Prenuptial Agreements

What You Need to Know About Getting a Prenup

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Prenuptial Agreements

The Why

Prenuptial Agreements have a stigma that’s been passed down for generations. Times change. This is no longer a luxury for the rich. Most likely, you and your fiancé both work, own your own stuff, have your own credit cards and loans. Even after a short-term marriage, Courts often face a tangled knot in trying to figure out what was yours and what was your spouse’s prior to marriage. Worse, what was yours prior to the marriage can easily be transformed into a community asset if you put money into it during the marriage. This knot can often result in the Court throwing up its hands and diving everything.

Getting a prenuptial agreement isn’t insurance against divorce–it’s insurance against life. It’s a smart decision on multiple levels. A Prenup can protect the stuff you own, help you understand your ‘marital’ financial status before getting married, protect yourself from debts that aren’t yours, and if it doesn’t work out in the end, save yourself thousands in attorney fees.

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About Prenuptial Agreements

Key Prenup Principles

  1. Avoid it. Prenup it. A prenup offers peace of mind. Finances are the leading cause of divorce. But prenup can help spouses not to have to fight over finances.
  2. A prenup can save you thousands. On average, a person going through a divorce in the U.S. spends $15,000.00. In high-asset divorces, that number can increase several-fold. A prenup costs a fraction of a divorce. Additionally, you can protect significant financial assets.
  3. A prenup protects the assets you’ve built up over a lifetime. Whether you want to protect just a pension or an empire, a prenup protects what you’ve worked so hard to build.
  4. Prenups are not just for the rich. In fact, a prenup may be more important to a school teacher than it is a CEO because it protects the assets a school teacher is relying on for retirement, and it would much harder for a school teacher to rebuild those assets after a divorce.
  5. How the prenup is signed may be just as important as what the prenup contains. In any divorce litigation challenging a prenuptial agreement, the circumstances under which the agreement was signed becomes very critical.
  6. If the prenup is not done correctly, it has a high chance of being rejected. It’s imperative that you and your fiancé are as transparent as possible when going through this process and disclosing your assets and debts.  Attempting to hide anything, assets, inheritances, cars, houses, can cause the Prenuptial Agreement to be invalid.
  7. Both you and your fiancé should have a different lawyer review the Prenup. This does two things: it protects both sides and it strengthens the validity of the agreement if it gets challenged later.
  8. Both parties need to fully disclose their financial debts and obligations to the other party before the prenup is signed. Disclosure is the key fact when a prenup is challenged.
  9. Didn’t do a prenup? You can still do a postnup. Arizona law allows for both prenuptial (before the marriage) and postnuptial (during the marriage) agreements.
  10. The children’s issues of custody (i.e., legal decision-making and parenting time) and child support cannot be included in a prenup. What is in the child’s best interests gets decided at the time of the divorce. The inclusion of child custody provisions may invalidate the whole agreement.
  11. You can use a prenup to pass property to children from prior marriages.
  12. You can use a prenup to shield yourself from debts.

Top 5 things that will cause a Prenup to be Invalidated

  1. Lack of disclosure: When assets are not fully disclosed, the prenup is almost certain to be invalidated. A full disclosure of all assets is required because both parties need to have a full understand of what rights they are giving up before they can waive those rights.
  2. Uneven distribution: A prenup can be invalidated if it is “unconscionable.”  It is “unconscionable” if it is grossly unfair at the time it is signed.
  3. Contains children: A prenup cannot decide what happens to the children in the event of a divorce. The decisions of legal decision-making, parenting time, and child support will be decided in the divorce, not in the prenup. The inclusion of those terms could invalidate the whole prenup.
  4. If one or both parties don’t have an attorney. A prenuptial agreement can be invalidated if the Court finds that one party had superior bargaining power. This typically includes things like being older, being more educated, or having an attorney when the other party does not. But where both parties have representation, a Court is very unlikely to find there is an equal bargaining power. Note: One attorney (or for that, one law firm) cannot represent both parties. The parties need to hire separate attorneys.
  5. Signing too close to the marriage date. A prenup should not be sprung upon the other party. A prenup should be discussed, negotiated, and finalized well ahead of the wedding. While there is no minimum amount of time between signing of the prenup and the wedding—and even a prenup signed right before one walks down the aisle could be valid, the closer a prenup is signed to the wedding, the stronger a challenging spouse’s argument that they were coerced into signing it.

Top 5 Things You Need to Know About Prenuptial Agreements

  1. A prenup circumvents Arizona’s community property laws. Arizona’s community property laws automatically apply whenever couples get married. A prenup (or postnup) are the only ways to avoid community property laws. Under Arizona community property laws, anything either fiancé  acquires during marriage, including all assets and debts, belong half to fiancé  and half to the other (with exceptions for items acquired by gift or inheritance). The following are just part of what is community property: houses, bank accounts, businesses, stocks, retirement accounts, pensions, bank accounts, vehicles, credit card debts, and tax refunds/liabilities.
  2. A prenup can decide spousal maintenance: Aside from the children’s issues, spousal maintenance is the most heavily litigated issue in Arizona divorces. Arizona law does not provide guidance as to how much spousal maintenance is or for how long it should last. Because of this, spousal maintenance cases tend to be among the most expensive divorce cases. The two of you, though, can decide ahead of time how much spousal maintenance should be paid, if any, and for how long.
  3. The circumstances of how the Prenup is signed is important to determining whether the Prenup is valid.  During a divorce, when one spouse challenges the validity of the prenup, the Court will look to the circumstances in which it was signed. One famous prenup case was that of baseball player Barry Bonds. The day before he and his bride-to-be were to fly to Las Vegas to get married, he informed they would be stopping at his lawyer’s office the next day on the way to the airport. When they arrived at the lawyer’s office, Barry informed her he would not marry if she did not sign the prenup. Barry’s bride, who did not have an attorney and was from Sweden, was taken into a conference room where she signed the agreement. When the couple separated, the validity of the prenup was heavily litigated. Someone should not be blindsided with a prenup. Rather, it should be discussed well in advance of marriage, and both parties should have a chance to negotiate the terms and seek the advice of counsel.
  4. The best way to ensure a prenup is upheld as valid is for both fiancé s-to-be to have their own attorneys to help negotiate and draft the prenup. When a prenup is challenged in a divorce, the first key fact is almost always whether both parties had an attorney. If both parties had an attorney, it is very likely a prenup will be upheld. This becomes even more important when one prospective spouse is either significantly older or significantly more educated than the other. We understand some people are hesitant to hire attorneys, let alone one for each of you. But think of it as insurance for the prenup. If the prenup is valid, it potentially saves tens of thousands in litigation fees and the assets in the prenup are protected.
  5. For a prenup to be valid, both fiancé s-to-be must disclose their assets. Both spouses need to know what rights they are giving up when they sign a prenup. In legal terms, a spouse who is not informed of the other spouse’s assets prior to signing the prenup did not sign the prenup “knowingly and intelligently.” Failure to disclose one’s assets are grounds for invalidating a prenup. See A.R.S. 25-202(C).

Top 5 circumstances in which a prenup is most advisable

While we recommend prenups for all marriages, we think they are most advisable for the following situations:

  1. Where a couple plans to have children. While the prenup itself can’t address children, it can aid in the transition from married couple to coparenting. In a divorce with children, parents must make this transition while going through a divorce, and divorce may be the toxic start to a coparenting relationship. A prenup can shorten the time, stress, and money put into a divorce; in turn, lessening the toxicity divorce may have on the transition to coparenting. This can allow the coparenting phase of the relationship to have a much healthier start, which is advantageous to the parents but, more importantly, the children.
  2. Where one spouse plans to be a stay-at-home parent. When one spouse has stayed at home, a divorce can be particularly turbulent, as they are faced with significant financial uncertainty. A prenup that thoughtfully divides just the assets but provides for spousal maintenance can help provide that certainty and security as they transition back into the workforce.
  3. Where one spouse or both spouses have acquired significant assets acquired prior to marriage. Certainly, where one spouse has built up considerable wealth, a prenup is advisable to protect those assets in the event of a divorce.
  4. Where one spouse or both spouses have acquired important assets acquired prior to marriage. While certainly recommend prenups for high-wage earners or individuals with considerable assets, a prenup can be just as important, if not more important, to a middle-class individual. In those cases, it may be that the assets they are trying to protect are important to their future. For example, many people may be relying on funds they built up in an IRA or 401k prior to marriage for their retirement. Entering a marriage without a prenup could put those at risk, as such assets can easily be transformed into community property.
  5. Where one spouse has just received an inheritance. Although an inheritance is exempt from community property laws, it can easily become community property if commingled with community funds.

Postnuptial Agreements

  1. To have separate finances while married. Every married couple argues about finances. Many marriages end over financial disputes often when one party worries about the impact the other spouse’s decisions are having on their finances. Postnups may not be a cure-all for those situations, but we have seen them reduce that conflict by separating out the finances. In at least one case, we have even seen the postnup save the marriage.
  2. To update a prenup. Circumstances change during marriage, and terms in a prenup may become outdated. When life changes, the prenup should be updated.
  3. To protect one spouse’s inheritance. While an inheritance is not community property when it is inherited, it can easily become community property by accident. For example, placing an inheritance into a joint bank account may make it community property. A postnup can set up boundaries to ensure the money one spouse inherits remains their money after a divorce.
  4. To do what should have been done in the first place. Because of the stigma associated with prenups, some people would rather leave themselves unprotected than have that awkward conversation. But now that they are married, they may find themselves more able to broach the topic of a postnup. Postnups have less social stigma than prenups, and are, therefore, easier to discuss while affording oneself similar protections.
  • Postnuptial Agreement – A contract between a married couple that decides how their marital property will be divided. In other words, a postnup is a prenup signed after the wedding.
  • Marital Community – Property belonging to both parties of the marriage. Unless a prenup is in place, a marital community is automatically started when a party marries. The marital community lasts until the date of service. A postnup can also alter the nature of the marital community.
  • Community Property – Arizona’s law that any property or debt acquired by either spouse during the marriage belongs half to one spouse and half to the other, regardless of how it is titled. Exceptions include property owned prior to marriage, property acquired by gift or inheritance, and property in which one spouse waives their interest (most commonly when a spouse signs a Disclaimer Deed as part of a real estate transaction).
  • Sole and Separate Property – Property that belongs to only one of the spouses.
  • Commingle – An account or asset in which both community funds and sole and separate funds are either placed or used to purchase the property. In those instances, the asset is considered to be community unless the objecting can “trace” out the sole and separate property.
  • Asset – Property that is considered to have value.
  • Debt –  Something that is owed; an obligation.
  • Prenuptial Agreement – An agreement entered into prior to marriage that agrees on how to divide the property during a divorce or decides to which property certain will belong during marriage.
  • Postnuptial Agreement – An agreement entered into during the marriage. Similar to a prenuptial agreement, the postnuptial agreement sets forth how to divide the property during a divorce or decides to which property certain will belong during marriage.
  • Real Property – Any type of real estate, most commonly the marital residence, but it can also include lots, cabins, condos, rentals, and any other property attached to land.
  • Constructive disclosure – Where no disclosure takes place, the Court can consider whether the spouse challenging the prenup had sufficient disclosure by happenstance to make his or her agreement “voluntarily and knowing.” In one Arizona case, a wife who worked in her husband’s pizza business prior to marriage was found to have “constructive disclosure” of the business’s value.
  • Date of Service – The date the responding party is served with the divorce paperwork the petitioning spouse filed. So long as the divorce is finalized, the date of service becomes the date the marital community terminates.
  • Disclaimer deed – A real estate document in which a person legally gives up all rights to a property. This is used when the person signing the document has no prior ownership interest in the property.  This is most commonly used when a house is being purchased in one spouse’s name alone, usually done because one spouse has better credit. In those cases, the title company will have the other spouse sign a Disclaimer Deed. It is very common that the signed who signed it forgets they even signed it and does not learn that they gave up their interest in the house until after the divorce.
  • Quit Claim Deed – A real estate document in which a person legally gives up all rights to a property. This is used when the person signing the document had a prior ownership interest in the property.
Frequently Asked Questions About Prenuptial Agreements

Why should I get a prenup?

A prenup is like car insurance. You buy it hoping that you never have to use it. But if you have to use it, you are glad you have it. A prenup protects what you’ve accumulated prior to marriage and protect what you earn during marriage.

A prenup guards against long, drawn-out divorce proceedings. In our experience, a divorce case with a prenup almost always takes just a few months. Cases involving the same issues decided in prenup often can take up to a year to decide.

What is the advantage of having a prenup?

A prenup serves several purposes:

  1. It substitutes Arizona’s community property laws (spouses each take half of all assets and debts either spouse acquires during marriage) for a division of property of your choosing.
  2. It significantly reduces the financial risk of a divorce.
  3. It significantly reduces the cost, time, and stress of a divorce, allowing each party to move on more quickly if the marriage fizzles.
  4. It can determine what spousal maintenance, if any, will be paid.

Do I need an attorney before entering into a prenuptial agreement?

No, but we strongly recommend you have one. We have seen very intelligent try to do prenups on their own and make mistakes that cause the prenup to be invalidated.

Can my fiancée and I use the same attorney?

No. Attorneys are prohibited in Arizona from representing both parties.

Should both parties have an attorney?

Yes. We recommend it because if both parties are represented the prenuptial agreement is much more likely to be upheld. We especially recommend this where one spouse is significantly older, more educated, or wealthier than the other fiancé . These are cases where one spouse could in the divorce proceedings claim that he or she did not understand what they were signing.

Is it required that both parties have an attorney?

It is not required, but it is strongly recommended.

If we both agree on everything, why might we need a lawyer?

First, both parties having an attorney makes it more likely a prenuptial agreement will be upheld if challenged in a divorce proceeding. Second, even if when a full agreement is reached beforehand, having lawyers review and negotiate the language of the agreement can protect both parties’ interests.

What do prenup lawyers do?

Attorneys helping with a prenup do several tasks: (1) They meet with the client to determine what the client wants, (2) they disclose their client’s financial information to the other side, (3) they negotiate with the other party or their attorney, and (4) they draft up the prenuptial agreement or review and edit the prenuptial agreement drafted by opposing counsel.

Does Best Law Firm do prenuptial agreements on a flat fee?

We do not because the biggest cost in a prenuptial agreement is the negotiation, including negotiating what language will be used in the agreement. How long negotiation will take is an unknown factor when a fee agreement is signed. For this reason, Best Law Firm works on an hourly rate.

Is it more expensive to hire an attorney to do my prenup or to hire an attorney to do my divorce?

It is far more expensive, on average, to hire an attorney for divorce litigation than it is to hire an attorney for a prenup. In our experience, prenups cost anywhere from one-third to one-tenth the cost of litigating these issues in a divorce.

What if my spouse-to-be refuses to sign the prenuptial agreement?

The key word is agreement. If your spouse-to-be refuses to sign, there is no agreement, which means there is no prenup.

Will my fiancé be offended if I propose using a prenuptial agreement?

We cannot predict how your fiancee will react. You are in a better position to answer that than we are. That said, we believe that taking a tactful approach to asking someone to sign a prenuptial agreement might help them be more open to agreeing to one.

The biggest fear most people when they are approached about signing prenup is a fear that their partner is uncertain about the marriage. When approaching a spouse about a prenup, it is important to reassure them of your love form them and commitment to them.

I am certain my love will last forever, so why I need a prenup?

Most people entering a marriage intend to make a lifetime commitment. It is well-known that half of all marriage end in divorce, yet only ten percent (10%) of the population believes that they will ever be divorced. That means for forty percent (40%) of people, their divorce takes them by surprise.

We may be divorce attorneys, but we want marriages to succeed. But we also believe it is appropriate and smart to plan for the “what ifs” in life. As the old saying goes, an ounce of prevention is worth a pound of cure. Working these differences now saves time, stress, and money should divorce occur.

Do prenups encourage divorce?

No. While a prenup contemplates what will happen in the event of a divorce, it does not mean that prenups encourage divorce. In fact, just the opposite may be true.

A prenup can guard against a divorce filed solely to protect one spouse from the financial consequences of the other. We commonly have people approach us seeking divorces because they are concerned about their spouse’s financial decisions having a negative financial effect on them because of Arizona’s community property laws. Some common instances are when a spouse has gambling addiction, is acquiring excessive debt, or is running a business into the ground. In those instances, we have recommended postnups (a marital agreement, similar to a pre-nup, signed after marriage), much to the relief of the worried spouse. We worry most people in those situations are not advised about the possibility of a postnup and may divorce as a means of protecting themselves financially. A pre-nup, therefore, deals with this question before it even arises in a marriage.

What does it mean that assets acquired prior to marriage can be transformed into assets? Can you provide some examples?

Property acquired before the marriage or property received via gift and inheritance during the marriage are not community property—meaning that property still belong 100% to the spouse who acquired it. But if that property gets “commingled” with community property, it loses a sole-and-separate character and can become community. This, of course, means the property belongs equally to each spouse. There will be an exception if the sole-and-separate property can be “traced.”

Some common examples of sole-and-separate property becoming community property:

  • Aaron receives $100,000 in an inheritance. He puts the money into a joint bank account. That inheritance is now likely community property.
  • Brynn saved up $200,000 prior to the marriage. She keeps her savings in the same bank account where her paychecks are deposited during marriage. That bank account is now likely community property.
  • Charlie bought a house prior to his marriage. When he got married, he had his new wife sign a Disclaimer Deed (a document stating that she has no ownership in the property). Charlie continues to pay down the mortgage from money he earned during the marriage. In this instance, the house does not become community property, but Charlie’s wife will have a “community lien” on the house, meaning she can ask Charlie to reimburse her for the money the community spent on the house during the marriage.
  • Della is a school teacher who has paid into the Arizona State Retirement System for 20 years. She marries Edward, and their marriage last ten years. She and Edward divorce the same year Della retires. Edward has a claim to one-half of one-third (because they were married for 10 of the 30 years Della paid into ASRS) of Della’s retirement.
  • Francine has a bank account prior to marriage. She adds no additional funds into during the marriage, but she transforms the account into a joint account with her husband. This is now a community account.
  • Giselle

What does disclosure mean?

Disclosure means that you provide the other party with the documents they need to be fully informed about your situation.

What should be disclosed?

Disclosure includes, but is not limited to, bank statements, real estate holdings, retirement accounts, pensions, stocks, and earnings, including taxes and pay stubs. There should be a full disclosure.

What if I don’t want my prospective spouse knowing how much I earn?

If disclosure is not complete, your fiancé will have an argument that the prenup should be invalidated because they did not have a full understanding of your assets. Without complete disclosure, they cannot make a “knowing” waiver of their rights in a prenuptial agreement.

Can we put in a prenup that if my spouse leaves me, my spouse gets nothing, and I get everything?

We do not recommend it. Such a provision will likely be found to be unconscionable and may invalidate the prenup.

How close to the wedding can the prenup be signed?

Arizona allows for marital agreements, so the prenup can actually be signed after the wedding. It was just then become a postnup (But postnups may be held to a different legal standard than prenups). But generally, a prenup should be signed a few weeks in advance just to guard against any claims of coercion.

Is a prenup in Arizona valid in other states?

It should be. Generally, if it is valid in the state where it is executed, most states will recognize the prenuptial agreement.

Do all states have the same prenup laws as Arizona?

No. Most states have adopted the Universal Premarital Agreement Act, including Arizona. But even within the states that have adopted the UPAA, the laws vary. For instance, it is our understanding the California law now requires both parties to a prenup to have an attorney and for the prenup to be signed seven (7) days prior to the wedding. Arizona has neither requirement.

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