January 4, 2012

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Pre-Nuptial Agreements: Don’t Marry Without One

When celebrities, royalty or the wealthy marry and go through divorce, if they don’t have pre-nuptial agreement, the whole world finds out.¬† Quickly, the media lets us know which spouse’s failure to get a pre-nuptial agreement¬†is going to cost them royally ūüė≥ .¬† The divorces of ¬†Mel Gibson, Paul McCartney and Katy Perry reveal that if they had had pre-nuptial agreements, they wouldn’t have had to give half of their hard earned fortune to their former spouse.¬†

What could have controlled their spiralling litigation costs and the financial terms of their multi-millionaire divorce settlements?¬† A Pre-Nuptial Agreement – a simple and cost-effective solution.¬† A pre-nuptial agreement is a legal document that sets out what each spouse had before the marriage and what he or she would get if the marriage ended as the result of death or divorce.¬† However, pre-nuptial agreements aren’t just for the wealthy.¬† More and more couples are entering into pre-nuptial agreements before marrying.¬† Why? Because more of today’s couples want to protect their financial future in the event of divorce.¬† And it is understandable given that 43% of marriages end in divorce.¬† And for many individuals what is even more important is that when they protect their financial future, they also protect the financial future of their children in the event of divorce.¬† To ensure the pre-nuptial agreement is binding and enforceable, it should be prepared by an experienced family law lawyer.

Here are six situations when a pre-nuptial agreement is strongly recommended:

Disparate Assets: If the spouses are bringing disparate assets to the marriage, then they should consider a pre-nuptial agreement.¬† The assets they own before the marriage could be a home, an investment account or a business.¬† The pre-nuptial agreement can set out¬†whether the spouses’ assets will be kept separate during the marriage and how they will be taken into account in the event of¬†a divorce.¬†

Disparate Incomes: Even in healthy marriages, control and power problems can arise where one spouse is earning considerably more than the other spouse.  The pre-nuptial agreement can set a limit on the amount the higher-wage earning spouses pays the lower-wage earning spouse if they divorce.  However, judges will set aside pre-nuptial agreements if it is patently unfair to the lower-wage earning spouse, particularly in long-term marriages. 

Disparate Debts:¬† If one spouse has significant financial¬†obligations, the¬†pre-nuptial agreement can keep the spouses debts separate.¬† However, for some types of debts,¬†it is not possible to keep the debts separate and the other¬†spouse becomes liable for the debts regardless of the pre-nuptial agreement.¬†¬†In some circumstances,¬†a spouse can remain liable for their partner’s debt during the marriage and this liability can continue after the divorce.¬† One example,¬†are¬†credit cards that are jointly owned during the marriage and have a huge outstanding credit card balance at the time of the¬†divorce.¬† To make matters worse, divorce¬†orders do not cancel credit cards and the credit card debt can continue to grow unless the credit cards are¬†cancelled.¬†

Second Marriages:¬† All couples entering into a second marriage should have a pre-nuptial agreement.¬† One reason is that the divorce rate jumps from 43% for first marriages to¬† 70% for second marriages.¬† Another reason is that if there are step-children, the pre-nuptial agreement can set out which spouse is solely responsible for child-related expenses.¬† It can also set out how the assets will be divided either after divorce or a spouse’s death.¬†

Business Owners:¬† Small business owners in particular are frequently subjected to big risks when going through divorce.¬† A pre-nuptial agreement can protect the businesse’s assets and profits¬†in the event of a divorce.¬† It can also protect the non-owner from any liabilities¬†relating to the business.¬†

Inheritances:¬† If a spouse is going to inherit money or other significant assets¬†before the divorce is final, the pre-nuptial agreement can provide that the inheritance remains¬†the separate property of the inheriting spouse.¬†¬†It is important for the inheriting spouse to make sure the inheritance is not commingled, directly or indirectly. with the couple’s family¬†property.¬† ¬†¬†¬†¬†

 

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