What is a Marital Agreement? Pre- and postnuptial agreements (marital agreements) are important tools for couples to manage their assets and avoid conflict, both before and during their marriage and as part of the process of separating if the marriage ends. Prenuptial agreements are contracts executed prior to marriage and post-nuptial agreements are contracts made between the spouses during the marriage, that allow the parties to agree to and delineate the division of assets should a legal separation, divorce or death occur. These agreements are legally binding contracts which can protect both parties by creating a plan that if conscionable will be enforceable and predictable – thereby taking the potential conflict out of the difficult process of separating.
Every couple should consider a marital agreement as a potential tool to enable them to plan for the future, protect their assets and avoid conflict. Couples who do not have a marital agreement are subject to the provisions of the Colorado Uniform Dissolution of Marriage Act, which will determine their rights in the case of separation or divorce; and the Colorado Probate Code, which will determine the rights of the surviving spouse and other heirs, upon death if proper estate planning has not been completed.
How Colorado Law Works for Couples without a Marital Agreement Individuals that are married and living in Colorado have statutory rights if the marriage terminates by divorce. Colorado law defines two types of property that can exist during the marriage. Separate property is the property owned prior to the marriage, and all property received by gift or inheritance during the marriage. Marital property includes all property earned by either spouse during the marriage, including deferred compensation; and all income and appreciation on separate property, whether realized or not – regardless of how the property is titled. When a couple divorces in Colorado, each party keeps his or her separate property – if it was kept separate during the marriage and not co-mingled with marital property. If the parties cannot reach an agreement about the division of property during a divorce, the court is directed to divide the marital property in the proportion that it deems just after considering all relevant factors.
In addition to dividing marital property, a divorce court can award maintenance if it finds that one of the parties lacks sufficient income or property to provide for his or her reasonable needs. The amount and length of a maintenance order is determined by the court after considering all relevant factors. Colorado courts have been unpredictable in awarding maintenance and thus it could have a significant financial impact on both parties. Why Should Couples Consider Marital Agreements Marital agreements can be used to define the parties’ rights in regards to the appreciation of separate property and all marital property accrued during the marriage. Couples who have children from previous marriages are able to provide for these children and protect their inheritance in the event of a divorce from a subsequent spouse. If one of the spouses owns a business, a marital agreement can ensure that the new spouse does not become entangled in the company should a separation occur. Marital agreements identify, define, and resolve legitimate issues related to the couples’ finances, estate plans and business interests – without the potential emotional duress created during a separation process. Advantages of premarital agreements for both parties include: Avoiding litigation costs Protecting otehr family members, such as children from previous marriages Protecting family assets Protecting business assets Protecting against creditors Creating a predetermined and thus predictable disposition of property
Contents of a Colorado Prenuptial Agreement A marital agreement may address the following issues: 1. Spousal Maintenance: whether it is waived, set at a predetermined amount, based on years of marriage, etc. 2. Division of property and debts: whether assets acquired after the marriage are kept separate; whether future appreciation on existing assets are separate property; how to apportion pension funds, retirement benefits or other intangible assets. 3. Inheritance: a spouse may agree to waive his or ability to take an elective share of the estate thereby protecting children from a previous marriages’ legacy. 4. Rights and obligations under insurance policies, employee benefit plans, and other assets such as these. 5. Waiver of Rights Upon Death: a common provision in prenuptial or postnuptial agreements designed to prevent probate laws or prior wills from trumping the terms of the prenuptial or postnuptial agreement. 6. Alternative Dispute Resolution: a provision requiring the complaining party to mediate or arbitrate any dispute and preventing him or her from filing a costly lawsuit. 7. Attorney’s fees: who pays for attorney’s fees if the parties are unable to abide by the terms of the agreement. If the parties have children during the marriage, a marital agreement cannot legally bind either party to agreements made regarding child support, physical custody, parenting time and decision-making authority. The parties may agree on proposed terms for these issues but these terms would be subject to the court’s later approval.
What does a Marital Agreement do? A marital agreement allows the engaged or married couple to negotiate around Colorado law in order to define separate property and marital property. By means of a marital agreement you can define separate property to include all income from and appreciation on your separate property. You can also protect your earned income by defining that as separate property, so that assets purchased or investments made with your earned income will remain your separate property upon divorce. Thus, by altering the definitions of separate property and marital property from those provided by statute, you can protect not only the core of your separate property which you amassed prior to your marriage, but also the earnings from and appreciation on that property. If you wish to restrict your spouse’s rights upon divorce to your earned income, including retirement benefits, you can do that as well. Spouses can waive their rights to maintenance payments in a marital agreement or they can agree to a certain amount of maintenance to be paid to the less wealthy spouse in the event of a divorce. However, if at the time of a divorce, the court determines that the spousal maintenance terms in the agreement are unconscionable, the court can render that portion of the prenuptial null and void.
Finally, a marital agreement can allow couples to determine what rights a surviving spouse will have upon the first spouse’s death. For example, in many marital agreements, each spouse waives his or her right to reject the terms of the others’ will and elect to take up to half of the estate outright (depending on the length of the marriage). Such a waiver ensures that the estate plan of the first spouse to die will be honored by the surviving spouse.
Why Couples Choose to Alter Spousal Rights Provided by Law. Couples choose to alter their statutory rights for a number of reasons. Some people simply wish to have certainty as to property rights and maintenance payments upon a potential divorce. By entering into a marital agreement, they eliminate much of the financial uncertainty associated with a divorce. A fairly negotiated marital agreement can provide some assurance to the wealthier spouse as to the extent of the financial impact of a divorce and provide the less wealthy spouse with some guarantee to his or her entitlement to property distribution and maintenance.
People who have children from a previous marriage may wish to protect their assets for these children’s benefit. A marital agreement that addresses the rights of a surviving spouse can protect the deceased spouse’s estate for the benefit of children from a previous marriage as well.
Sometimes parents encourage their adult children to enter into a marital agreement in order to protect assets owned by the child that were accumulated by previous generations. Usually, a wealthy family wants to ensure that assets that have been gifted to adult children do not become vulnerable to the spouse in a divorce situation.
Enforceability of a Marital Agreement. Colorado adopted the Colorado Marital Agreement Act in 1986. This statute allows the waiver of statutory property and maintenance rights of spouses either before or during a marriage. Thus, the general statutory rule is that marital agreements are valid and binding contracts. However, one party can have the agreement voided if he or she did not sign it voluntarily or if the other party did not provide a fair and reasonable disclosure of his or her property and financial obligations.
When one spouse challenges the validity of a prenuptial, the court will look at several factors to determine whether the agreement should be enforced. The two most important factors the court considers are the adequacy of the financial disclosure and whether either party was under duress when signing the agreement. Full and complete disclosure of all assets is required prior to the signing of the prenuptial agreement because a party cannot knowingly waive rights unless he or she has sufficient information about the potential value of those rights. Duress is reviewed as a question of fact and the court may consider factors such as the timing of the agreement (i.e., was the spouse forced to sign it right before the wedding, etc.) and whether each spouse had independent counsel. It is extremely important that both parties have their own legal adviser during the preparation and execution of a marital agreement.
© 2012 Tanya Shimer All Rights Reserved.
Estate Planning Attorney