Prenuptial Agreements and Estate Planning

Prenuptial agreements are valid and enforceable in Oregon.  We frequently advise clients to have a prenuptial agreement in place if they have children from a prior relationship or this marriage will not be their first.  Also, if the parties have significant separately owned assets acquired before their marriage they may want to consider having a prenuptial agreement in place. 

Prenuptial agreements can take the guess work out of determining spousal support and property division in the event of a divorce or upon a spouse’s death.  A properly drafted prenuptial agreement will typically provide a formula for determining spousal support (or may contain language waiving spousal support altogether) and have provisions detailing how the parties wish to divide separately owned property and jointly owned property.  The prenuptial agreement should always have a schedule attached to it that accurately lists each parties separate property and any jointly owned property that they have acquired prior to their marriage.

Prenuptial agreements can ensure that each party’s separate property, which can be property owned prior to the marriage or acquired during the marriage (such as a large inheritance from that spouse’s family), passes to that party’s separate children or other heirs or beneficiaries free of any claim by the future spouse.

It’s best if both parties also do their estate planning at the same time they are working on a prenuptial agreement.  Usually both parties have separate attorneys representing them and these attorneys have a good grasp on each party’s assets and their distribution goals.

However, oftentimes the parties will forego estate planning until a later date.  The problem with waiting is that most people put off estate planning until after they are married.  Five or six years down the road, the couple will be happily married and remember that they need to do estate planning.  They talk with their financial planner who refers them to a new attorney; or worse, the parties create a will or joint revocable living trust using an online legal service.   During this process the parties forget to disclose the existence of the prenuptial agreement. The existence of the prenuptial agreement isn’t mentioned in the wills or trust and the estate planning documents potentially destroy the effectiveness of the prenuptial agreement.

For example, the couple executes a joint revocable living trust which states that all of their joint property is listed in a schedule following the trust. The schedule lists all of the couple’s property, including their separately owned property.  The property is retitled in the trust’s name.

By doing this, the parties may have destroyed the prenuptial agreement and made it ineffective. Years down the road, the parties may decide they want to divorce.  By moving all of their property to the trust and titling the property in the name of the trust, the parties may have inadvertently converted separately owned assets into jointly owned assets.

In other words each spouse could have a 50 percent interest in the other spouse’s separately owned property – something that the prenuptial agreement was made to protect against.  There is Oregon case law that can help to avoid this result but those cases are fact specific and there is no clear law in this area.

At the very least the couple will have an expensive divorce fighting over whether property is separate or joint.

Here are some steps to continue to preserve ownership of property identified as separate property in a prenuptial agreement:

1. Accurately identify all separate and jointly owned property in the prenuptial agreement.

2. Do estate planning at the same time that the prenuptial agreement is being created.

3. Don’t use self-help legal services to create a prenuptial agreement or estate planning documents.  Enforceable prenuptial agreements must meet several legal requirements that will most likely be overlooked if you try to draft a prenuptial agreement on your own.  Execution of simple estate planning documents may save money in the beginning, but will most likely result in an expensive legal proceeding in the future.

4. Make sure you tell your attorney that you have a prenuptial agreement.  After you are married you may want to get rid of the prenuptial agreement altogether or change certain provisions of the prenuptial agreement to benefit your spouse.

5. Ensure that all separately owned property is always titled in that spouse’s name who owns the property and that the property is not integrated or commingled with other assets in the marital estate.

6. Don’t use a joint revocable living trust unless safeguards are put in place that reference the prenuptial agreement, dictate what happens to separate property upon divorce or death, and accurately identifies and labels all separate and jointly owned property.

As stated above, cases involving the enforceability and application of prenuptial agreements are fact specific.  It’s virtually impossible to create an “iron clad” prenuptial agreement since attorneys cannot control their clients after the prenuptial agreement is signed.  Although the above steps and other steps may not avoid expensive litigation, they can help successfully defend claims by one spouse against the other spouse’s separate property in situations where a prenuptial agreement is in place.

© 03/27/2012 Kevin J. Tillson of Hunt & Associates, P.C.  All rights reserved.