How Prenuptial Agreements Affect Estate Plans

Prenuptial agreement

Most people think of prenuptial agreements, or “prenups,” in the context of how those agreements would affect a divorce. Considering that about half of all marriages do end in divorce, that’s understandable. But in almost 100% of marriages that don’t end in divorce, one spouse dies before the other and their estate needs to be distributed. Yet relatively few people think about using a prenuptial agreement in estate planning.

That’s unfortunate, because a prenuptial agreement as part of an estate plan can prove useful in clarifying a person’s intentions for the distribution of their property, and can reduce conflict over their estate after their passing.

There is also something called a postnuptial agreement which essentially is the same type of document, but is executed after the individuals are married. The two documents work similarly, however, it is always preferable to execute the document prior to getting married. For the discussion below, we will be focusing on prenuptial agreements.

What is a Prenup, and How Can a Prenup Affect an Estate Plan?

A prenuptial agreement is a contract between two people who plan to be married. The agreement must be in writing and executed (signed by the parties) before the wedding; it takes effect upon the marriage.

To be enforceable, a prenup should be made after both intended spouses have made a full disclosure of their financial situation, and the agreement must not be unconscionable (grossly unfair to one party) at the time it was executed. To avoid the appearance that one party signed under duress, both intended spouses should each have their own attorneys review and explain the prenup, and the agreement should be signed well in advance of the planned wedding date.

Prenups can cover a variety of topics, typically financial in nature, including:

  • How finances will be handled during the marriage

  • How marital property will be divided in the event of a divorce or one spouse’s death

  • Whether one spouse will pay spousal support (alimony) to the other in the event of divorce, and if so, the duration and terms of that spousal support

  • How marital debts and liabilities will be assigned in the event of a divorce or one spouse’s death

  • Each spouse’s inheritance rights regarding property owned by the other spouse before or during the marriage.

In essence, a prenuptial agreement (also sometimes referred to as a premarital agreement) is a “private law” governing the parties. It overrides what Michigan state law would ordinarily dictate in the situations above.

You might be wondering, “Couldn’t married people just make a will stating what they want to happen to their property when they die?” Certainly, they could. But Michigan law, like the law of most states, offers a surviving spouse an “elective share” of an estate, which could allow them to take a portion of the estate that their deceased spouse intended for someone else. A prenuptial agreement allows intended spouses to waive their right to an elective share so that the estate can pass according to the wishes of the deceased spouse.

Who Should Consider a Prenup in an Estate Plan?

There are a number of situations in which a prenup should be considered in estate planning, including:

  • One or both intended spouses have children from a previous marriage or relationship, whom they want to inherit most or all of their assets. A prenup can be especially important in situations where the engaged couple is older and one or both intended spouses accumulated significant wealth before the marriage.

  • One or both intended spouses have an interest in a business, especially a family business, that they would not want a spouse to inherit in the event of their death.

  • One or both spouses expect a large inheritance from their family of origin, and want to ensure that the inherited assets remain in the family and not go to a surviving spouse in the event of their own death.

  • One or both spouses have a significant separate (premarital) property that they do not want considered marital property in the event of a divorce and do not want the other spouse to inherit in the event of a death.

In these situations and others, a prenuptial agreement is a tool that gives effect to the intentions of the intended spouses for their property—not the state’s. States have elective share laws and similar laws in order to ensure that a surviving spouse is not left without support after their spouse’s death. In many cases, that protection is not needed, so a prenup can help a couple’s estate plan conform more closely to their actual preferences.

Furthermore, agreeing on inheritance rights in advance can offer peace of mind to the intended spouses, who have literally gotten on the same page about how their estates will be distributed. If they choose to share that information with their children from previous relationships, it can promote family harmony: adult children may be more accepting of a new stepparent if they understand that their inheritance is not threatened by their parent’s marriage.

A prenup can be a prudent measure as you prepare to enter a marriage, but as time passes and the marriage endures, it may no longer seem necessary. After you have been married for several years, you may prefer that your spouse inherits from you. In that case, you and your spouse can revoke or amend your prenuptial agreement. As an alternative, when you make a prenuptial agreement, you can build in a “sunset” clause providing that the agreement will terminate after a certain number of years of marriage.

An Alternative to A Prenup in an Estate Plan

A prenuptial agreement can offer many advantages in the context of an estate plan, but it is not the only option for ensuring that your estate goes to the people you intend to receive it. Depending on your estate planning goals, a trust may be a better choice.

There are many types of trusts, all of which bypass the probate process. Trusts can also provide greater control over how and when assets are distributed than a will, and may be less likely to be challenged in court than a prenuptial agreement. Depending on the type of trust, it may also provide asset protection from your beneficiaries’ creditors—including, potentially, their own spouses in a divorce.

To learn more about how prenups affect estate plans or to incorporate one into your own estate planning, speak with an experienced prenup and estate planning attorney. The knowledgeable attorneys at Barron, Rosenberg, Mayoras & Mayoras work with clients who want to plan for the distribution of their assets. Schedule a consultation today by calling (248) 213-9514 in Michigan or (941) 222-2199 in Florida to learn how we can assist you. You can also use our simple online contact form.