Despite common misconceptions, prenuptial agreements are powerful tools for any couple looking to kickstart a successful long-term marriage. They help you and your partner have serious, important talks about what matters most to your relationship and sidestep the boilerplate rules enacted in a default marriage contract with the state.
However, it can be daunting to determine what you and your partner need to solidify your prenup. Specifically, what clauses should you include and what do you need to consider when developing them? This article will help clear this up for California couples.
BEFORE getting married, what conversations about MONEY should you have with your partner?
Use this guide to discuss budgets, assets, debts, goals, joints bank accounts and more.Get the guide
Before we get started with clauses, it’s essential that you leave no room for ambiguity or confusion when it comes to finances.
You and your partner should be 100% truthful about your financial situation going into a marriage, and a prenup requires both parties to complete this important step for a valid agreement. Listing out your assets and liabilities clearly in the prenup captures a sworn statement about each of your financial details, and it also lays everything out so that both parties have a full understanding of the financial landscape of their future married life.
The financial disclosures will include listing all financial accounts and their values, interests in real estate, businesses, and investments, as well as providing 2 years of personal tax returns. This step is an important opportunity for each partner to request all of the financial information they need from the other in order to knowingly evaluate the terms of the agreement.
Common Prenuptial Agreement Clauses
After listing out your finances, you have a variety of clauses that can help clarify the rules and guidelines on how these finances, amongst other things, are handled.
Common prenuptial agreement clauses include:
- Defining separate property
- How to handle income earned during marriage
- How to handle debts and liabilities
- Spousal support in the event of divorce
- Education and career plans
- How to handle separate or joint businesses
- Social media guidelines
- Pet clause
- Requiring mediation in the event of divorce
- Sunset clause
Let’s dive right in.
Defining Separate Property
Typically in California, property that you own before entering a marriage is considered “separate property,” meaning that it does not belong to both you and your spouse, otherwise known as “community property.” Property can include real estate, bank accounts, cash, retirement plans (401(k) or Roth IRA), stocks, life insurance, businesses, or patents.
Things can get complicated when you use separate property to acquire property during your marriage, or if you commingle separate property funds with money earned during the marriage.
For example, if you own a home prior to marriage, but pay down the mortgage with money earned during your marriage, the community will gain an interest in your separate property home. In such cases, you can clarify whether or not the house will remain separate property or if the community will gain an interest in it.
On the other hand, if your intention is that the home remain your separate property, then you and your partner may want to agree that the home will only be maintained with separate property funds or income.
Additionally, under current California law, when community time, efforts, and/or skill increase the value of a spouse’s separate real property or business, the community could gain an interest in the separate property asset. A prenuptial agreement can specifically exclude these efforts from gaining an interest in your separate property.
Avoid making separate property a sticking point by explicitly defining which assets owned prior to marriage remain separate property despite any efforts made during marriage in managing or improving that property or business.
How to Handle Income Earned During Marriage
Under California law, all income earned during marriage is presumptively community property. However, with a prenup, you can distinctly allocate what income will remain separate property, and what will be shared by the community.
For example, you and your partner may agree that your respective income during marriage will remain separate property, but that you will each contribute a percentage of your income into a joint account to pay for joint living expenses, gifts, vacations, investments, and savings. This way, you will each have the financial autonomy to spend your separate income as you wish, while you and your spouse can financially grow together.
On the other hand, you may have income-producing assets prior to getting married, and you want to confirm that the income derived from those properties remain separate property.
In both cases, this important clause gives you and your partner the chance to fortify your marriage by maintaining financial independence and autonomy while growing together as a unit.
How to Handle Debts and Liabilities
In many cases, one or both spouses will carry debt into the marriage. In this clause, define whether it’s the responsibility of each spouse to repay the debt or if both of you will pay it.
Plus, answer these questions:
- Will the non-debtor’s payments be classified as a gift if both of you will pay? Or will the payor be entitled to a reimbursement at some time in the future?
- Who is responsible for the carried debt in the event of a divorce?
Tackling prior debt as a married couple can be an empowering mission — one based on identifying an obstacle and working together to overcome it.
Like prior debt, future debt can play a huge role in your financial future. Home loans, car loans, credit cards are common fixtures in marriages.
Address two essential questions when considering new debt incurred by one of both of you after getting married:
- Who’s responsible for paying debt accumulated during the marriage?
- Can you or your spouse use separate property to secure a loan?
Debt isn’t an easy topic to discuss, but it’s a crucial one. Having these valuable talks now will reduce pressure and confusion down the road, enabling both of you to become solution-minded instead of feeling blindsided.
Spousal Support in the Event of Divorce
Typically, a Court will order that the higher-earning spouse pay the other spousal support in the event of a divorce, especially if the payee was financially dependent on the other during marriage. The spousal support could last anywhere between one-half the length of marriage to, potentially, forever. Determining spousal support at the time of divorce can be an expensive endeavor requiring forensic accountants and attorneys.
A prenuptial agreement enables partners to decide how much and how long spousal support will be paid in the event of divorce, limiting the potential conflict later on. For example, partners can agree that the duration of spousal support will be limited to one-half the length of marriage, no matter how long the parties are married. Partners can also agree on limiting the amount of spousal support to be paid — either a specific amount, a percentage of the payor’s income, or any other iteration you and your partner agree upon, as long as it is fair and does not violate public policy.
Requirements for a Valid Prenup
In California, if your prenuptial agreement includes any provisions regarding spousal support, you and your partner must have an attorney representing each of you for the agreement to be enforceable.
Also, it’s important to note that the conscionability of any spousal support provision will be measured at the time of the divorce. Therefore, it’s best to err on the side of caution with such provisions and make them as generous as possible, or to avoid limiting the amount to be paid altogether.
Education and Career Plans
Taking time off or simply paying to go to school can significantly impact the marriage. Talk this through to determine who will support the marriage financially while the other is pursuing educational goals. You and your partner should decide on who will pay for tuition or student loans, as well as who will be responsible for that debt.
This conversation encourages you both to think about and write down your goals. Thinking about your individual and shared lives over the next 1, 2, and 5 years is a healthy practice both before and during marriage.
How to Handle Separate or Joint Businesses
If you own a business prior to marriage, do you intend for your partner to earn an interest in the business after the marriage? Will your partner play an active role in the business? Do you and your partner plan on starting a business together? Answering these questions will clear up any ambiguity in expectations, and you can include provisions in the prenup to clarify how these situations will be handled.
In addition, if you and your spouse start a new business after getting married, define who will own and operate the business in the event of a divorce. Explicitly define whether or not your spouse will continue to get a percentage of profits from the business in this clause.
Detailing these guidelines will not only help set expectations for your marriage from the start, but it will also allow you to operate your business(es) with peace of mind.
Social Media Guidelines
Negative portrayal on social media can impact your personal and professional reputation. In order to prevent this, you and your partner may want to include a clause that restricts harmful comments or damaging photos or videos during marriage and after a divorce.
It may be tough to think about situations like these now, but circumstances change and people change, especially when heightened emotions are involved. If things don’t work out, you’ve managed to protect your reputation and keep the heated talks behind closed doors with this preventative clause.
You can decide this upfront in a prenup pet clause and define who gets the pets, so a judge doesn’t make a choice for you. Pets can be a sore spot and source of tension in divorce cases, so talk through this sensitive matter now to eliminate any surprises from the get-go.
Requiring Mediation in the Event Of Divorce
You can stipulate in your prenup that you’d elect mediation (over litigation) if things don’t work out. This is a smart clause to add to your agreement if you prefer the most peaceful route to end your marriage. It’s smart to include this clause now while you’re working together and in love and shut the door on a taxing litigation case in the event of divorce.
A sunset clause is like an expiration date to the prenup. It’s imperative to consult with a family law attorney before adding this clause. Instead of predicting when you’ll no longer need a prenup, create an amendment to the agreement when significant changes to your financial picture have occurred.
Using an amendment instead of a sunset clause leaves room for changing interests and financial situations as opposed to letting the prenup expire and defaulting on the State’s default rules.
What You Can’t Include in a Prenup
As you’ve read, prenups can cover a wide variety of financial, legal, and even lifestyle topics to help shape the guidelines of your marriage. However, there are a few things California prenups can’t do, namely:
- Address child custody and child support
- Infidelity clauses
You can’t address child custody and child support
Provisions in a prenup are generally designed to allocate/characterize property and income in the event of a divorce. Therefore, the law and public policy provide that issues regarding child support and custody cannot be included in the prenup.
You can’t include an infidelity clause.
Don’t waste your time including an infidelity clause in your California prenup. Since California is a no-fault state, provisions punishing either party for their conduct during marriage are unenforceable.
Crafting Your Prenup
Marriages require time and attention to thrive. Prenuptial agreement discussions and development help lay the groundwork for a fruitful marriage. If you stumble along or have questions about possible clauses not covered in this article, feel free to reach out for a free consultation — I’d be happy to help.