“We need to discuss a prenuptial!” Or so the conversation begins for some couples who want to marry. A prenuptial, or prenup for short, is a contract parties make between themselves before marrying to address what happens with assets and liabilities in the event of death or divorce. This right is provided in Indiana statutory divorce law and gives the parties substantial flexibility and certainty when the relationship ends on death or divorce. The right to contract in all aspects of life is a powerful right guaranteed in the United States and Indiana constitutions, as it should be, so the bank will finance our new car by a loan agreement or cell provider giving us service under a wireless contract for our phones and other devices. As such, in most cases, prenups are enforced in divorce or probate cases like any other contract. This blog highlights why some couples contemplate prenups, their limits, and four cardinal mistakes many make when entering a prenuptial agreement. In general, most couples never actually give serious consideration to the marriage ending and consider what life would look like in the future when a prenup may be enforced by a court.
Normally, a prenuptial “comes up” before marriage where there is a significant financial disparity between the future husband and wife: One party has significant assets and the other does not and wants to keep what he or she brings into the marriage on the occurrence of divorce or choose how their assets are transferred on death by an estate plan that may entirely exclude the spouse or widow or widower. Without a prenup, the divorce and probate laws presume certain assets go to the other spouse—these laws are provided to fairly divide the divorce or probate estate to ensure the other is not left penniless. For the most part, a prenuptial can contract away these rights. The questions to ask before entering a prenuptial is “what if” this situation happens in the future and “where could it leave me financially?”. As a caveat, many prenuptials are very technical and advanced contracts; and to be able to ask this question and hypnotize an answer, you will need skilled counsel to ensure you understand the agreement beforehand.
Presupposing you understand the prenuptial and can determine your potential worst-case scenario in the future and accept it, there are certain limits to what can be contracted for and specific prenuptial provisions that are cardinal mistakes to avoid having in your prenup unless you are independently wealthy. The exception or limit to prenups relates to children. Simply put, the care, custody and control of children of the parties (including those born before the marriage) cannot be dictated by the contractual provisions of the prenuptial. Child-related issues that arise on death or divorce are decided by the court at the time they are presented because these courts stand in loco parentis: This means the court stands in the place of the parent(s) to decide what is in their best interests; these matters cannot be governed by a prenup. For this reason, a party contemplating marriage should not waive or concede to unfair terms of a prenup in exchange for custody of the child(ren). Any such provision violates public policy and is void and of no force and effect as a matter of law.
The how and why of prenups and the inability by a prenup to contract for child custody and parenting provisions, along with the other legal issues that arise with custody of a child have been summarized. The blog now briefly highlights four cardinal mistakes to avoid contracting for in a prenup in almost every circumstance. The first cardinal mistake is entering a provision in a proposed prenup relating to the death of a spouse. Specifically, a common provision contained in prenups is the waiver of the right on death of the surviving spouse to take (make claims) against the testate (with a will and/or estate plan) or intestate (without a will or estate plan) estate under probate law. The probate code provides the surviving spouse and children with a certain part of the decedent’s estate. However, in some cases where this provision of a proposed prenup is a deal-breaker and the marriage may not occur, there may be other legal tools you can utilize through your counsel to provide other relief for you in the prenup so you can marry For example, a spouse may be able to negotiate for whole life insurance on the life of the spouse demanding waiver and own this policy. This would provide a fixed sum of money on death by payment under the policy. In addition, since the duty to pay child support ends at death, this life insurance may also be a replacement of sorts for the cessation of child support on death.
The remaining three cardinal mistakes relate to waiver of certain rights in the prenup on divorce. A common provision of prenuptials waives (wipes out) the Divorce Act’s authority to order temporary maintenance to a spouse while a divorce pends. This is the second cardinal mistake—to waive this right. Generally, such waivers dictate a spouse will not seek temporary maintenance and support from the time the divorce is filed until it is finalized and a divorce decree entered. In most cases, a divorce action will pend at least several months. This means for a stay-at-home parent, he or she would not be able to request the court order payment of living expenses. This provision removes the Divorce Act’s “safety net” for a finically weaker spouse and may leave him or her unable to make ends meet. The implications are substantial; as this question: “If you could not obtain temporary maintenance to afford an apartment and food, how would you be able to ask for custody in the children’s best interests?” Thus, indirectly a provision of a prenup that waives the right to temporary maintenance may have an indirect and profound result on the court’s custody decision.
Turning to the third cardinal mistake, which is the waiver of the right to seek attorney’s fees during a divorce from the other spouse. This is a common provision in many proposed prenups. One of the biggest equalizers in divorce cases is being able to litigate in an even-handed way, which means being able to afford skilled divorce counsel. Under the Divorce Act, a court can order the other side to pay attorney’s fees and expenses based on the disparity (vastly unequal) incomes. However, if you waiver this right in the prenup and have a complex custody or property dispute, or both, this may lead to your undoing and worst-day-in court outcome. Ask yourself, “if I waive my right to have the divorce court award attorney’s fees and expenses (like business valuators and custody evaluators), how will I litigate my case to properly present admissible evidence? If you cannot answer the question, you are taking on this very potential future problem.
The fourth cardinal mistake is waiving maintenance for rehabilitation (commonly referred to as “rehab”) or a disability. Rehab maintenance allows a divorce court to order a party to pay the cost of educational or vocational training for up to three years to the other spouse to obtain sufficient education or skills to be able to enter or re-enter the workforce. A common situation where rehab maintenance may be sought is where there has been a stay-at-home parent who gave up a career to raise the children. This spouse may need some additional schooling or training to successfully enter or re-enter the workforce. Although rare, in some cases a spouse may become disabled during a marriage and need continual financial support from his or her spouse for the foreseeable future or for life. What would you do in this case if you waived maintenance?
The takeaway from this blog is prenups entered into freely and without duress are enforceable contracts, except where they try to specify child-related issues. Prenups are complex contracts with profound future implications. Thus, if you are contemplating entering a prenup, you should have skilled counsel to help you navigate the terms and negotiate or eliminate provisions you could not live under in the future if the prenup is enforced. Until you enter the prenup, you can negotiate or walk away from the marriage. After marriage, this likely sets the roadmap of what you will get on death or divorce. Because of the constitutional right to contract, a party can contract for a “bad deal” and is stuck with it. Specifically, the court it will enforce the prenup. Can you live with it?
This blog post was written by attorneys at Dixon & Moseley, P.C. The firm actively represents clients who want to have a prenup drafted to protect their assets on death or divorce and represents clients in the capacity of negotiating a prenup to minimize untenable provisions. Additionally, the firm handles all types of domestic cases throughout Indiana as well as on appeal. This blog is written and provided to readers for general informational purposes only. The blog is not intended as legal advice, nor a solicitation for services. It is an advertisement.