Introduction To Prenuptial Agreements
It’s a common misconception that prenuptial agreements (a.k.a. “pre-nups”) are only for the extremely wealthy or those who are worried about their marriage ending in divorce. Today, prenuptial agreements are used by people of all economic levels and without regard to potential divorce. It is helpful to think of prenuptial agreements like health insurance. Just as buying health insurance does not indicate that a person expects to become ill, entering into a prenuptial agreement does not indicate that a person expects their marriage to fail. Like health insurance, a prenuptial agreement signifies that, should an unfortunate event occur, the parties are prepared and have planned to protect themselves from further harm.
A prenuptial agreement allows for an efficient distribution of marital and non-marital assets in the unfortunate event of divorce or death. Division of property is often the most expensive part of any marital dissolution. A prenuptial agreement allows parties to decide ahead of time how their assets (whether acquired before or during marriage) will be distributed and will protect the parties’ much needed resources as they transition into separate homes. A prenuptial agreement is not only for affluent individuals; it’s a valuable device for anyone who would rather spend a little money now as a preventive measure to potentially save thousands of dollars in future attorneys’ fees.
What is a Prenuptial Agreement?
It’s important to understand what a prenuptial agreement is and what it is not. A prenuptial agreement is not an admission that you have doubts about your marriage. Rather, it’s simply an opportunity for couples contemplating marriage to have an open and honest discussion about their current finances and their goals for the future, and to eliminate the financial uncertainty of divorce. At its most basic, a prenuptial agreement is just that: an agreement. Agreements are subject to negotiation and cannot be finalized unless both parties agree on the terms. These basic concepts ensure fairness in the final product.
How to form a Prenuptial Agreement
Illinois courts require full disclosure of each party’s property and financial obligations. The mandatory disclosure allows each party to make an informed decision regarding the property rights they are relinquishing in the event of divorce. In many instances, property acquired after the date of marriage will be considered marital property, subject to division upon divorce. This includes savings and pensions, as well as business ventures and physical property. Additionally, any debts or liabilities incurred during the course of the marriage may be subject to division between the parties. By sharing all relevant information, and by encouraging a frank discussion of each party’s financial expectations, Illinois law ensures that both parties enter into a prenuptial agreement, and their marriage or civil union, fully aware of their finances.
The courts will not enforce a prenuptial agreement without carefully scrutinizing the terms and taking into consideration events that could not have been foreseen at the time the parties entered into the agreement. This is a case-by-case analysis, but the Illinois Uniform Premarital Agreement Act specifically addresses one of the most common scenarios: maintenance (formerly known as alimony). Section 7 states “(b) If a provision of a premarital agreement modifies or eliminates spousal support and that modification or elimination causes one party to the agreement undue hardship in light of circumstances not reasonably foreseeable at the time of the execution of the agreement, a court, notwithstanding the terms of the agreement, may require the other party to provide support to the extent necessary to avoid hardship.” (750 ILCS 10/7). Likewise, contractual agreements that are unconscionable will be struck down by the Court.
Subject Matter of Prenuptial Agreements
Prenuptial agreements allow parties to create a binding contract that provides for a predetermined allocation of all forms of property, either presently held or acquired in the future, including: real estate, vacation homes, rental properties, time-shares and personal property such as: interests in and ownership of small businesses, employment income, investment income, savings accounts, certificates of deposit, investment accounts, stocks, bonds, pensions, 401(k), 403(b), deferred compensation plans, etc. Additionally, prenuptial agreements can assign one party the right to buy, sell, mortgage, encumber, or otherwise dispose of property. Therefore, in the event of divorce, the property owned by each party retains its liquidity and the party seeking to make financial decisions will not have to wait for a court order which takes times and could end up costing the parties money in court fees, market fluctuations, or lost opportunity costs.
Aside from property allocation, described above, a prenuptial agreement allows parties to contract with respect to:
1. The elimination or modification of spousal support (subject to the discussion above);
2. The ownership rights in and distribution of life insurance proceeds;
3. The choice of law governing construction of the agreement; and
4. Any other matter that does not violate public policy or criminal statute.
Limitations of Prenuptial Agreements
It is important to note that parties cannot contract with respect to the right of a parent to receive child support from the other parent for the benefit of a child in the event of divorce. Also, parties cannot contract as to custody because the court makes all custody determinations and such determinations are based upon the best interests of the child[ren] at the time of divorce.
Prenuptial Agreements for Civil Unions
On January 31, 2011, Illinois became the sixth state to recognize civil unions. The Illinois Religious Freedom Protection and Civil Union Act becomes effective June 1, 2011, and will provide gay, lesbian, bisexual, and transgender couples the same rights, obligations, benefits, and protections under Illinois law as a traditional marriage.
Although Illinois law is not definitive on the issue, prenuptial agreements formed in contemplation of a civil union will likely have the same force and effect as civil unions formed in contemplation of marriage. It is our opinion that the Illinois legislature intentionally used language from Chapter 750 of the Illinois Compiled Statutes, which governs domestic relations, in defining the scope of the Illinois Religious Freedom Protection and Civil Union Act. Specifically, Act 10, Section 2 of Chapter 750, also known as the Illinois Uniform Premarital Agreement Act, states that “(1) ‘Premarital agreement’ means an agreement between prospective spouses made in contemplation of marriage and to be effective upon marriage.’” (750 ILCS 10/2). Section 5 of the Illinois Religious Freedom Protection and Civil Union Act states “This Act shall be liberally construed and applied to promote its underlying purposes, which are to provide adequate procedures for the certification and registration of a civil union and provide persons entering into a civil union with the obligations, responsibilities, protections, and benefits afforded or recognized by the law of Illinois to spouses.” (Public Act 096-1513, Section 5). As further support, Act 10, Section 4 of the Illinois Uniform Premarital Agreement Act states “(a) Parties to a premarital agreement may contract with respect to: (1) the rights and obligations of each of the parties in any of the property of either or both of them whenever and wherever acquired or located.” (750 ILCS 10/4). The use of the terms “rights and obligations” also appears in the above quotation from the Illinois Religious Freedom Protection and Civil Union Act. It would seem, without any additional guidance from the courts, that the legislature intended to provide the protection of prenuptial agreements to couples entering into a civil union.
I want a prenup, but I don’t know how to ask my partner
Although discussing prenuptial agreements can be difficult, it is important for couples to have an open dialogue about their current finances and financial goals so that both parties are clear about their partner’s expectations for the future. We suggest that you do not request or demand a prenuptial agreement, but instead propose that you and your partner learn more about what prenuptial agreements are and what they aren’t. A prenuptial agreement may remove the anxiety of financial uncertainty from your marriage or civil union, and, in an unfortunate circumstance, will protect you and your spouse.
We are happy to speak to couples about prenuptial agreements in civil unions and explain them in more detail. We encourage you to contact us for more information.