Can a Prenuptial Agreement Protect My Assets After Death?

In terms of would-be celebrations, no one was more upset about COVID-19 than the couples whose weddings were derailed by a year or more of pandemic-induced delays. For those who survived quarantining together and still like each other enough to want to get married, prenuptial planning may be on the agenda before taking the final walk down that aisle. Many of us think of prenuptial agreements in the context of what would happen in the event of divorce, but that’s not the only potential benefit. A well-drafted prenuptial agreement can also provide asset protection in the event the marriage survives “’til death do us part.”

The issue of asset protection upon death most frequently comes up in discussing prenuptial agreements with individuals who are marrying later in life, particularly where one or both parties has children from a prior relationship. That party often wishes to ensure that their children will remain the ultimate beneficiaries of their estate, and so will request that the other party waive statutory inheritance rights that otherwise would attach to the marriage.

Here is an illustrative scenario:

John and Jane are in their early 50s, each with adult children from their prior marriages. Each of them is coming into the marriage with some assets, though John’s assets exceed Jane’s assets by approximately $1 million. Several weeks prior to their wedding, John and Jane execute a Prenuptial Agreement which, among other things, defines each party’s existing assets as their separate property and waives each party’s statutory rights to inherit or otherwise make claim to any of the other party’s separate property upon death. John dies five years later, leaving behind a Will that he had executed prior to his marriage to Jane, leaving all of his assets to his children. Jane files an Objection to the Will and a claim for her spousal elective share (more on that here). In response, the Personal Representative of John’s Estate files a Complaint against Jane, seeking to enforce the Prenuptial Agreement.

Will the Court enforce the spousal-inheritance waivers in the Prenuptial Agreement? Here are the key criteria:

  1. Was the contesting party fully informed of her spouse’s wealth prior to executing the Agreement?
  2. Does the Agreement set forth a clear waiver by the contesting party?
  3. Were the provisions of the Agreement fair and reasonable at the time the Agreement was executed?

In considering the reasonableness element, the Court is likely to consider the circumstances of the Agreement’s execution, including the parties’ respective intelligence, literacy, and business acumen; prior family ties or commitments; each party’s access to independent counsel; and the timing of the Agreement in relation to the wedding.

It is important to remember that a prenuptial agreement will not waive a spouse’s rights as to property other than what is defined as separate property; and anything defined as separate property must actually be kept separate during the marriage to ensure that it remains protected. Of course, it may be that one or both spouses may want to leave certain assets to the surviving spouse at death, and that intent may evolve over time during the marriage. Each spouse is free to be more generous with the other than what the prenuptial agreement provides, whether by making provisions in a Will or by effectuating lifetime transfers or retitling assets into joint names. Be mindful, though, of potential postmortem disputes between the surviving spouse and the children from prior relationships. The best way to avoid this is to plan carefully with the assistance of knowledgeable counsel and to be open and honest with your spouse and your children regarding their expectancies and your intentions.

 

Until next time!

Tiffany

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