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PRACTICAL VERSUS PREDATORY PRE-NUPTIAL AGREEMENTS IN CALIFORNIA

by Faith Jansen, J.D., Divorce Mediation and Family Law Consultation Attorney, Walnut Creek, CA

Pre-nuptial agreements, also known as pre-marital agreements, may either be of practical use to both parties or they may be one-sided and predatory, favoring one party unfairly. The negative consequences of a pre-nuptial agreement may not be apparent to someone who is not an expert in family law. In order to negotiate a mutually fair agreement, both parties should have their own lawyers from the beginning. As soon as you realize that a pre-nuptial agreement is being considered, get a consultation with a lawyer.

A key provision in most California pre-nuptial agreements is that the earnings of each party during marriage will remain that party’s separate property, which is a deviation from the law that says the earnings of both parties during marriage are community property. Whether this arrangement will be fair or will result in injustice depends on the compared earnings of the parties during marriage and on each party’s independent ownership of unearned income producing assets.

Practical pre-nuptial agreements result where both parties have comparable assets and earning capacities and both will be continuing to work during the marriage, putting their separate savings into investments held in their separate names and building separate retirement accounts. Pre-nuptial agreements are frequently used by people entering into a second marriage where each party has his and her own estate and children from a prior relationship. The pre-nuptial agreement, in conjunction with a will, trust and estate plan, is a tool for preserving the separate property of each party for the benefit his and her own biological heirs while making arrangements for the creation of a reasonable community property estate during the new marriage. A pre-nuptial agreement only pertains in the event of a divorce. A will, trust and estate plan is also needed to determine who will end up with designated assets in the event that one of the parties dies during the marriage.

Predatory pre-nuptial agreements result when one party serves as a home-maker during the marriage while the other party is the bread-winner. If a pre-nuptial agreement makes the bread-winner’s earnings entirely his or her separate property during the marriage and provides that the home-maker spouse waives any claim to rights against the property of the other spouse, then the bread-winner may be the only one who ends up with any property and retirement plan in the event of a divorce or the death of the bread-winner spouse during marriage. The home-maker party might end up with no property ownership (unless he or she had inherited or otherwise acquired property from outside the marriage and kept it separate in his or her sole name).

Child support and spousal support in pre-nuptial agreements: Child support is off-limits to a pre-nuptial agreement; state law controls. Spousal support, also known as alimony, may be covered in a pre-nuptial agreement but in California there are Family Code sections that render spousal support limitations or waivers void or unenforceable under certain circumstances. To maximize the chances of pre-nuptial spousal support provisions being enforceable, have your lawyer make sure that all the statutory negotiation and execution requirements are met. Even with proper negotiation and execution, California law gives a judge the equitable discretion to refrain from enforcing a spousal support provision in a pre-nuptial agreement if the result would be unconscionable at the time of enforcement. (Family Code Section 1612(c).)

Refusing to sign a pre-nuptial agreement is always an option. If a proposed pre-nuptial agreement is unfairly skewed to the advantage of one party and that party is not willing to negotiate revisions to eliminate the unfairness, then the other party’s best course of action may be to refuse to sign it. Consider which of the two following situations would be worse: (1) Suffering short-term social embarrassment and temporary sadness for a few months after canceling a wedding; or (2) Investing years or decades of one’s life in a marriage that ends in divorce with no property ownership rights.

Alternatives to pre-nuptial agreements: Under California law it is possible to preserve the separate property character of pre-marital assets, and of gifts and inheritances received during marriage, by physically segregating them from community property. Physical segregation includes not only holding title in sole name but also limiting funds contributed (eg., deposits, improvements, costs) to separate property. Family law varies from state to state, and this approach may not work outside of California. For accurate legal advice on how to preserve your sole ownership of separate property during marriage, get a consultation with a family law lawyer in the state where you live.

Links:

Family Code Sections 1610-1617 (the Uniform Premarital Agreement Act)

An article from California describing the need for the will, trust and estate plan to contain the same property waivers as the pre-nuptial agreement: The Omitted Spouse; (California Lawyer, a Daily Journal Publication, September 2009)

An article from a non-California attorney giving more examples of practical versus predatory pre-nuptial agreements: Prenuptial Agreements: The Good, the Bad the the Ugly

An article discussing pre-nuptial agreements in the United States and foreign countries: Prenuptial Agreements in the United States by Gary A. Debele and Susan C. Rhode, published in the International Academy of Matrimonial Lawyers Law Journal/Back Issues/Volume 1

(Copyright 2013 by Faith Jansen. Faith Jansen is a divorce mediation and settlement negotiation attorney who also negotiates pre-nuptial agreements in Contra Costa County, California, with an office in Walnut Creek and website at: www.fjansenlaw.com.