A prenuptial agreement is a written contract created by two people before they are married. At Mlnarik Law Group, we wanted to take this opportunity to explain five practical reasons to get a prenuptial agreement.
1) Limit Personal Liability from a Spouse’s Business
Just about any business activity entails a certain amount of liability. That potential liability can be very large in certain professions depending upon the potential damages that the Plaintiff might incur.
If a business is a community asset, then the community may be ultimately responsible for the cost of any damages caused by the business. By defining a business as one spouse’s sole property instead of community, you can help insulate yourself from any potential liability.
2) Prevent a Personal Business from Being Liquidated Upon Dissolution
Many people invest their entire adult lives in developing a business, or have family businesses passed down to them that may have been operating for generations. Without a prenuptial agreement it is possible for a personal business (started prior to marriage) to actually become owned in part or in whole by the marriage. If this happens, then the other spouse would be entitled to a buyout for their portion of the business.
If you can afford to buy the other spouse out of their entitled portion, then ultimately the Court may be forced to order that the business be sold.
3) Control the Amount of Potential Spousal Support
One of the primary reasons for entering into a prenuptial agreement is to prevent or minimize the amount of spousal support that one party has to pay to the other in the event of divorce. An order of spousal support after divorce can leave a person financially crippled for years to come as a large percentage of their earnings are paid out to their prior spouse.
Proper planning prior to marriage can help ensure that if divorce ever does occur that you will be able to move on with your life without having to make years of financially-crippling payments.
4) Protect Your Assets from a Spouse’s Creditors
Under California Law, debts incurred for the benefit of the community or a community asset are jointly owed by both parties to a marriage. In certain circumstances, a spouse’s separate property can be sought to satisfy a debt incurred during marriage.
A prenuptial agreement can help protect your separate property assets (or even your share of what would be community property) from a potential spouse’s creditors.
5) Minimize Conflicts Over Finances During Marriage
One of the most cited reasons for divorce is disputes over money and finances. Many couples have differing priorities and views on how money should be spent.
Under California law, the standard presumption is that income earned through a spouse’s time, skill or labor during the marriage belongs to the marriage. A prenuptial agreement can change this presumption and allow a spouse to have complete control over their finances. When two spouses have very different spending habits, maintaining control over your own income and allowing the other spouse to spend theirs can actually decrease conflict and provide for a healthier relationship.