How Does a Premarital Agreement Work?

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POSTED ON: November 20, 2023

HOW DOES A PREMARITAL AGREEMENT WORK? Premarital agreements are used for at least three reasons, only one related to divorce, explains Kiplinger’s recent article entitled, “Lessons to Be Learned from Kevin Costner’s Premarital Agreement.”

  1. A well-drafted premarital agreement can be used before marriage to clarify the character of property or assets (separate or community property states) and the allocation distribution of assets and income in the event of divorce.
  2. A premarital agreement establishes the individual or joint responsibility for debts and liabilities, including claims, losses, and lawsuits. This type of premarital agreement is designed to provide greater asset protection for one spouse from claims from the other spouse from their business, financial, or other activities.
  3. A premarital agreement may also be used for estate tax planning purposes. Some estate planning tools to minimize estate tax can be utilized only with separate properties from each spouse.

A premarital agreement frequently has a clause similar to a no-contest clause in a will. The benefits that would otherwise be provided are lost if the agreement is contested. If the agreement is upheld after a challenge, any funds or other assets that would be paid to the other spouse under the agreement are lost. For a wealthy spouse providing contractual benefits that aren’t otherwise available for the other spouse, the in terrorem provision is an important tool to prevent a spouse from contesting the agreement.

Premarital agreements aren’t only for the rich and famous. People get married later in life and frequently have more assets and children from prior relationships. During a highly emotional divorce, a premarital agreement helps you divide assets and property. It can also protect you from your spouse’s debts, allocate assets for children from a prior relationship, protect the family business, and ensure the family home stays with the family.

Start the discussion with your fiancé as soon as possible. For example, in California, the final version of the agreement must be presented to the other party at least seven days before the wedding. Failure to do so creates a presumption that the agreement wasn’t voluntary and may prevent the enforceability of the agreement. Each state will have its own rules. Also, each party to the premarital agreement must have separate attorneys; if they don’t, this may invalidate the agreement.

Schedule your phone meeting: THE LAW OFFICES OF CLAUDE S. SMITH, III


Reference: Kiplinger (July 13, 2023) “Lessons to Be Learned from Kevin Costner’s Premarital Agreement”

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