Understanding Prenups in New Jersey: The Basics

What is a Prenup?

The basis of a prenuptial agreement is simply that if you are going to marry, prepare for divorce. There is no romantic way to say that but it is true and necessary.
In New Jersey, prenuptial agreements are negotiated and drafted by the parties and their attorneys. Once the agreement is signed prior to marriage and notarized, it is valid and enforceable in New Jersey if it meets the requirements set forth in the New Jersey Statute on Premarital Agreements.
Most successful individuals make great sacrifice and go to great lengths to pursue their careers. Unfortunately , divorce is a reality in today’s society. It is not uncommon that one spouse will take the liability of debt and one will receive the assets as part of the equitable distribution process. Prenuptial agreements help to address these issues and clearly set forth the direction of liability and distribution. Although no one wants to contemplate the day they put the wedding band on, it is inevitable. A prenuptial does not change your rights once you are married it simply addresses what the parties’ intentions are should there be divorce; how assets will be divided; how alimony will be paid; and how the handling of debt will be allocated.
There are certain requirements for a prenuptial agreement to be upheld:
Other states have vastly different requirements. Each state varies on the enforceability factors as well as how a prenuptial agreement is drafted. In some states, prenuptial agreements are not even recognized under statutory law.

Legal Formalities Under New Jersey Law

For a prenuptial agreement to be valid in the state of New Jersey, it must comply with a few legal requirements. First, the parties must make full disclosure of assets and liabilities to each other, even if some of the information is deemed to be private. In addition, each party must have freely signed the agreement without any coercion from the other party. If it can be proved that one of the parties did not volunteer consent, the agreement can be invalidated by the court. The concept of voluntariness must be judged on an individual basis, which means that courts look at whether each party made an informed decision regarding the agreement.
In addition to full disclosure of financial rights and obligations, each party has the right to independent legal counsel. If either party is denied legal representation or the ability to have the agreement reviewed by their attorney prior to signing, a court can invalidate the agreement. There are situations when having two separate attorneys for the parties is beneficial in prenuptial agreements, particularly when both parties have different attorneys review the agreement.

Common Provisions in a Prenup

In a typical New Jersey prenuptial agreement, several key provisions must be included to ensure its enforceability. These include asset division, spousal support and debt allocation.
Asset division is a critical part of any prenuptial agreement. In general, the parties are able to agree in advance about how their assets and properties will be divided should their marriage terminate in divorce. Certain property, however, will be subject to equitable distribution by the court if the spouses cannot amicably resolve their matters. Thus, assets acquired during the marriage or which are shared between the parties may be considered part of the marital estate.
Another issue to consider including in a prenuptial agreement is spousal support. If one spouse expects to receive alimony or that spouse expects not to pay alimony, the parties may wish to include the terms relating alimony in the prenuptial agreement. The parties can specify the duration and manner in which alimony may be granted or waived.
Debt allocation also is an important provision to include in a prenuptial agreement. To the extent that one or both spouses will be bringing significant debt into the marriage, the parties can agree in advance about how their debt will be allocated. A simple marital debt provision may be included to spell out how debts will be allocated.
There are many other types of provisions that may be included in a New Jersey prenuptial agreement that we will discuss in subsequent blog postings.

Advantages of Entering into a Prenup

For many people in New Jersey, the idea of entering into a prenuptial agreement is off-putting. Even to the point of offending some to the point that they no longer wish to marry. Such an agreement might seem to say that you expect to divorce, and it may seem disloyal or even unromantic to discuss plans for the disposition of your wealth with your future spouse. However, these documents can have a number of advantages which serve to protect both partners.
Especially for individuals and couples who have considerable assets prior to marriage, it makes sense to implement a prenuptial agreement in order to ensure that the assets are protected. Prenuptial agreements can identify property that remains separate in a marriage, as well as property that is regarded as marital property. By defining this property in advance, couples can save time and money in the event of divorce by resolving these issues without going to court.
A prenuptial agreement can also protect intellectual property, with provisions preventing your former spouse from using protected ideas or content. This is of particular importance to entertainment, tech, and publishing industry members, whether or not significant assets exist at the time of marriage.
Without a prenuptial agreement, the division of property (and financial support) is governed by state law. A prenuptial agreement can substitute individual choices for state laws, allowing the parties to set forth which person receives a house or car, as well as whether financial support, such as alimony, should be awarded, and in what amount. This allows an equitable outcome while saving spouses the time and expense of litigation.
If one or both parties has children from a previous relationship, and that party intends to pass on assets to their children, it is important to set forth how the assets will be treated. A prenuptial agreement is one way to protect your children from previous marriages and ensure that they receive their inheritance.
While many people think that it is unromantic to enter into a prenuptial agreement, such contracts can promote harmony in your marriage and peace of mind. With the dramatic increase in divorce rates, it is important that both parties have peace of mind. If later on, divorce becomes a possibility, it will be far easier for both spouses to manage an equitable distribution of assets and former support.

Common Myths about Prenups

A common misconception about prenups is that they will have a negative impact on a marriage. This is not necessarily the case. A prenuptial agreement can serve as an excellent way to communicate openly and honestly about financial expectations in a way that will enable spouses to avoid major misunderstandings down the road. People sometimes think that prenups are only for the wealthy, but this is not true either. Even if you and your spouse-to-be do not have significant assets, a prenup may still be helpful in addressing important issues such as the division of debts the two of you have when the marriage begins . Some people think that prenups are unfair to stay-at-home spouses, as they can limit financial support in the event of a divorce. However, a skilled attorney can help you find creative ways to address these issues while making reasonable assurances for the other spouse. If you’re considering a prenuptial agreement, you should not let a few misconceptions stand in the way of what could be a very beneficial legal contract.

Constructing a Prenup

When considering a prenuptial agreement, both parties should be represented by their own attorney. No matter how well intentioned they may be, it is virtually impossible for one attorney to represent both parties and provide the independent legal advice that the Court or the Office of the Attorney General of the State of New Jersey ("OAG") will require in order for the prenuptial agreement to be enforceable. Generally, most attorneys will insist upon at least 10 days of time between the first meeting with the party looking to retain an attorney to represent him/her, and the request to sign the prenuptial agreement.
The potential divorcing party may require a forensic accountant (who should be independent of the other party) to be hired to value assets that may require valuation.
An attorney should elicit from his or her client the information about the other party and his/her financial condition, so that during the negotiation process, these facts are known to the other party.
Once the agreement is negotiated and reduced to writing, if both parties are represented by counsel at the time they execute the agreement and the document is fair and equitable on its face, it is unlikely that a court will unwind the agreement in the future.

Prenup Enforcement

Although prenuptial agreements are generally respected by the courts, there are circumstances in which they can be challenged. If an agreement was not entered into voluntarily, for example, or if one spouse hid assets or failed to make a fair disclosure of his or her financial situation at the time of the negotiation, the courts have the authority to invalidate that agreement.
Like other contracts, prenuptial agreements contain certain legal elements which must be met to create a valid agreement. The absence of one of these elements could result in a court declaring the agreement null and void. These elements include:
In considering whether to enforce a prenuptial agreement, the courts also have the discretion to determine whether the agreement is unconscionable. In other words, the court may find an agreement unenforceable if one party had no choice or say in the terms of the agreement or if its enforcement would result in an unfair and shocking situation. For example, an agreement attempting to limit the amount of child or spousal support one spouse would receive in certain circumstances (e.g., if a spouse has a debilitating illness) could be found to be unconscionable.
The appellate courts have found two other situations in which an agreement may be invalid. First, an agreement may be found to be invalid if it fails to address important issues, such as custody or parenting time with the children. Second, an agreement may be found to be invalid if it addresses issues which are financially and personally unimportant to the parties in an overreaching manner, such as waiving indefinite support rights or support rights in cases in which children are unexpectedly conceived or born.

Prenup Alternatives

The potential downsides of a prenuptial agreement for many couples is the thought that they may be planning for a future divorce or separating assets before the marriage has even begun. For some, this seems pessimistic while for others it’s simply good planning. Whatever your views, some alternatives exist to a standard prenuptial agreement such as the following:
Cohabitation agreements
These agreements are premarital agreements for those who choose not to marry, often referred to as cohabitating couples. The New Jersey Supreme Court has held that a cohabitation agreement, like a prenuptial agreement, will be enforced if it is validly entered into and its provisions are fair. In determining the validity of a cohabitation agreement, Courts will look at whether "full and fair disclosure" of the assets of both parties was made. If you and your unmarried partner are considering a cohabitation agreement, disclosure of assets is very important.
Considerations for these agreements include the following:
Postnuptial agreements
Postnuptial agreements are signed after a marriage or civil union takes place. Like prenuptial agreements , postnuptial agreements will be enforced if they are entered into freely, are fair, and are based on full and fair disclosure. However, postnuptial agreements, approved by the legislative amendments adopted in 2014, must be approved by a court in order to be enforceable. Once approved, a postnuptial agreement is more difficult to set aside than a prenuptial agreement. While a postnuptial agreement for married couples contains all of the same necessary elements of a prenuptial agreement, it also requires court review and approval, unlike its premarital counterpart.
Each of these alternative agreements is becoming more common, particularly among those who are unmarried, engaged to be married, or already married couples, because they allow for the parties to negotiate financial terms without the uncertainty of a prenuptial agreement. A family law attorney can advise you on whether a cohabitation agreement or postnuptial agreement is appropriate for you and your partner.