The Benefits of Pre-Marital Agreements
Introduction
Pre-marital agreements (also known as pre-nuptial agreements) are valid agreements in Colorado. A pre-marital agreement is an agreement you enter into with your future spouse prior to getting married. A pre-marital agreement allows you to define how you and your spouse want your property to be divided upon divorce or death. When a couple divorces or when a spouse dies, Colorado law will determine how property will be divided. A pre-marital agreement allows you to change these laws.
There is also a post-marital agreement, which acts the same as a pre-marital agreement. The difference is that a post-marital agreement (also known as a post-nuptial agreement) is entered into after you have gotten married. For the purposes of this article, I will refer to both as marital agreements, which is how Colorado defines both agreements. (You should distinguish pre-marital and marital agreements from separation agreements or agreements prepared at the time of a separation or divorce.)
Pre-marital agreements are not just for the wealthy. They can provide as many or even more benefits to couples with modest means.
How is my property viewed if I’m married?
Before we dive into the specifics of the marital agreement, you must first understand how Colorado views property ownership once you are married. Colorado law classifies your property once in you are married as either separate or marital.
Separate property is all of the property you or your spouse owned prior to the marriage, and all property received by gift or inheritance during the marriage. Keep in mind that separate property you owned prior to marriage that is used to further the marriage could become marital property.
Marital property, on the other hand, includes the following:
- all property earned by either spouse during the marriage, including deferred compensation
- all income from separate property
- all appreciation on separate property
To explain: if you have separate property worth $100, any income this property produces once you are married will be marital property. Additionally, if this $100 increases in value to say $500, the increase in value of $400 will be marital property. The $100 will remain separate property. This classification occurs regardless of whether it was property you owned prior to the marriage or that was gifted to you during the marriage.
Moreover, marital property exists regardless of how title is held. Thus, if you and your spouse purchase a house during the marriage and title the house in your spouse’s name, that property is still marital property. The court will divide this marital property equitably upon divorce. And, it will be subject to the probate laws upon you or your spouse’s death.
What happens to my property if I get divorced and I don’t have a marital agreement?
If you don’t have a marital agreement and you get divorced, your separate property will remain yours. However, all marital property will be divided equitably by the courts. Equitably doesn’t mean that the courts will necessarily divide the property 50/50. Rather, courts may divide the marital property in the proportion that it deems “just” after considering numerous relevant factors. And, this division will include a division of the increases in value to separate property or the income derived from separate property.
Essentially, if you don’t have a valid marital agreement, Colorado courts have incredibly broad authority to divide property in a manner that they deem to be “fair and equitable.” And, fair and equitable may mean equal, but doesn’t have to be equal.
What happens to my property if I die and I don’t have a marital agreement?
As with divorce, Colorado has laws that will determine how your property is distributed upon your death. What happens with your property will depend on factors that are outside of the scope of this article, but include such things as whether your spouse has a will or if the property was in a trust.
Generally, however, if your spouse dies with a will that leaves you nothing, you can reject the will and claim up to potentially half of the property in your estate depending on the length of your marriage. Similarly, if your spouse does not leave a will, you may also be entitled to half of the estate. Under probate law, this is called an elective share.
A valid marital agreement, however, could change how property is distributed upon death.
So, how does a marital agreement change the laws?
Marital agreements can address nearly anything that would need to be addressed upon divorce or death. You and your spouse can change how your property will be distributed upon divorce or death. Some of the topics that you could address in a marital agreement include the following:
- Classification of property as marital or separate
- Classification of income (from employment or otherwise) or appreciation on assets as marital or separate
- Allocation of property in the event the marriage is terminated by a divorce
- Provisions for maintenance (alimony) in the event of a divorce
- Allocation of property upon death
As you can see, you can control ahead of time (or after you are married) how you want your property to be divided.
Thus, through your marital agreement, you can redefine separate property to include all income from and appreciation of your separate property. If you receive an inheritance during your marriage, any income you receive from it or appreciation of it can remain separate property. You can protect your earned income by defining that as separate property. Assets purchased or investments made with your earned income will remain your separate property upon divorce. You can determine how much maintenance may be paid upon divorce and thus have some predictability in what the future may look like after a divorce.
Moreover, a marital agreement may prevent you or your spouse from rejecting your spouse’s will. Thus, you or your spouse could agree that you will not take an elective share of the estate upon the other’s death. This would result in your spouse having to honor your estate plan if you die first. Similarly, you will have to honor your spouse’s estate plan if he or she dies first.
So how will this benefit me?
- Marital agreements allow you to rewrite the law to reflect your values and how you want your property and maintenance to be decided.
- Marital agreements give you more certainty by allowing you to decide how your property will be divided if you divorce or upon death.
- Marital agreements allow you to resolve potential financial issues and values before you marry that could put strain on the marriage later.
- Marital agreements allow you agree with your spouse about what you and your spouse view as fair and reasonable at a time when you are getting along and care about each other and are more likely to take each other’s needs and interests into account.
- Marital agreements may create financial security for the spouse with less.
- Marital agreements may simplify the emotional and financial costs of a divorce, should it occur.
But, there are some caveats…
Even though marital agreements are valid in Colorado, they need to be entered into properly or a court may not honor their terms. For example, if the court views the terms of the marital agreement as unconscionable upon divorce, the court may disregard the terms. A court may disregard terms that will leave one spouse destitute or not properly provided for. Additionally, if you and your spouse did not fully disclose your finances prior to the agreement being entered into, or if one spouse was not represented by an attorney, the agreement may be found invalid.
Thus, to ensure that your marital agreement is valid, you should do the following:
- If you are preparing a marital agreement, enter into it well before your marriage.
- If you are preparing a marital agreement, do not enter into it when you are not anticipating a divorce or death.
- Your agreement must be in writing and signed by both of you.
- Ideally, you should both be represented by a separate and independent attorney.
- If you aren’t represented, ensure that there is an appropriate notice of waiver of rights.
- You should both fully provide an adequate financial disclosure.