Last week we listed what can be written in a prenuptial agreement. However, two areas need to be discussed more thoroughly.

1. Separate Property and Separate Income

Simply identifying each party’s separate property is not sufficient. Since one of the major purposes of a prenuptial agreement is to preserve the non-marital assets of each spouse for the children of the first marriage or other family members of each spouse, the prenuptial agreement should be specific in describing each spouse’s desires in this regard.

Therefore, the prenuptial agree­ment should state under what circumstances or to what extent, if any, one party has any rights or interest in the non-marital property of the other.

The prenuptial agreement, should state clearly when and how much of, if at all, non-marital property and income from this property is to be used in the marriage and for what purpose. Very often, non-marital property or income of one spouse, even though it is identified as non-marital income, is used to satisfy debts incurred after the marriage by the other spouse.

Generally, the debts incurred by one spouse (the “debtor spouse”) can be collected from the other spouse unless the vendor or creditor is notified that one spouse is not respon­sible for debts of the other. This is true even though the spouse paying the debts does not use or have enjoyments from the items purchased by the debtor spouse.

For example, if one spouse charged purchases on a joint credit card and cannot pay the balances the non-debtor spouse can be forced, legally, to pay for those purchases using his or her separate property.          

Thus, the prenuptial agreement should clearly state how major purchases and joint debt are to be paid. Spouses who must use separate, non-marital prop­erty to satisfy joint debts or debt of the other spouse should be reimbursed. This can be accomplished in a well-thought-out prenuptial agreement. In addition, the identification of joint funds (wages or other earnings while married) and the use of such funds should be specified.

2. Pensions and IRAs

As stated earlier, people use the prenuptial agreement to preserve separate assets for their children of the first marriage or other separate commitments. Pension funds are a classic type of separate asset that a party may want to keep separate from the new spouse.

To accomplish and maintain separate asset status for pension funds, prenuptial agreements generally provide that the new spouse waive his or her rights to receive the pension funds of the other spouse. This waiver is necessary because the law mandates that spouses be named the primary beneficiary of pension funds. If a spouse is not named a recipient of pension money, the spouse must consent in writing to giving up his or her rights to such money.

A person is considered a spouse only if he or she is legally married to the other person and the marriage has not been formally ended by a decree of divorce. A legally valid divorce, then, terminates the spouse status. A separation agreement alone may not be sufficient.

If you are about to be divorced, take note. To ensure that your soon-to-be-ex spouse has no claim to your pension fund, your separation agreement should contain an explicit clause waiving pension funds until the final divorce.

THOUGHT OF THE WEEK

“Never confuse a single defeat with a final defeat.”