Prenups: They’re Not Just For Hollywood04/01/2016
The Prenuptial Agreement. The mere mention of this legal document often brings to mind connotations of extreme wealth, distrust, and nasty celebrity divorce. In reality, however, a prenuptial agreement can be an extremely beneficial tool not only in the context of divorce, but at the death of a spouse as well. While a prenuptial agreement is not necessary in every scenario, certain situations warrant the consideration of such an agreement.
- Second marriages with children from a previous relationship. Many people do not realize that a surviving spouse has a greater right to inherit, even more so than one’s own children. This is true regardless of what is set forth in an individual’s will or trust. Most states, including South Dakota, grant to surviving spouses a statutory right known as an elective share right. This right entitles a surviving spouse to a portion of the deceased spouse’s estate, even if it was designated by will or trust to go elsewhere. For instance, in South Dakota, a spouse married 15 years is entitled to 50% of the “augmented estate.” The “augmented estate” is a formula too lengthy for this article, but essentially looks at all of the assets of the couple, including recent transfers made prior to death.
Generally, a prenuptial agreement will require both parties to waive this elective share right. Entering into a prenuptial agreement does not preclude an individual from leaving his or her spouse an inheritance, but it shifts the power to make that decision to the owner of the estate on his or her own terms, rather than to the surviving spouse. This protects children from a previous marriage who would otherwise have a lower priority to inherit.
- An expected heir of family land or the family business. As a business owner, I understand the toil that goes into building a business. As an estate planning attorney who has literally designed thousands of estate plans for farmers and ranchers, I also understand the legacy goals tied to family land. And while it can be exciting to see heirs get married and expand the family tree, it can be devastating if the marriage doesn’t last or if an untimely death leaves the land or business open to an elective share claim (or worse yet if the land or business owner dies “intestate” without a will or trust). In either scenario, the heir or family can be forced into a position of having to buy the family asset back from a surviving spouse. Clear provisions in a prenup can designate that all inherited property, or specific assets, are kept as separate property, which will help protect the asset from divorce or elective share claim. Again, a prenuptial agreement does not preclude a spouse from leaving an asset to his or her spouse – it simply keeps that decision in the hands of the owner of the asset.
At least six months prior to marriage, we recommend meeting with an attorney experienced in the creation and negotiation of prenuptial agreements to discuss whether such an agreement would be beneficial. Each spouse should secure his or her own attorney to represent him or her in negotiations. Both sides will be required to disclose their assets and debts and the value of the same. A prenuptial agreement should be executed well before the date of the wedding to preclude any future argument that a spouse was unduly influenced or coerced into executing the same.
A prenuptial agreement can provide clarity to both parties and give families peace of mind in knowing their hard-earned assets will remain in the family. Often, it is not a matter of extreme wealth or distrust, but of heritage and legacy. A prenuptial agreement is not only for the Hollywood couple with millions at stake. It’s also for farm families committed to honor the past as well as provide for the future.
Source: Carolyn Thompson, Thompson Law