Prenuptial agreements typically cover spousal support in the event of separation or divorce, including whether the couple will waive spousal support, arrangements regarding care and support of children the couple may have from a prior relationship, as well as how those payments will be made and from whom. It is common for discussions regarding the possibility of using one party’s residence in the marriage and selling the other party’s residence or holding the other party’s residence as a rental property and whether the rent money will go into the common pot for household use or whether it will remain the separate property of the spouse owning the property. Additionally, things like maintaining earnings, retirement plans, or earnings from nonretirement investments may also be considered separate property.
If both spouses earn income during the marriage, that income will be considered community property, meaning that each spouse will own half of the other spouse’s income, unless otherwise agreed to. As an alternative to their earnings becoming community property, the parties can agree to have their earnings as separate property. You can also agree that the earnings of one party will be community property while the earnings of the other party will remain separate property.
What Are The Benefits Of A Prenuptial Agreement?
During the marriage, a prenuptial agreement allows the parties to control the terms of their financial relationship and limit spousal support by terms, duration, or amount. You can also waive spousal support altogether if you and your spouse agree. It can also protect them by defining what property each of them owns when they marry. In most prenuptial agreements, this is an important component as it simplifies the process of disengaging the parties’ assets in the event of a divorce. The divorce court is also able to track separate and community property more easily.
Separate accounts can also be provided for in prenuptial agreements, so that property is not merged. The agreements can also contain provisions for what happens if the parties comele their separate property, for instance, if they invest separate property funds into a joint investment in their names as husband and wife. The agreement essentially gives each partner a greater degree of control over the marital relationship, similar to when parties draft a trust as part of their estate planning, which allows them to determine how the money will be handled both during their joint lives and after their deaths. Their property will pass according to intestate succession rules, which are rules established by the state, where the parties have no say in how the property passes. Prenuptial agreements are simply another element of life planning that allows the parties to control their situations both during and after their marriages.
How Are Separate Assets And Community Assets Different?
If one of the parties acquires property prior to marriage or with respect to certain kinds of property after marriage, it is considered separate property, such as an inheritance received during the marriage and gifts given to one spouse and not to both.
Separate property earned before marriage also includes earnings and income during marriage attributable to separate property. During a marriage, any property acquired as a result of either party’s efforts constitutes community property.
There is a common scenario in which one of the parties owns a house that has a mortgage on it before marriage. After marriage, he or she would continue to make payments on that mortgage from his or her income, which would be community property unless there is a written agreement to the contrary. Due to the mortgage payments being made as community property, unless otherwise agreed in a prenuptial agreement, the other spouse will become entitled to an interest in that house. Therefore, in the event of a divorce, the courts would have to calculate how much of that property remained separate and how much was community property. Prenuptial agreements prevent this mixing of interests.
Similarly, there may be a retirement plan in which one party enters into the marriage with a 401(k) plan into which he or she contributed separate property before marriage and then continues to contribute from his earnings during the marriage. During the divorce process, the parties will have to divide the retirement plan, and the courts will decide how much of that plan remains separate from the other spouse and how much will become community property.
With a prenuptial agreement, the parties can agree that the earning spouse’s earnings will remain separate property during the marriage. When both husband and wife earn a significant amount of money, they usually agree to keep their earnings as separate property instead of converting them into community property. In such situations, it is necessary to decide how common bills like food, utilities, transportation, entertainment and other costs that are typically covered by the community funds of the marriage can be paid.
Even if the parties have different income levels, it can be challenging to figure out how those common expenses will be paid. One spouse may earn more than the other. The couple will need to decide whether each will contribute 50% to this common fund or whether the husband will put in two-thirds and the wife will put in one-third. In the agreement, they should also specify which expenses will be considered common and which will be deemed separate property expenses, to be paid by each party out of his or her separate property.
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