What is a prenuptial/premarital agreement?

 

A prenuptial agreement is a contract between two parties made prior to marriage but in contemplation and consideration thereof providing for the disposition of the parties’ assets and debts at the end of their marriage, whether it be by death or divorce.

Why do people enter into prenuptial agreements?

 

Prenuptial agreements are generally entered into when at least one of the parties has a substantial estate that he/she wishes to keep separate from the marital community. This estate could be a long time family business, an inheritance, or anticipated substantial future earnings.

I thought Washington was a community property state. What is separate property?

 

Separate property is generally that property you bring to the marriage. In addition, gifts and inheritances are considered separate property. 

If separate property stays separate property, why do I need a prenuptial agreement?

 

Separate property does not always stay separate. There are numerous factors that can change the character of property. An example of the character of property being changed by the actions of the parties is an inheritance being placed in a joint account where community funds are also deposited and withdrawn, and it becomes impossible to determine community funds versus separate funds. In that event all funds may be deemed to be community funds. Another example is the marital community investing substantial funds remodeling a home that was owned by one of the parties prior to the marriage. In that instance the community may have a lien against that property. There are numerous circumstances where separate funds may be partially or completely characterized as community property as a result of the actions of the parties. A prenuptial agreement will explicitly set forth those items so that they will retain their separate character.

I have heard stories of prenuptial agreements being determined invalid. How do I make sure an agreement I enter into is valid?

 

The preeminent case on validity of prenuptial agreements is In re the Marriage of Foran, 67 Wn.App. 242, 834 P.2d 1081, (Wash.App. Div. 1 1992). In Foran, supra, the court found: “The validity of a prenuptial agreement is evaluated by means of a 2-prong analysis: First, the court must decide whether the agreement provides a fair and reasonable provision for the party not seeking enforcement of the agreement. If the court makes this finding, then the analysis ends and the agreement may be validated…. The second prong of this analysis involves two tests … (1) whether full disclosure has been made by [the parties] of the amount, character and value of the property involved, and (2) whether the agreement was entered into fully and voluntarily on independent advice and with full knowledge by [both spouses of their] rights. In re Marriage of Matson, 107 Wash.2d 479, 482-83, 730 P.2d 668 (1986). What this means is that the court must first determine if the prenuptial contract is fair and reasonable. It does this by deciding if each party is fairly compensated for the resources brought to the marriage and the time and resources contributed to the marriage. If so, the court will determine the contract valid and there will be no further review. However, if the court feels the contract is not fair, then it must determine two additional matters as set forth above. Determining if both parties disclosed assets and debts is a fairly simple process as a list of debts and assets is usually included as a portion of the prenuptial agreement. However, determining if both parties entered into the agreement with full knowledge of their rights is a more difficult finding. Usually the courts will look to make sure both parties were represented by independent counsel. Additionally, the courts will make sure that both parties were given sufficient time to review the contract. The infamous stories of being handed a prenuptial agreement to sign in the limousine on the way to the wedding with the threat of “sign it, or no marriage” will almost always result in an invalid contract.

What happens if a prenuptial agreement is declared invalid?

 

If the parties are going through a dissolution proceeding, the courts are free to award property in a fair and equitable manner without regard to terms of the prenuptial contract… if it is found to be invalid.

Is Washington a community property state?

 

Washington is a community property state. Generally, anything acquired during the marriage is considered community property. This includes the earning of income from employment, the accumulation of retirement benefits during the marriage, and the purchase of assets with community income. However, not all property is community property. Some examples of separate property are gifts, inheritances, and accumulated interest or equity in property acquired prior to the marriage.

Is it important whether I keep my property separate from, not commingled with, our community property?

 

Yes, if you keep that separate property segregated from your earnings and other assets you acquire after marriage, that asset is likely to remain your separate property. The income earned off a separate property investment is also separate property. Determining whether an asset is separate property or community property or a combination of separate and community property can be complex and is best discussed with an attorney.

Can separate property be converted to community property?

 

Yes, there are numerous ways to convert separate property to community property. One of the most frequent methods is by the co-mingling of funds. This means that a separate asset such as a gift or inheritance is placed in a joint account from which both parties withdraw funds and into which both parties deposit community funds. Once the parties are unable to clearly establish which funds are community and which are separate, all funds may be considered community. Another method to convert the nature of property is the execution of a deed transferring real property from one spouse’s separate estate to the community’s estate. One last example is the execution of a Community Property Agreement. Although generally executed for estate planning purposes, some Community Property Agreements can be effective immediately. Before executing a Community Property Agreement, it is wise to speak with an attorney to determine what effect such an agreement would have.

What if I cannot recall when I bought an asset?

 

A party claiming an asset to be separate property has the duty to provide documentation or testimony to establish the asset as separate property. If the party cannot do so adequately, the court will presume the asset is community property.

Can the court award my separate property to my spouse?

 

Yes, all property (both separate and community) is before the court for division. However, the courts generally only award separate property of one spouse to another in limited circumstances. These circumstances may include a long marriage where the community assets are very limited but one party’s separate assets are substantial. In this instance, the court will look at the overall economic circumstances of each spouse at the time the division of property is to become effective and may award one spouse’s separate property to the other to achieve a more equitable division of assets.