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Protect your assets with a prenuptial agreement

By Stephen Worrall

Traditional marriage vows are increasingly being revised to delete the words "till death do us part." Since almost half of all marriages end in divorce, many people who have children from a prior marriage or desire to protect assets such as ownership interests in a business choose to enter into a prenuptial agreement. Approximately 40 percent of marriages include a spouse who has been married before.

All 50 states recognize prenuptial agreements. They are simply contracts between prospective spouses entered into before the marriage that identify each spouse's separate property and define each spouse's rights in the other's property, including future earnings, during and upon termination of the marriage by divorce or death. The prenuptial agreement can waive a spouse's rights to alimony and provide for the rights of children from a prior marriage. A prenuptial agreement cannot waive rights to child support but can provide for additional support.

A business owner should include provisions in the prenuptial agreement that provide for the sale of the business from one spouse to the other. If this is not practical, then provisions should be included that cover who controls the business post-divorce. For example, a spouse can retain the right to share in the profits but give up voting rights regarding the business.

A common misconception about prenuptial agreements is that they are only for the wealthy. There are reasons other than preservation of assets and income for people to use prenuptials. A spouse may desire to provide for the care and support of children or grandchildren from a prior marriage or for needy parents. A good prenuptial agreement will allow the parties to a marriage to determine division of property, such as business ownership, in the event of a divorce, instead of a judge or jury. A common provision in prenuptial agreements is the agreement to make a will or create a trust in order to provide for the support of a spouse in lieu of alimony or division of property under the divorce laws. Another common provision in prenuptials is the agreement to make a separate buy-sell agreement regarding the sale of a business in the event of a divorce. A prenuptial agreement can also provide for the obtaining of insurance for the benefit of a spouse.

There are certain technical provisions required in Georgia. For example, the agreement should be witnessed by two persons and should be recorded with the clerk of the superior court in the county where the parties reside.

In the past, Georgia courts refused to enforce prenuptial agreements. However, in 1982 the Georgia Supreme Court recognized the increased rate of divorce and ruled that prenuptial agreements were enforceable. Since then, Georgia courts have upheld prenuptial agreements if the answer to each of the following questions is "no":

1. Was the agreement obtained through fraud, duress or mistake, or through misrepresentation or nondisclosure of material facts? Each spouse should fully disclose his or her financial situation including assets and income. Financial statements for your business should also be disclosed. Each spouse should have a separate attorney who should sign a certificate stating that there has been full disclosure and each spouse understands the consequences of signing the agreement. It is advisable to enter into the agreement as far in advance of the marriage as possible. A prenuptial agreement entered into on the eve of the marriage could be subject to attack as being forced upon one spouse.

2. Is the agreement unconscionable? This means that if one side gets too greedy, a judge could throw the agreement out. Common sense should be the guide here. A spouse should not be left destitute. Also, make sure that only important items are covered in the agreement. For example, it is proper to discuss issues such as the religious training of children. It isn't a good idea to put more trivial items in, such as requirements that a spouse maintain a certain weight.

3. Have the facts and circumstances changed since the agreement was executed, so as to make its enforcement unfair and unreasonable? For example, a significant decline in the health of a spouse could cause a judge to void the agreement. Georgia courts are reluctant to enforce a premarital agreement that would force a spouse to apply for welfare. It's a good idea to review a prenuptial agreement every few years.

A prenuptial agreement may not be a very romantic subject to discuss prior to marriage. However, it is a valuable tool for the legal strategist who hopes for the best and prepares for the worst.

SOURCE: Atlanta Business Chronicle by Dan Kolber

Full post as published by Georgia Prenuptial and Postnuptial Agreements Blog on February 13, 2008 (boomark / email).