Generally, the parties can negotiate whatever they consider to be important to them.
Issues that are typically dealt with in a prenuptial agreement include spousal support in the event of separation or divorce, including whether the couple will waive spousal support, arrangements regarding care and support of children that either party may have from a prior relationship and how those support payments will be paid and from what source. There are also often discussions regarding possible use of one party’s residence going into the marriage and the disposition of the other party’s residence or in the alternative, including holding the other party’s residence as a rental property and whether the money from the rental property will go into a common pot for household purposes or whether it will remain the separate property of the spouse owning the property. They can also consider things such as maintaining earnings, retirement plans, or earnings from nonretirement investments as separate property.
In California, any earnings of both spouses during the marriage will be considered community property, meaning that each party will own one-half the amount earned by the other party unless agreed to otherwise. The parties can agree that instead of their earnings being community property, the earnings will be separate property. It can also be agreed that one party’s earnings will be community property whereas the other party’s earnings will remain separate property.
How Would A Prenuptial Agreement Protect Someone?
A prenuptial agreement protects the parties by allowing them to control the terms of their financial relationship during the marriage and to limit spousal support as to term, duration or amount. Alternatively, if they so agree, they can waive spousal support altogether. It can also protect them by clearly delineating which property each of them owns when they enter into the marriage. This is be an important aspect of almost every prenuptial agreement because it simplifies the process of disengaging the parties’ assets in the event of a divorce. It also gives the divorce court an easier and cleaner way of tracking separate and community property.
Prenuptial agreements can also include provisions for maintaining property in separate accounts and not comingling it. They can also include provisions for what happens if the parties do comingle their separate property, for example if each invests separate property funds into a common investment in the name of the husband and wife. It essentially gives each party more control over the marital relationship, similar to when parties draft a trust as part of their estate planning which allows them to control how that money will be handled both during their joint lives and after the first and second deaths. If they had no planning done, their property will pass according to intestate succession rules, which are state-created rules in which the parties will have no say in how that property passes. Prenuptial agreements are simply another aspect of life planning which allows the parties more control over their situations, both going into the marriage and coming out of it.
What Are Considered Separate Assets And Community Assets?
Separate property is any property owned by one of the parties prior to marriage acquired by them or with respect to certain kinds of property after marriage; such as an inheritance received during the marriage and gifts received during the marriage that are given to one spouse and not to both spouses. Premarital separate property also includes earnings and income during marriage attributable to separate property. In California, community property is any other property including earnings acquired from the efforts of either party during marriage.
A common situation is where one of the parties owns a house that has a mortgage on it prior to marriage. He or she would have paid a certain amount of that mortgage prior to marriage, and he will continue making payments on the mortgage from his or her income following marriage which would in the absence of an agreement to the contrary will be community property. In that situation, unless it has been otherwise agreed in a prenuptial agreement, the other spouse will acquire an interest in that house, due to the community property payments that will be made on the mortgage. So if that couple were to divorce it would be necessary for the courts to figure out through formulas how much of that property remains separate and how much will be considered community property. This mixing on interests can be avoided by a prenuptial agreement.
The same thing would be true for a retirement plan where one party may come into the marriage with a 401(k) plan into which he or she had made separate property contributions prior to marriage and then continues to make contributions to that plan from his earnings during the marriage. The parties will have to divide up the retirement plan at the time of divorce, and according to established case law the courts will decide how much of that plan remains separate and how much of it becomes community property in which the s other spouse will would have an interest in.
In a prenuptial agreement, the parties can agree that earnings during marriage will remain the separate property of the earning spouse. This is usually agreed when both husband and wife are significant earners and they want to keep as their earnings as separate property rather than converting it into community property. In such situations it has to be decided what arrangements will need to be put into place for payment of common bills like food, utilities, transportation, entertainment and other expenses that are typically paid for by community funds of the marriage.
It can be a challenge to figure out how those common expenses will be paid, particularly if the parties have different income levels. For example, the husband may earn twice as much as the wife. They will have to decide if each of them will contribute 50% to this common fund for payment of expenses or whether the husband will put in two-thirds and the wife puts in one-third. They would also have to document in the agreement which expenses will be considered common expenses and which expenses will be separate property expenses to be paid solely by each party from his or her separate property.
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