Premarital Agreement Defined
A premarital agreement is a written contract between two people contemplating marriage that sets forth their rights and obligations during the marriage, upon marital dissolution or upon the death of one of the spouses. Such agreements are also referred to as prenuptial agreements and antenuptial agreements.
In California, a premarital agreement is governed by the Uniform Premarital Agreement Act (Fam. Code, § 1601 et seq.). The Act permits a wide range of rights and responsibilities that can be contracted for, including support, property rights, management of separate property, disclosure requirements, and the choice of law (the Act applies to contracts executed after January 1, 1986). In addition, the Act provides that a premarital agreement may not be unconscionable or unfair at the time of execution or enforcement , but it may be unconscionable at the time of enforcement. Of paramount importance in considering a premarital agreement is full and fair disclosure by each party of the assets or obligations of each party, the right to retain independent counsel, and a 7-day opportunity to reflect upon the merits of the agreement.
An agreement should contain the following provisions:
A premarital agreement becomes effective and enforceable when signed and dated by the parties. It is not necessary, however, for the agreement to be notarized, although that practice is common. Despite its title, premarital agreements are not only for couples contemplating marriage. They may also be utilized by parties contemplating a second marriage, or prior to entering into a registered domestic partnership.
Requirements to be Legally Binding in California
A California premarital agreement must be in writing and signed by both parties (California Family Code §§ 1610, 1611; Estate of Dawes v. Anapole (1995) 289 CA2d 550). This means that the parties must gather in the same place and sign the same document (see e.g., In re Marriage of Bonds (1991) 1 CA4th 766, 135 CA Rptr 404 (contrasting the level of formality that may be required for contracts generally with the requirement of a single "mutual, consigned agreement" pursuant to the premarital agreement requirements). Every premarital agreement is subject to general contract law principles (California Family Code § 1615, see Marriage of Pendleton & Fireman (2005) 131 CA4th 1237, 32 CR3d 250) as well as California Civil Code §§ 1580 et seq. (Id.).
California Family Code § 1612 mandates certain disclosures that must be made in order for a premarital agreement to be enforceable. A premarital agreement is not enforceable if the party against whom enforcement is sought proves either of the following:
1. That party did not execute the agreement voluntarily.
2. The agreement was unconscionable when the agreement was made and, before execution of the agreement, that party was not provided a fair and reasonable disclosure of the property or financial obligations of the other party; that party did not have, or reasonably could not have had, adequate knowledge of the property or financial obligations of the other party; and that party was not represented by independent legal counsel or expressly waived in writing the opportunity to consult with independent legal counsel (California Family Code § 1615(a)).
Any provision that relieves one or more prospective spouses of liability for a criminal offense committed after the marriage is void as against public policy but that does not affect the validity of the entire agreement (California Family Code § 1614).
Purpose of a Premarital Agreement
Understanding California Premarital Agreements
Benefits of a Premarital Agreement
Asset protection, debt protection, predictability, clarity and saving costs in the event of divorce.
Asset protection
There are many reasons why you might want to protect your assets. If you’re a business owner, protecting the company from the financial turmoil that can accompany a divorce is often a concern. If you already have children from a prior marriage or relationship, you may wish some or all of your pre-marital assets to be retained for those children. Debt protection is another consideration. Many individuals have substantial debt at the time they marry. When the date of marriage is established, it is often possible to equitably allocate the responsibility of debt repayment between the parties. If there are no children, asset protection and debt protection are usually the two main purposes of a premarital agreement. If there are children, a premarital agreement is often used to provide for the financial issues arising at the death of a spouse. Some parents want to protect the wealth of their child from a bad marriage or an unworthy spouse. Also, with children of greater age, parents may want their children to inherit specific property that the child has always had or is particularly fond of that would otherwise be in the "pot" of community assets.
Predictability
It is not uncommon for individuals to fear the unknown. One of the reasons most relationships end or fail is because there is no clear understanding of the rights or obligations of one or both individuals. Having an agreement such as a premarital agreement will often dispel the fears of one or both parties. When a couple marry, there is an assumption (although not necessarily proper) that they will remain married forever. It is important, however, to address the possibility that the relationship may convert to a divorce. Many individuals bring a greater number of assets to the marriage. Often, these assets came from hard work, sacrifice and long term efforts. A premarital agreement permits the parties to define their respective interests should a divorce occur. Despite marriage being a partnership, it is not always equal partnership. A man and a woman marry who have unequal amounts of wealth. Each will bring their different spending styles and approaches to financial matters into the marriage and over time, most couples lose those different styles and approaches and blend into each other. A premarital agreement provides a way to define the rights of that individual if a divorce occurs. All of this, by its nature, is a discussion or prediction of the divorce which, when done, reduces the natural fears and suspicions about what might happen at or after the end of the relationship.
Common Terms Found in Agreements
As with any contract, the contents of the premarital agreement are the result of what the parties are negotiating and ultimately agree to include. However, there are typical clauses often found in California agreements. While some of these provisions may be customarily included, the terms and conditions could differ between agreements. Common provisions include:
Separate Property Defined
This section typically includes a definition of what the separate property of each person is and explains how assets will be distributed if a divorce occurs before or after marriage.
Marital Property Defined
The agreement should specify what property is designated as marital property and will be subject to division upon dissolution.
Maintenance / Spousal Support
While California law does not require any party to agree to spousal support, many California premarital agreements include a waiver of the right for either spouse to receive spousal support relative to the dissolution. If this provision is included, you should consult an attorney about the enforceability of an indefinite duration waiver of spousal support.
Disposition Upon Death
A typical provision details the manner of distribution of separate property upon death of the couple, when this occurs before marriage or after the marriage.
Spousal Rights to Separate Property Upon Death
Another typical clause describes the rights of the surviving spouse to the other spouse’s separate property upon death.
Separate Property Excluded from Estate of Deceased Spouse
This is a provision that will outline the rights of a surviving spouse when certain property is bequeathed to third-party beneficiaries, thus excluding the surviving spouse from any interest in that property.
Personal Effects and Gifts to Friends and Family
This provision will generally describe how the parties expect their personal property to be divided upon death.
Separate Property Untouched by Community Estate of Both Spouses
Similar to the prior provision, this one details how property acquired by one spouse before the marriage and remaining separate property is untouched by the community estate of the other spouse.
Enforceability of Provision – and Limitations
There are no universal rules governing the enforceability of premarital agreements in California. Several factors interact to dictate whether a given agreement will hold up under scrutiny and which provisions it contains may be enforced or struck down.
There are important limitations to premarital agreements. In California, the agreement cannot impose unfair or unlawful terms on either party. Property that should be held in trust, for instance, cannot be distributed in a false and fraudulent manner.
In addition, the agreement cannot restrict any provisions that limit the court’s ability to award spousal support to one party in the event of divorce. Articles limiting the responsibilities of parties who have minor children are likewise prohibited. Finally, courts have authority to strike unenforceable provisions from premarital agreements.
These rules are general, but understand that circumstances vary from case to case, and changes in the law also dictate whether a given provision can be tweaked or incorporated. Every circumstance is unique, so it’s a good idea to consult a qualified family law practitioner.
How to Prepare a Valid Agreement
Below are several steps that can be taken when drafting a premarital agreement in California that will help ensure the best possible outcome for both parties:
Early and Open Negotiations. Both parties should approach the business of negotiating the premarital agreement seriously and realize that this process could be contentious.
Affordability of Legal Counsel. Either or both of the prospective spouses may not be able to afford legal counsel. When the premarital agreement is largely one-sided – designed to heavily favor one party over the other – it is important that the weaker or less wealthy spouse still retain legal counsel. Even if a spouse can afford counsel, if the other spouse is unable to afford counsel, the agreement should still not be entered into. It is critically important that both parties understand the implications of entering into the agreement. Otherwise , it could result in a future challenge to the validity of the agreement.
Legal Counsel During Negotiations. It is important that each party seek their own legal counsel before the premarital agreement is signed so that there is no question that all parties were appropriately represented.
Fairness. The agreement should be fair in that neither party is taking advantage of the other and the agreement should be fair at the time it is signed. An agreement that may not have appeared to be unfair at the time it was signed may end up being so when viewed years in the future. This could occur, for example, if a particular provision provides that a certain asset will not be part of the community estate at divorce but the value of the asset increases dramatically over the course of the marriage. Parties cannot, for example, foresee how much their separate properties will increase during the course of their marriage, but the goal should be to try.
The Bottom Line
If the process of negotiating and drafting the California premarital agreement is handled with appropriate counsel, fairness, and equity amongst all parties, both prospective spouses are likely to be happy with the outcome that will carry forward in the short and long term.
Agreements Done Wrong
One of the most common pitfalls in entry into a premarital agreement is not allowing formal professional representation for both parties during the negotiation process. Although the law does not require that each party be represented by their own attorney in entering a premarital agreement, an unfair and lopsided agreement can be set aside if one party waives their right to legal representation so long as the court finds that such an agreement was "unconscionable" by the time of its enforcement.
A key to avoiding this result is for each party to obtain independent legal representation before signing the agreement, or to waive such representation knowingly. In fact, the absence of independent legal representation has been held to be a significant factor in finding an agreement "unconscionable." A number of other factors also weigh in the analysis of whether an agreement has become unconscionable after the marriage (i.e. lack of transparency, lack of consideration, etc.). Thus, it is critical to involve an experienced family law attorney in the drafting and negotiation for each party to the agreement. Failure to recognize this basic premise may result in a waiver of many of the advantages that a premarital agreement may provide.
Amending or Terminating an Agreement
Pursuant to Family Code sections 1615-1617, a premarital agreement in California can be amended or revoked by mutual consent of the parties in writing and signed by both parties. However, parties cannot unilaterally change or revoke a premarital agreement. Most premarital agreements contain a provision that any revocation of the agreement has to take place by notary acknowledgement. Quite often this is done at the time of the initial execution of the agreement – it’s an additional step, and can be a burden for both parties to have it notarized. Although some courts have imposed a strict requirement that the notary acknowledgement occur, in the absence of a statute requiring it, parties can waive this requirement. Thus the waiver may be express or may be implied from the conduct of the parties — if they commence to live together and marry without seeking the formal amendment/revocation, they are showing the intent to modify the parties’ property rights.
California case law has established various rules concerning the validity of premarital agreements and their amendment or revocation. One leading case is In re Marriage of Clausing, 184 Cal. App. 4th 921 (2000), wherein the court held: "A premature agreement may not be unilaterally amended or terminated; agreements are only enforceable if rightfully executed; and a spouse’s signature will be invalidated where fraud or undue influence were used to obtain her signature. No amendment made to a prenup agreement is valid if the signature is obtained by extortion or fraud. A spouse’s presumption of undue influence is properly applied when the spouse challenges the validity of the prenup agreement." Another illustrated case is In re Family Code Section 1615 Compliance Matters, 206 Cal. App. 4th 372 (2012), wherein the court held, inter-alia, that "A marriage certificate was sufficient to show both parties had entered into a premarital agreement. No other consideration or benefit was required."
As a general rule, spousal support provisions in a premarital agreement would be enforceable in the absence of a governmental/public policy prohibition against enforcement. More or less the policy against spousal support in California before 1992 was the tacit disfavor of spousal support. The underlying rationale was that support payments demeaned the payee’s integrity and impeded his or her self-reliance. Amendments to Family Code sections 4320 and 1615 have tempered that view by providing that parties may specify the amount, manner, and duration of support in a spousal agreement. (In re Marriage of Bonds, 20 Cal.4th 846 (1999)). However, in the family law context, there is always the existence of unconscionability which can be used as a basis to render the marital agreement unenforceable. If a party to an agreement demonstrates that he or she will be left without means of support, the agreement may be invalidated on that basis. (In re Marriage of Hensten, 53 Cal. App. 3d 675 (1975)).
The courts have crafted exceptions to the general rule of enforceability so that a relevant statutory or public policy prohibition against enforcement will operate to invalidate a spousal agreement (In re Marriage of Bonds, supra, at 877). For example, in In re Marriage of Levy, 101 Cal. App. 4th 442 (2002), under the circumstances that it was unclear whether a party had fully disclosed his financial condition, the court held that: the parties may express their marriage-related intentions in a premarital agreement, but the agreement cannot govern the dissolution of their marriage.
While the parties’ agreement voluntarily settles matters that fall within their expectations and experience, the separation provisions in the agreement would nevertheless be invalidated due to the public policy against waiving the court’s power to resolve issues of support and property division between married people. Accordingly, spousal agreements, include those that are valid, fair, and reasonable. However, courts will not enforce a provision that contravenes the community property scheme, duties of care, and support of spouse.
Sample Cases and Real-World Examples
To fully understand how a premarital agreement can play out, consider the following cases:
Case 1: Premarital Agreement with Spousal Support Waiver in Favor of One Spouse
John and Susan are both well-off when they marry. During their three-year marriage, both continue to work in their successful careers, which they have each built before meeting the other. If either spouse were to become disabled or unable to work due to an accident or illness, the other spouse would be well able to support him or her. Their premarital agreement contains language waiving the right to spousal support in the event of a divorce.
Right before a third anniversary together, Susan is in a bad car accident. Although she recovers well and is soon able to return to work, she has incurred a significant level of bills from the accident and the resulting time off work. Suspecting that this may lead to a push for increasing spousal support, John’s attorney sends Susan "to come clean" on all the facts regarding the accident and her medical and financial status.
In this scenario, the premarital agreement is enforceable as it was signed by Susan voluntarily with full knowledge of what she was agreeing to. Susan later hires her own attorney and sues for spousal support, arguing that her relatively newfound medical issues should open up the agreement again and allow her support. The court decides in favor of John, finding not only that Susan was fully aware of what the agreement said, but also that she had a full ability to provide for herself even following the accident.
Case 2: Premarital Agreement with Waiver of All Community Property Rights
Steve and Anne are both educated and financially independent. They each own a home before getting married and enjoy the income from their respective careers. They don’t really believe in the institution of marriage but think it would be the next logical step for them to take in their relationship. They both want their individual legacies to go to family members, so they seek legal advice and decide to use a premarital agreement to preserve their preferred wishes in the event of a divorce.
Upon separating after five years, both Steve and Anne agree that the individual property they had before the wedding is theirs alone. In addition, all income and assets accumulated within the marriage belongs solely to each person. As such, the agreement protects both their separate property and completely waives the community property rights of both. Steve is able to make a claim for reimbursement of home repairs and improvement costs during the marriage against the increase in value on the property. However, because the agreement so clearly defined the rights of each individual and so methodically waived any community property, Steve has no claim for reimbursement due to his own work and efforts. Likewise, Anne owed no debt other than her car loan going into the marriage. Therefore, all debt from their joint purchase of a new car at the beginning of their relationship fell solely in her name.
Even though Steve and Anne both agreed to the terms of the agreement up front, after a couple years of marriage, this "demanding" agreement begins to cause friction. They decide to end their marriage, which starts a year of contentious litigation over the terms of the agreement.
Final Thoughts on California Premarital Agreements
In summary, the law surrounding premarital agreements in California is that they are valid contracts requiring full disclosure and voluntary execution by both parties. Having started as a way to protect a spouse against the debts of the other, premarital agreements are now a popular choice by couples to protect assets in the event of divorce. To the extent that they are reasonable, they are largely enforceable, and the number of successful challenges is small. However, there are common pitfalls that can be avoided with education and a good lawyer. There are also still some issues that remain undecided in the law, leaving even reasonable parties with some uncertainty regarding their agreements.
While premarital agreements are often used to protect assets in case of divorce , the biggest advantage they have is not about divorce at all. It may be in getting through the divorce itself that a premarital agreement provides the most value. Divorces can be very lengthy proceedings. For highly contested divorces, litigation might take a couple of years to receive a final judgment from the court. But a premarital agreement can reduce the length of a divorce and possibly limit the cost by eliminating certain issues entirely or by streamlining them. That reduces costs and allows a divorce to resolve more quickly, saving the parties an enormous amount of money in attorney fees, while not requiring them to give up anything they already have.