A prenuptial agreement can conjure in people the thought of a wealthy person marrying a not so wealthy person, or celebrities marrying each other, or an older spouse marrying a younger spouse. Some people have a pessimistic outlook on prenuptial agreements, and see them as planning the divorce before the marriage happens. However, the purpose of a prenuptial agreement is to govern the rights of the parties at the end of the marriage. While it is true that some marriages end in divorce, many marriages end in a spouse’s death, and a prenuptial agreement can dictate the property rights that each spouse will have in each other’s estate. This can be important in a number of situations.
A common situation where a prenuptial agreement can be beneficial upon the death of the first spouse to die is where one spouse will inherit or has already inherited significant family wealth or a family business and wants to make sure that those assets will remain “in the family.” Often times the prenuptial agreement in this situation is strongly encouraged by the parents of the bride or groom set to inherit significant wealth. The prenuptial agreement in this instance could have each spouse waive their right of election, discussed below, so each spouse can dispose of their estate as they wish, i.e. keep the family business in the family, and provide for how much of balance of the estate the spouse will receive or provide that the spouse will maintain a life insurance policy throughout his or her life so that the other spouse is fairly compensated at the first spouse’s passing.
A second common situation where a prenuptial agreement can be beneficial upon the death of the first spouse to die is a prenuptial agreement between parties marrying for a second time (or more). In a second marriage both parties may have children from a previous relationship. Additionally, in a second marriage both parties may have accumulated their wealth prior to the marriage. So, both parties may want to make sure that their wealth will pass to their children. So, a prenuptial agreement can set out at the outset what each spouse expects the other spouse to leave them in their estate, such as a life estate in the house they share, even though the house may only be deeded to one spouse.
Why Do I Need a Prenuptial Agreement?
In New York State, and most other states, a person cannot completely disinherit their spouse. This means that in New York State, if you leave a Last Will and Testament that purports to leave your entire estate to someone other than your spouse, your spouse can exercise a “right of election” and elect against your estate. If your spouse elects against your estate they would receive the larger of $50,000 or one-third of your estate.
Many people may want their spouse to receive 100% of their estate, so the right of election may be a non-issue. However, imagine a situation where two people get married and it is a second marriage for both of them, they each have children from their previous marriage, and each spouse has the exact same net worth and each spouse has executed a Will with the intention of leaving all of their assets to their respective children. If the husband were to die first, the wife could elect against the husband’s Will, which leaves all of his assets to his children, and take one-third of his estate. Then upon the wife’s death all of her assets would pass to her children under her Will. Her children would the essentially receive the one-third of assets from the husband’s estate that the wife received when she exercised her right of election. So the wife’s children will essentially be ahead one-third and the husband’s children will be less one-third, solely by virtue of their parent having died first. A prenuptial agreement can avoid this situation by each spouse waiving their right of election in the prenuptial agreement.
It is important to note here that the provisions made for a surviving spouse in a prenuptial agreement are a minimum, or a floor, that you must leave to your spouse in your estate, not a maximum. You can always do more or leave more for your spouse.
Often times we think of prenuptial agreements as restricting what a spouse will receive, but sometimes a prenuptial agreement can do the opposite and mandate what a spouse will be entitled to receive upon their spouse’s death. For example, a prenuptial agreement could state that a spouse shall have a life estate in their spouse’s home, meaning they have the right to live in the home until they pass away or no longer wish to live in the property. Another example is that the prenuptial agreement could state that upon the death of their spouse the person shall receive a certain monetary distribution from their spouse’s estate.
The Elements of a Valid Prenuptial Agreement
In general, in New York, in order for a prenuptial agreement to be valid and enforceable it must be: 1. in writing; 2. signed by both spouses; 3. acknowledged in the same manner required to entitle a deed to be recorded, meaning each party to the agreement must have their signature notarized; 4. Provide full and adequate disclosure of each spouse’s assets, meaning you must list each asset you have and its value; and 5. be supported by sufficient consideration. A prenuptial agreement is a contract. For a contract to be valid each party must receive “consideration.” Consideration means the benefit of the bargain. For example, you go to buy a hamburger, you give the restaurateur money (his consideration) he gives you a hamburger (your consideration), so you both received something. In a prenuptial agreement the marriage has been held to be valid consideration. Additionally, an acknowledgment by each party of the giving and receiving of consideration, as well as recitals of mutual covenants to marry has been held to be sufficient consideration to support a prenuptial agreement.
What If I’m Already Married?
If you are already married and you find yourself in the situation where you should have executed a prenuptial agreement with your husband or wife. For example, it is a second marriage and you keep your finances separate, you’re both self-supporting, neither of you think your spouse would need an inheritance from you, and you would rather leave your estate to your children. All hope is not lost. You can enter into what is called a “post nuptial agreement.” The terms of your post nuptial agreement can be the same as in a prenuptial agreement.
The one caveat to post nuptial agreements is that post nuptial agreements require more formal consideration. In a post nuptial agreement, since you are already married, the marriage cannot be valid consideration. Additionally, case law has held that you need something more than staying married as consideration. A good idea for consideration in post nuptial agreements is that everything should be mutual, you both waive your right of election in each other’s estates, you both waive the right to be each other’s executor, basically you each receive the same things. Also, add in that “in consideration” of your spouse entering into the agreement you will give him or her “X”. “X” can be a cash bequest upon your passing or the promise that you will leave an asset that is solely in your name to them upon your passing.
Whether you enter into a prenuptial agreement or a post nuptial agreement, you should have your estate plan reviewed and updated, as necessary, to ensure that your estate plan meshes with your prenuptial or post nuptial agreement. If you do not have an estate plan, when you do start the estate planning process, you need to provide your estate planning attorney with a copy of your prenuptial or post nuptial agreement, so that they may best formulate an estate plan that meets the terms of your agreement.
If you are entering into a marriage, and you wish to protect your wealth and/or be able to dictate how your assets pass upon your death, a prenuptial agreement is crucial. The estate planning attorneys at Twomey, Latham, Shea, Kelley, Dubin & Quartararo are available at your convenience to answer your questions, negotiate a prenuptial agreement with your future spouse, review your prenuptial agreement and craft an estate plan taking into consideration the terms of your prenuptial or post nuptial agreement.