Prenuptial Agreements: 7 Terms to Know

As delayed marriage and remarriage become more common, individuals often find themselves contemplating marriage after accruing substantial assets or debt. Prenuptial agreements offer you a means to protect those assets, take individual responsibility for debt, or assign property to specific recipients, such as children from a previous marriage. There are seven terms you should know before signing a prenuptial agreement.

Full Disclosure

Full disclosure, or fair disclosure, simply means that at the time of signing the prenuptial agreement, both you and your spouse-to-be have fully disclosed all of your assets, debts, and current income. Failure to disclose any of these can be grounds for a court to throw out your prenuptial agreement.

Community Property

Some states enforce community property. In essence, community property means that both spouses have equal ownership of all money made or otherwise obtained during the course of the marriage, with no reference to who earns the money. Property purchased with money made during the course of the marriage is also owned by both you and your spouse.

Equitable Distribution

In equitable distribution states, as a rule, property ownership stays with the person who earned it. If you purchase a house with income you earned, the house is yours. Prenuptial agreements let you set some parameters for property distribution during a divorce, whether you live in a community property of equitable distribution state.

Unconscionable

The term unconscionable refers to a number of ways in which a contract can, in essence, abuse one party to the advantage of the other. In prenuptial agreements, it generally refers to one spouse using a superior bargaining position, like wealth, to gain excessive benefits in the prenuptial agreement. Courts sometimes throw out prenuptial agreements for being unconscionable.

Penalty

Some prenuptial agreements include a penalty for various types of failure, such as your spouse cheating on you. A common example is the loss of any financial claim to a spouse’s assets in cases of infidelity. It should be noted that many states do not recognize such clauses and will discard an entire prenuptial agreement that includes them.

Sunset Provision or Clause

A sunset provision sets a specified expiration point for a prenuptial agreement. For example, you and your spouse-to-be could set the sunset clause for 10, 15 or 20 years. There is no standard length of time for sunset clauses.

Choice of Law

When establishing the prenuptial agreement, you can determine which state laws will govern the agreement. If you sign the agreement and get married in Florida, for example, you can select Florida laws as governing the prenuptial regardless of where you move after. On the whole, courts respect choice of law included in the prenuptial agreement.