Identifying an asset is only part of the work. The agreement may also need to address appreciation, income generated by the asset, payments made during marriage, refinancing, improvements, and whether community funds will be used.
Income and Earnings During Marriage
California’s community property system can give each spouse an interest in income earned during marriage.
A prenuptial agreement may provide that some or all earnings will remain separate property. It may also define how joint accounts, household contributions, savings, and investments will be handled.
The terms should account for how the couple expects to manage money in daily life. An agreement that does not match the way the spouses actually handle their finances may create confusion later.
Real Estate
A person may enter the marriage owning a residence, rental property, commercial property, or land.
The agreement can address:
- Ownership of the property
- Mortgage payments
- Repairs and improvements
- Property taxes and insurance
- Use of community funds
- Reimbursement claims
- Appreciation
- Rental income
- Sale or transfer
- What happens if both spouses live in the property
Clear terms may be especially important when one person owns the home but both expect to contribute to the mortgage or improvements.
Businesses and Professional Practices
A business can create difficult property and support questions during divorce.
A prenuptial agreement may address:
- Ownership of the business
- Appreciation during marriage
- Contributions by the other spouse
- Salary and distributions
- Retained earnings
- Business debt
- Management and voting rights
- Valuation methods
- Buyout terms
- Restrictions on transferring ownership
- Business records and access to financial information
The agreement should be coordinated with shareholder agreements, partnership documents, operating agreements, and succession plans when applicable.
Debt
A prenuptial agreement may identify debts each person brings into the marriage and establish responsibility for future obligations.
This can include:
- Student loans
- Credit cards
- Tax liabilities
- Business debt
- Personal loans
- Mortgages
- Debt connected to a prior marriage
- Guarantees of business or family obligations
An agreement between spouses does not necessarily change a creditor’s contractual rights. A lender may still pursue a person whose name appears on the account or loan.
Retirement and Employment Benefits
Retirement plans, pensions, deferred compensation, stock options, and restricted stock may require careful treatment.
The agreement may identify premarital benefits, address future contributions, or define how equity compensation will be characterized.
Plan rules and federal law may affect what can be waived or divided. Some rights may require additional documents after marriage.
Estate Planning and Prior Children
A person with children from a prior relationship may want to preserve certain assets for those children while also providing for a future spouse.
California law allows premarital agreements to address wills, trusts, life insurance, and property rights at death.
The agreement should be coordinated with the couple’s estate-planning documents. A prenuptial agreement alone may not carry out every intended transfer.
Spousal Support Requires Special Attention
A California prenuptial agreement may include terms concerning spousal support, including a proposed waiver or limitation. These provisions are subject to stricter rules.
A spousal support provision is not enforceable against a person who did not have independent legal counsel when the agreement was signed. A support provision may also be unenforceable if it is unconscionable when enforcement is requested.
This means a valid agreement concerning property does not necessarily make every support term enforceable.
Support provisions should be reviewed in light of:
- The length of the anticipated marriage
- Each person’s income and earning ability
- Career interruptions
- Plans to raise children
- Age and health
- Available assets
- Expected lifestyle
- Business ownership
- Retirement planning
- Possible changes in circumstances
A provision that appears reasonable before marriage may be examined again years later when enforcement is sought.
What a Prenuptial Agreement Cannot Control
A prenuptial agreement cannot eliminate a child’s right to support. California law states that a child’s support rights may not be adversely affected by the agreement.
Prospective spouses should also avoid treating a prenuptial agreement as a way to predetermine future child custody or parenting time. If parents later disagree, California courts make custody decisions based on the child’s best interests and the circumstances existing at that time.
An agreement also cannot include terms that violate public policy or a law imposing a criminal penalty.
We help clients distinguish between subjects that can be addressed effectively and terms that may not be enforceable.
Financial Disclosure Matters
A prenuptial agreement should be based on a meaningful understanding of each person’s finances.
California law provides that an agreement may be unenforceable when it was unconscionable at signing and the person opposing enforcement did not receive fair, reasonable, and full disclosure, did not validly waive further disclosure, and lacked adequate knowledge of the other person’s property or financial obligations.
Disclosure may include:
- Real estate
- Bank accounts
- Investment accounts
- Retirement benefits
- Business interests
- Trust interests
- Stock and equity compensation
- Income
- Loans and credit obligations
- Tax debt
- Other material financial obligations
A verbal description such as “I own a business” may not be enough to give the other person a useful understanding of its value, debt, and income.
We help clients organize financial schedules and identify supporting records that may be appropriate for the agreement.
Independent Attorneys Protect the Process
Each prospective spouse should have the opportunity to receive advice from a separate lawyer.
One attorney cannot represent both people when preparing and negotiating the agreement. Even when the couple agrees on the general terms, each person may be giving up different rights and assuming different obligations.
Independent representation gives each person an opportunity to:
- Understand California property and support rights
- Review the proposed financial disclosures
- Ask questions privately
- Identify one-sided or unclear provisions
- Propose revisions
- Understand the consequences of signing
- Decide whether the agreement reflects that person’s goals
Independent counsel is particularly important when the agreement addresses spousal support. California law requires independent representation for a support provision to be enforceable against the person affected by it.
Irwin & Irwin LLP may represent one prospective spouse in drafting or reviewing an agreement. The other person should obtain separate counsel.
Do Not Wait Until the Wedding Is Close
A prenuptial agreement should not be presented for the first time days before the wedding.
For agreements signed on or after January 1, 2020, California law generally requires at least seven calendar days between the date a person is first presented with the final agreement and the date it is signed. This period applies whether or not the person has an attorney, subject to the statute’s exception for nonsubstantive changes.
Seven days is a legal minimum, not a recommended planning schedule.
The process may require time to:
- Gather financial records
- Prepare asset and debt schedules
- Discuss the proposed terms
- Obtain separate attorneys
- Review tax or business questions
- Negotiate changes
- Revise the agreement
- Coordinate estate-planning documents
- Complete final review and signing
Starting several months before the wedding gives both people time to consider the terms without unnecessary pressure.
When a Prenuptial Agreement May Be Challenged
A signed agreement is not automatically enforceable in every circumstance.
California law allows a person to challenge enforcement based on grounds that may include lack of voluntary execution or certain problems involving unconscionability and financial disclosure. The court also considers whether the statutory requirements connected to counsel, timing, language, capacity, duress, fraud, and undue influence were met.
Disputes may arise when:
- The agreement was presented too close to the wedding
- One person did not receive complete financial information
- The disclosed asset values were misleading
- A party lacked independent counsel
- The agreement was not understood
- The person did not understand the language used
- There was pressure, fraud, or undue influence
- A support provision was unconscionable when enforcement was sought
- The terms are vague or internally inconsistent
- The couple’s later conduct conflicts with the agreement
No drafting process can prevent every future challenge. Careful preparation can reduce avoidable questions about how the agreement was negotiated and signed.
How Irwin & Irwin LLP Helps With Prenuptial Agreements
A prenuptial agreement should be more than a list of assets followed by a waiver.
We help clients identify the financial issues that matter, understand the legal effect of the proposed terms, and document the process carefully.
Our work may include:
- Discussing the client’s financial and family goals
- Identifying property and debt
- Reviewing business and compensation interests
- Preparing or reviewing financial disclosures
- Drafting agreement terms
- Reviewing an agreement prepared by the other person’s attorney
- Negotiating proposed revisions
- Addressing spousal support provisions
- Coordinating with estate-planning, tax, or business counsel
- Preparing exhibits and financial schedules
- Documenting counsel and timing requirements
- Completing the agreement before the wedding
We write in clear terms so the client can understand what the agreement is intended to do.
Agreements for Business Owners and Professionals
Business owners, physicians, executives, attorneys, investors, and other professionals may have compensation and ownership interests that require more detailed planning.
A straightforward agreement may not adequately address:
- Business appreciation
- Professional goodwill
- Ownership created through future equity grants
- Bonuses and commissions
- Deferred compensation
- Restricted stock units
- Stock options
- Capital contributions
- Personal guarantees
- Business distributions
- Intellectual property
- Income retained by a company
- Sale of the business
- A spouse’s work in the business
We help clients identify these issues early and determine when input from an accountant, valuation professional, tax adviser, business attorney, or estate-planning lawyer may be useful.
Reviewing a Prenuptial Agreement Presented by Your Future Spouse
You should not assume that an agreement is standard because it was prepared by a lawyer.
Before signing, you should understand:
- Which rights you are keeping
- Which rights you are giving up
- How property acquired during marriage will be treated
- What happens to earnings and retirement contributions
- Whether you will receive an interest in the family home
- How debt will be handled
- Whether support is waived or limited
- What happens if one person stops working to raise children
- Whether the disclosures appear complete
- Whether the agreement coordinates with estate planning
- How disputes about the agreement will be handled
We review proposed agreements for clients who did not participate in the initial drafting. We explain the terms, identify areas of concern, and discuss revisions before the client decides whether to sign.
What to Bring to a Prenuptial Agreement Consultation
You do not need to have every financial document before contacting us.
Helpful information may include:
- The wedding date
- Any draft agreement
- A list of property and debt
- Recent account statements
- Real estate information
- Business ownership documents
- Retirement and equity compensation records
- Trust or inheritance information
- Prior marriage obligations
- Estate-planning documents
- A summary of the terms already discussed
- Questions or concerns about the proposed agreement
The sooner the process begins, the more time there is for disclosure, review, and negotiation.
Schedule a Consultation With Irwin & Irwin LLP
A prenuptial agreement can help prospective spouses establish clear expectations before marriage. The process should allow time for financial disclosure, independent advice, negotiation, and careful review.
Irwin & Irwin LLP helps clients prepare and review California prenuptial agreements involving property, businesses, debt, support, estate planning, and other financial concerns.
Schedule a consultation with Irwin & Irwin LLP to discuss your Orange County prenuptial agreement.
