When a couple marries, the law governs the division of assets and liabilities in the event of divorce or death. Many individuals enter into a marriage with assets such as a business, brokerage account or retirement account. A common misconception is that premarital assets are protected if they remain titled in their name. However, that is not always the case.
A premarital agreement allows the couple to determine the distribution of assets and liabilities upon death or divorce.
In addition, a premarital agreement can be critical in resolving issues in the event the marriage ends in divorce or the death of a party.
However, the premarital agreement should be fair and have a mechanism for creating a marital estate. The concept of marriage is to form a partnership, and what is created together will be shared by both parties.
A premarital agreement that provides nothing for one of the spouses will cause negotiation difficulties and may result in the cancellation or postponement of the marriage. Therefore, a premarital agreement should be fair and prepared months before the wedding.
The Protection of Premarital Property
Property owned by a spouse before the marriage is classified as non-marital property.
However, if a spouse works in the business or actively trades the brokerage account, those efforts are marital, and any appreciation will be deemed marital. In other words, the increase in value of business or brokerage accounts during the marriage is subject to an equal division in the event of divorce and will be part of the estate in death.
Premarital Property appreciation can be excluded from the marital estate in a premarital agreement.
Protection of Income from Premarital Property
All earnings during the marriage are marital. Also, all property purchases with those earnings are marital assets regardless of how they are titled.
Additionally, if you place marital earnings into a premarital account, the commingling could result in the entire fund becoming marital and subject to equal division.
A premarital agreement can change earnings classification during the marriage, protect earnings, and eliminate the issue of commingling premarital accounts.
Protection of Your Retirement Assets
If you enter marriage with a retirement account, the original funds and their passive appreciation will remain non-marital. But additional funds from your earnings that are deposited into a retirement account and the appreciation are marital.
In addition, if you die, your spouse has a claim to your retirement unless the spouse previously signed a waiver of any claim to your retirement. A premarital agreement can protect the entirety of your retirement account.
Protection of Inherited Assets During the Marriage
Inherited assets can be protected if they remain in your name and you do not spend marital efforts on those assets. But if you inherit stock in a business that you are employed in, the increase in value of the business, which can be substantial, is classified as a marital asset. A premarital agreement can protect the income and appreciation of inherited assets during themarriage.
Waiver of Alimony
The laws provide for the support of a spouse if that spouse cannot support themselves, and the other spouse can pay for the support. When determining the amount of alimony, the court considers both marital and non-marital income and assets. Since one spouse is protecting their non-marital assets, this is a mechanism that the non-marital income and assets can use to provide support. Various forms of alimony determine the duration of the alimony payment.
Marriage over 17 years in Florida is eligible for permanent alimony, which is paid until remarriage or death of the recipient spouse. A premarital agreement can address the amount and duration of the alimony. Often the agreement contains a waiver of alimony but provides an agreed-upon amount of support or the awarding of assets to provide future support.
Seek A Lawyer
Most importantly, seek a lawyer with experience in preparing premarital agreements. A premarital agreement has various nuances and issues that require expertise in this area. The worst scenario is an unenforceable premarital agreement due to improper drafting.
This article does not cover all aspects of a premarital agreement but provides an outline of some protections in a premarital agreement.
More From GOBankingRates