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Prenuptial agreements (“prenups”) are contracts entered into by a couple before marriage setting out the rights of the parties in the event of divorce or death. Less common is the postnuptial agreement, with similar terms, but executed by the parties after marriage.
Who signs these types of agreements and why? Often couples marrying for the second or more time will have children and/or substantial assets at the time of remarriage. They may wish to insure that all or some of their assets go to their children and not to the new spouse, who may have children and assets of their own. Even with a will which leaves everything to one’s children, without a prenup the surviving spouse is legally entitled to claim about half of the deceased spouse’s estate. Having been married before, these couples know that sometimes things do not work out and wish to simplify matters in the event of a divorce, including whether or not alimony will be payable.
In the prenup there must be full disclosure of each other’s assets so that each party knows what they are giving up. A necessary component is a schedule whereby each party sets out a list of their separate property, i.e. what they owned prior to entering into the marriage. The agreement then sets out the division of property in the event of divorce as well as the inheritance rights between the parties. While prenups often provide that neither party will inherit from the other, it is not unusual for the parties to partially waive those provisions after a few years and execute a will or trust leaving assets to the spouse despite the prenup. Other ways to leave assets to the spouse are by making some assets joint or naming the spouse as beneficiary on IRA’s, investments, bank accounts, annuities or insurance policies. The prenup may also contain a “sunset provision” that it expires after the parties have been married for a set number of years.
When there is great economic disparity between the parties, or one of them owns a business, the wealthy spouse may want to protect themselves and, similarly, the less well off spouse will want to establish what they will receive in assets and/or alimony in the event of divorce. If there are business partners of one of the spouses, they may want protection so that the new spouse does not become a partner in the business by way of inheritance.
In our experience, prenups do not work well with younger couples about to enter into a first marriage. They are considered unromantic and usually the young couple does not have sufficient assets to be concerned. While some of them may be coming into substantial inheritances, the invention of the Inheritance Protection Trust (IPT) has solved this problem. Parents may now leave the inheritance to a trust that protects the assets for their son or daughter in the event of divorce and pass it by blood, instead of by marriage. In the event of death, the child’s spouse has no right to make a claim against a trust set up by a third party.
A key advantage of the Inheritance Protection Trust over the prenup is that no disclosure is required. The child who has the IPT does not need to disclose what assets are in the trust or even that the trust exists.
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