A prenuptial agreement or premarital agreement is a useful tool for couples who wish to get married and keep the character of the assets they have coming into the marriage as separate property.
In California, separate property is defined as any assets someone acquired prior to the marriage, after separation, or during marriage by gift or inheritance. Community property is defined as any assets, including income acquired during the marriage, with the exception of gifts and inheritance.
The waters become muddy when a separate property asset is commingled with community property assets.
Let’s say for instance you own a rental property that generates positive income. After you get married, you and your spouse want to open a joint bank account. Upon opening this joint bank account, you and your spouse decide to put all of your income from employment, along with the rental income in this joint bank account. You continue to use this joint bank account for your day-to-day expenses, including bills, going on vacation, paying down debt, or the mortgage on your new home. This, in effect, is commingling assets and is difficult to trace back to determine what is separate and what is community. Eventually, it becomes impossible to trace.
To make matters even more complicated, let’s say you decide to remodel your rental property in between tenants so you can charge more rent. And, in order to make those improvements, you need to dip into your and your spouse’s joint savings account. Once you use community property funds to make improvements on a separate asset, your spouse generates a community interest in the property. If that is your intention, then you probably don’t need a prenuptial agreement. However, having a prenuptial agreement that can anticipate these events will be crucial to protect your separate property interest in the event of a divorce.
Couples can also enter into prenuptial agreements to keep retirement accounts separate, including contributions to them that would otherwise come from community property sources.
Couples can also agree to keep their income earned as separate property. However, you must be careful in the event it is so unfair that a court deems it unconscionable, a legal term basically meaning unfair.
While there are many reasons someone would want a prenuptial agreement, one of the most common reasons someone has a prenuptial agreement is to limit or waive spousal support.
It is extremely important that enforcing the agreement to limit or waive spousal support requires each side to be represented by separate independent attorneys who sign off on the agreement. If there is no attorney on the side of the future spouse agreeing to limit or waive his or her right to support, that provision will be unenforceable.
Lastly, in order to ensure your prenuptial agreement is solid, make sure you get it done a few months before getting married.
While signing a prenuptial agreement the day before getting married does not make it invalid, the issue of duress, or undue influence, can come up in the event of a divorce. The non-drafting spouse must be given seven days to seek the advice of an independent attorney prior to signing the final copy of the prenup. They may waive their right to do so after seven days; however, it is always recommended, especially if there is any sort of limitation or waiver of spousal support, as described above.