- Who needs a pre-nup? People who get their money through inheritance or have made most of their money before they marry usually have a pre-nup on their radar the second they think marriage, but actually much of that wealth is already protected by California law. The person who needs a pre-nup the most is the one who enters a marriage with little and builds an empire along the way. And you need a pre-nup not just to protect your money (though that is part of it) but to protect the empire you built. Whether you realized it or not half of your empire built during marriage (and control over it) belongs to your spouse. Unless you had a pre-nup (or a post-nup) and you followed it.
- When you discuss a pre-nup you are already discussing your divorce. And you're not even married yet. This is uncomfortable at best, and sometimes reveals the bitter, insecure, stingy side of one or both the parties. If you don't know each other's financial ins and outs, you will discover everything through this process. Does he have millions in investments you never knew about and yet always insist on splitting the check 50/50? Has she defaulted on thousands of dollars of debt that she never bothered to mention? Ideally none of this is a surprise--after all you have decided to marry this person. I am surprised by how often it is.
- What if you want to be fair in your pre-nup? Be careful because things can go horribly wrong. The default position of a pre-nup is to keep everything separate and avoid all spousal support. This is probably the easiest plan to follow. Nothing goes in joint name--each party can of course pay for whatever they want during the relationship, but if you divorce you take the stuff in your own name and go your own direction. You're thinking maybe you want to buy things together, like a house? Did you think about who is going to pay for it and how much ownership interest each party will get? What if one of you puts down a large separate property down-payment? Under CA default law that person would be entitled to reimbursement when you sell or divide the house through a divorce, but the default rules don't necessarily apply here, because you are trying to avoid them through the pre-nup. What if you open an investment account together? Will it belong 50/50 to each of you or are you going to trace your contributions? This can get complicated very quickly. Want to allow for some spousal support? What if your businesses don't go the way you are expecting? Careful offering up a guarantee of a certain amount of support. Even if it seems minimal at the time of the drafting of the pre-nup, fortunes can turn and it may be a huge burden when you divorce. When you draft a pre-nup you are trying to predict the future. It is impossible to foresee and account for all possible outcomes.
- He won't marry me unless I sign the pre-nup--that's coercion and this won't be enforceable right? Wrong. You don't have to get married. Therefore there is no coercion.
- So if I only have inheritance I don't need a pre-nup? Not necessarily. Your inherited funds could be used as a basis for a spousal support award. And what if you decide to put his name on an account to make it easier to handle bills and such? Could a court decide that you intended to transmute that account to community property? The answer today might not be the same as the answer tomorrow because the law can change. But if you have a pre-nup, you can decide that in advance and prevent the claim from even being made (as long as you follow your pre-nup).
- So if I have a pre-nup, I can sit back do whatever I want and know that I'm protected, right? Wrong again. Your pre-nup is in part a complicated instruction manual for how to keep property separate or create community property depending on your intentions. If you allow for community property to form, you better follow the rules you made for yourself depending on if you intend to create community property or to keep something separate. If your intentions and actions are not clear, you could end up in court arguing over what happens under your pre-nup the same as you might end up in court arguing over what should happen under the law.
- The default rules (i.e. the law) are the most fair, right? Not always. The default rules become particularly problematic for couples who marry at a more advanced age, possibly with children from prior relationships, differing income levels or even ability to work, different funding levels on their retirement funds, etc. If you have children from a prior relationship a pre-nup needs to be part of your estate plan so that in the event of your premature death automatic inheritance rules don't cause a battle between your children and your new spouse. What if two people marry and one has already saved up a nice retirement and the other has only just started saving? Under the default rules, the spouse who already saved gets to keep all of their pre-marriage retirement and is also entitled to half of the retirement their less well-prepared spouse saves up during the marriage. I don't think this is a fair outcome, but this is what the law has to say about it in California. No rule is ever fair as applied to every possible situation.
I recommend talking things through well in advance of your wedding and deciding if a pre-nup is right for you. If it's hard to talk things through before marriage, it's unlikely to get any easier after.