of the assets they intend to disclose and sign a retainer agreement with us.
We typically recommend that our clients be thoroughly briefed on all of their rights so they can make an informed decision about whether a prenuptial agreement is the best choice for their particular circumstances. A thorough understanding of the prenuptial agreement process and its potential impact on the assets, income and liabilities of each party is necessary to ensure fair and reasonable terms that both parties can accept. Because a prenuptial agreement is binding under law, the consequences of entering into such an agreement must be understood even if the situation changes later.
Next, the two prospective spouses should meet privately with their attorneys to negotiate the terms of the prospective prenuptial agreement and carefully assess the proposed deal.
Openness and full disclosure of marital assets are essential when negotiating the terms of a prenuptial agreement. If either party fails to disclose the property they own or the income they earn , any prenuptial agreement that follows may be negated and rendered null and void by the court if it is ever brought into dispute.
In Maryland, the requirements for a prenuptial agreement to be binding include: The prenuptial agreement must be signed by both parties. It is best to have the prenuptial agreement signed before the wedding so that both parties have had a full opportunity to consider the contents of the agreement in advance. However, any post-nuptial contract, i.e., a contract made after the marriage has taken place, will be enforced if it is proven that the terms of that contract were entered into voluntarily, knowingly and intelligently. We will certainly help you determine whether the prenuptial agreement is favorable to you. If so, we will establish a time together for us to meet with the other party and his or her attorney and finalize the agreement, subject to any review period we deem necessary. If circumstances permit, we recommend that the agreement be completed well in advance of the wedding.
Enforceability and Caps
Not all prenuptial agreements are enforceable in Maryland. The agreement must be unconscionable, both at the time it was signed and at the time of enforcement, meaning it should not be unfair to the extent that it would offend the court’s sense of basic fair play. It is typically advisable to have a provision for spousal support, even if it is not applicable or limited in the circumstance, to avoid the agreement being ruled unconscionable.
Maryland also does not recognize unconscionability sealed by the use of a waiver. If one party is foreclosed from the right to spousal support (in whatever form) upon the dissolution of the marriage, they will have to avail themselves of another agreement or law that provides for dispute resolution. However, if a party chooses to not avail themselves of discovery and does not have the asset appraisal or income information available, the agreement might be still enforceable.
Both parties must be represented by counsel by the time the agreement is signed, or seven days after the agreement has been executed. In aggravation of this rule, the parties cannot collaborate in choosing the attorney for the other spouse nor can one attorney represent both parties. Full disclosure of the property and obligation of each party must be present at least seven days before the agreement is executed.
Adequate consideration must also be present. Things that may be considered in determining if adequate consideration is present can include the length of the marriage, whether the documents were drafted by third parties or counsel, the time for representation, and other factors the court may choose to enforce.
The Right Time for a Prenup
A prenuptial agreement is typically more critical when there are children from a prior marriage, an inheritance, real estate, a business, or one partner in the marriage has substantial debts. Careful consideration should be given to a marriage involving children from a prior marriage. If you are entering into such a marriage, you might want to consider doing a prenuptial agreement. You would like the peace of mind of knowing what happens to property and debt if your spouse were to experience financial trouble resulting from a failure in their business. The protection afforded by a prenuptial agreement generally gives a carrier for the debt from their prior marriage the assurance that if the spouse should struggle financially, the properties addressed in the prenuptial agreement will not be subject to a claim of their children from their prior marriage.
Legal Help with a Prenuptial
Just as the matrimonial law landscape has changed and will continue to change in Maryland, so has Maryland law surrounding prenuptial agreements. It is imperative that individuals getting married in Maryland seek legal assistance when drafting a prenuptial agreement with their future spouse. Considerations influencing the drafting of a prenuptial agreement include, but are not limited to: whether or not a prenuptial agreement contains pro-active or re-active divorce clauses, such as spousal support, death, retirement, college expenses, properties, inheritances, etc. It is exponentially important to seek legal advice, and particularly advice from a lawyer versed both in the law and the trends for what spouses are likely to see as fair and reasonable. To help clients through the process of discussing and negotiating a prenuptial agreement , I turn to a financial planner I have successfully partnered with on several occasions to assist our clients to identify any assets they would like to be considered marital in the event of a divorce and determine with my clients the value that is attributable to the asset(s). If there are no assets it is still a good idea to have a few sessions with one of these financial planners. Drafting the prenuptial agreement should still be possible in this situation, with perhaps just a slight delay in finalizing the agreement. I find that working collaboratively with a financial plan helps the client feel better about the agreement being fair and equitable, and also gives the clients confidence that the prenup will be honored by their partners when/if the time comes to split.