Prenuptial agreements can be a powerful estate planning tool because they can limit a surviving spouse's right to inherit. Let's first take a look at the rights of a surviving spouse and then discuss how a prenuptial agreement can affect those rights.
In every state, the law protects the property rights of surviving spouses. Historically, the goal of these laws was to prevent a non-earning spouse from being left with nothing at the death of the earning spouse. To provide this protection, states take one of two approaches, depending whether the state is a "common law" or "community property" state. Common law states give surviving spouses the right to inherit property, while community property states provide spouses rights to their partner's earned property during life. A prenuptial agreement can be useful in both situations.
In common law states, without a prenuptial agreement, your spouse has the right to inherit property from you when you die. This is true even if you had a valid will, no matter the terms of the will. If you try to disinherit your spouse by leaving your spouse little or nothing through your will, after your death, your spouse has two options:
An elective share is the minimum amount to which a spouse is entitled under state law. It is usually the same amount provided to spouses under intestacy laws (if there is no will). This amount is usually a set fraction – typically one-third or one-half of the deceased spouse's estate—but the amount may vary based on the length of the marriage and whether there are children involved.
So, if you live in a common law state and your will doesn't leave your spouse at least the amount of the elective share, your spouse can choose to take the elective share amount instead. If this happens, your spouse will end up with more of your property than you intended, and other beneficiaries will end up with less.
In community property states, without a prenuptial agreement, your spouse has the right to an equal one-half share in all income and assets acquired during the marriage. You can designate how your separate property is given away after your death. Separate property in community property states includes gifts, inheritances and property you owned before you got married. You can dispose of your one-half of all community property in your will or other estate planning document, but you can't dispose of your spouse's share without their permission unless your prenup gives different instructions.
In a prenuptial agreement, spouses can decide who owns what and what property rights each spouse will have after the death of the other. The choices made – and agreed to – in a prenuptial agreement override the laws designed to protect a surviving spouse. So under a prenuptial agreement, elective share and community property laws need not apply.
For example, if you want to leave the bulk of your estate to children from a prior marriage (and very little to your spouse), your spouse can agree to waive the elective share in a prenuptial agreement.
You can also use your prenuptial agreement to decide which of your assets are separate property and which are marital or community property. Such agreements change your spouse's right to inherit that property when you die. Similarly, you and your spouse could use your prenuptial agreement to waive your rights to each other's retirement accounts. A prenuptial agreement can state that the income earned by a spouse is that spouse's separate property, nullifying the default rule in community property states.
These are some common requirements for making a valid prenuptial agreement:
If your spouse contests a prenuptial agreement, the court may consider procedural and substantive fairness to determine if the document should stand. Procedural fairness is about timing and logistics – like whether your spouse had a sufficient amount of time to review the agreement before signing it. If the bride was given a prenuptial agreement on the eve of the wedding, a court may conclude that she signed it under duress. Substantive fairness is about whether the terms of the prenuptial agreement were fair to both spouses. States differ as to whether the agreement only needed to be fair at the time it was made or whether the agreement must also be fair at the time that it is applied, such as at divorce or death. If a prenuptial agreement would cause a spouse to become impoverished, it's unlikely to be upheld in court.
The laws that govern prenuptial agreements are state-specific ad nuanced, and you will need a lawyer's help to make one. That said, you and your partner can work together to draft your own agreement before you go to a lawyer -- read Prenuptial Agreements How to Write a Fair & Lasting Contract, by Katherine Stoner and Shae Irving to learn how.
A prenuptial agreement can affect how your property is distributed after you die, but it is not an estate plan and is not a substitute one. Rather, your prenuptial agreement should work in tandem with your estate plan. For example, your prenuptial agreement can determine which of your property is separate property, then your will or trust determines who gets that property when you die. Similarly, you might have your prenuptial agreement waive your spouse's right to the elective share and then have your will or trust state that your spouse should get several specific items out of your estate.
Further, your estate plan can do many, many things that your prenuptial agreement cannot do. Use your estate plan to:
So while you are contemplating the future with a prenuptial agreement, take care to also create a thorough estate plan to protect yourself, your spouse, and your family. Get help from a local estate planning lawyer or make your own estate plan using Quicken WillMaker Plus.