Things to Consider Before Getting A Prenuptial Agreement

11/09/2018

By Shelby J. Anderson

 
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If you are getting married and are thinking about getting a prenuptial agreement (also called premarital or antenuptial agreements), there are many different provisions to consider before consulting with an attorney.  Arizona has adopted the Uniform Premarital Agreement Act (UPAA).  A premarital agreement is defined as “an agreement between prospective spouses that is made in contemplation of marriage and that is effective on marriage.”[1] The scope of prenuptial agreements is very broad under the UPAA.  Pursuant to A.R.S. § 25-203, parties can agree to almost anything, as long as it is not a violation of public policy or criminal statute.  A premarital agreement can merely protect one specific asset, such as a business or family property, or can be completely comprehensive to include numerous financial and relationship issues.  Prenuptial agreements are predominantly used to protect the spouses’ financial interests; still, there are additional matters that Arizona couples can contract for in a prenuptial agreement.  You and your prospective spouse should consider provisions that will best suit your specific relationship.

 

Arizona is a Community Property State

Arizona is one of nine community property states.  Community property laws presume that any real and personal property that is acquired during the marriage belongs to the community, owned and shared equally by husband and wife.  All property that is acquired by either spouse during the marriage is community property, with few exceptions (gifts, devises, descents, and property acquired after service of petition for divorce).[2]  Earnings of both spouses during the marriage are community property.[3]  This means that spouses have equal management, control and disposition rights over the community property and have equal authority to bind the community.  Division of community property interests can be contracted in a prenuptial agreement.

 

Assets and Debts can be Included in Your Prenuptial Agreement

Assets and debts can be contracted for in your prenuptial agreement.  Assets can include bank accounts, houses, businesses, land, domain names, jewelry, and other items of tangible or intangible property.[4]  Your premarital agreement can determine which assets will become community property, which assets will remain separate property, and even what happens when there is an appreciation in value of an asset after marriage.  Arizona allows parties to contract around these default rules of equal ownership of property.  A.R.S. § 25-203 provides for many different arrangements that can be made regarding division of assets or debts.  These include:

  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.
  2. The right to buy, sell, use, transfer, exchange, abandon, lease, consume, expend, assign or create a security interest in, mortgage, encumber, dispose of or otherwise manage and control property.
  3. The disposition of property on separation, marital dissolution, death or the occurrence or nonoccurrence of any other event.[5]

Case law has held valid and enforceable provisions that earnings and property interests acquired during the marriage defined as community property would remain the separate property of each spouse because of a valid prenuptial agreement.[6]  Therefore, although Arizona is a community property state, parties can contract in the prenuptial agreement as to exactly how they want to share their property, notwithstanding Arizona Community Property Laws.

A prenuptial agreement becomes crucial when there is a business owned by one spouse coming into the marriage or a family interest in an asset, such as a family farm, that the spouse would like to keep in the family.[7]  If one party is coming into the marriage with a business, this is an asset prospective spouses can prepare for in their prenuptial agreement.  If things go south in the marriage, business valuations are expensive, time consuming, and can cause a loss to the business due to the strain on finances from the divorce. Planning ahead when one spouse has a business or family property interest can allow these interests to stay intact in the event of a divorce.

A prenuptial agreement can also determine what happens to the family pet.  Arizona likely still characterizes all animals as personal property, despite recent changes to the “personal property” statute.[8]  Therefore, if you and your significant other own a pet, you can determine who gets that animal upon divorce, including visitation schedules for the non-custodial pet parent as well as the allocation of pet expenses.

Debts are another important consideration in a prenuptial agreement.  Nationally, borrowers owe approximately $1.5 trillion in student loan debt alone.[9]  Although it is accepted law in Arizona that debt incurred prior to the marriage is that party’s sole and separate debt, it may be worthwhile to include a provision that will limit each spouse’s liability for the other spouse’s debts incurred before the marriage.[10]  This is particularly true when both parties have a significant amount of student loan debt.  Further, a prenuptial agreement can allocate certain debts incurred during the marriage to certain parties.  This can assist couples with financial restraint and can curb unsightly future conversations on personal spending habits.

 

Spousal Maintenance

Spousal maintenance (alimony) is a common provision in a prenuptial agreement.  If you get a divorce without a prenuptial agreement, there is a two-tiered inquiry.  First, the court reviews five factors to determines whether the spouse is entitled to spousal maintenance at all.  If the spouse is entitled to support, courts then consider thirteen different factors when considering the amount and duration of spousal support.[11]  Because there is no predetermined formula to calculate spousal maintenance; court awards are inconsistent in both the amount and duration of the award.  Further, the alimony tax deduction is changing significantly, which will factor into the payment amounts the recipient spouse will receive.[12]  Arizona’s default rules on spousal maintenance are expensive, unpredictable, and take away the ability of you and your spouse to control your income upon divorce.  A provision regarding spousal maintenance in your premarital agreement can alleviate stress, set expectations in the relationship, and keep expenses low in the event of a divorce.  There are multiple agreements that can be made regarding spousal maintenance.  The parties can agree to a lump sum payment, support for a limited duration, or support in consideration of the other party’s support during educational or career advancements (rehabilitative support).  The parties can also agree to eliminate spousal maintenance altogether. However, Arizona law prevents situations where the modification of spousal support would make one party eligible for public assistance.  Under A.R.S. § 25-202, if an elimination or modification of support in a prenuptial agreement causes one party of the agreement to be eligible for public assistance during separation or divorce, the court can require the other party to support the party so as to not need public assistance from the state.

 

Other Provisions to Consider Adding into Your Prenuptial Agreement

A.R.S. § 25-203 provides that parties to a prenuptial agreement may contract with respect to any matter, so long as it is not regarding child custody and support, a violation of public policy, or a statute imposing a criminal penalty.  This allows for some creativity and flexibility to draft a prenuptial agreement that is specific to your relationship.

There are many “lifestyle” clauses that prospective spouses can choose to include in a prenuptial agreement.  If one partner has had substance abuse issues in the past, a clause requiring random drug testing can be included. Couples can negotiate a shopping allowance in return for a number of homemade meals per week.  If there are trust issues in the relationship, an infidelity clause can alleviate these concerns by prescribing penalties, such as liquidated damages, if one of the parties is unfaithful.   A social media clause can prevent parties from posting online about ex-spouses in the event of a divorce.  A sunset provision can be included, which renders the premarital agreement null and void upon the happening of some stated event, usually an anniversary of the couple or some future date agreed upon by both parties.  A sunset clause can be helpful for the couple that wants a prenuptial agreement in the first years of marriage when they are still “testing the waters.”  Arizona default rules allow the prenuptial agreement to remain in place for the duration of the marriage unless a sunset clause is included.  Finally, a choice of law provision should be included so there is no ambiguity regarding what law governs the agreement.  This will be especially necessary if the spouses sign the prenuptial agreement in one state but subsequently move, since the law concerning prenuptial agreements varies from state to state.

Although Arizona has a broad scope of prenuptial agreements, it is questionable whether certain lifestyle clauses would be enforceable due to requirements concerning unconscionability or violations of public policy.  Courts may also be reluctant to uphold lifestyle clauses because they can be difficult to prove or unreasonable to enforce.  Some states will not enforce prenuptial agreements containing personal obligation clauses.  Because the Arizona UPAA allows parties to contract with respect to personal rights and obligations, it is likely that agreements including personal obligations and rights will be valid and enforceable.  To alleviate concerns of enforceability, a severability clause can be included, which allows the court to enforce the lawful part and ignore the invalid part of the agreement.[13]  Since there is judicial discretion regarding issues of public policy or unconscionability, it is important to consult with an attorney to ensure your agreement will be valid and enforceable.

 

What Will Not be Considered in a Prenuptial Agreement

There are some things that cannot be contracted for in a prenuptial agreement.  Any matter that is either a violation of public policy or a statute imposing a criminal penalty exceed the scope of the agreement and cannot be upheld.[14]  Clauses concerning children are not enforceable.  Arizona courts determine child custody issues in accordance with what is in the best interests of the child.[15]  Similarly, A.R.S. § 25-203(B) provides that a child’s right to child support may not be adversely affected by a premarital agreement.  Accordingly, anything in your premarital agreement that relates to the children, such as to raise them a certain religion or visitation schedules after divorce will not be enforceable in court.  Further, some states consider prenuptial agreements to be effective only with respect to the couple’s financial interests.

The different provisions that may be included in your premarital agreement, while nearly endless, are subject to certain requirements and judicial scrutiny.  A properly drafted premarital agreement will ensure your agreement will be valid and enforceable in Arizona.  For inquiries on prenuptial agreements or any other family law matters, contact one of the family law attorneys at DuMond & Doran, PLLC today.

 

[1] A.R.S. § 25-201.

[2] A.R.S. § 25-211.

[3] § 6.5.Earnings, 4 Ariz. Prac., Community Property Law § 6.5 (3d ed.).

[4] BEFORE SAYING ‘I DO,‘ SPECIFY ‘I WILL‘ IN A PRENUPTIAL AGREEMENT, 43 ESTPLN 36, 38, 2016 WL 1166216, 4

[5] A.R.S. § 25-203.

[6] Schlaefer v. Fin. Mgmt. Serv., Inc., 196 Ariz. 336, 339, ¶ 12, 996 P.2d 745, 748 (App. 2000); Elia v. Pifer, 194 Ariz. 74, 83, ¶ 48, 977 P.2d 796, 805 (App. 1998).

[7] Tara J. Miller, Divorce & Farmland: What Is the Best Solution?, 22 Drake J. Agric. L. 89, 99 (2017).

[8] All citations of this statute refer to animals as personal property.  The definition of “personal property” included “money, goods, chattels, dogs, things in action and evidences of debt.”  The Arizona legislature recently removed the term “dogs” has been removed from the statute.  However, animals have still been characterized as personal property.  See Kaufman v. Langhofer, 223 Ariz. 249, 252, ¶ 10, 222 P.3d 272, 275 (App. 2009).

[9] https://www.forbes.com/sites/zackfriedman/2018/06/13/student-loan-debt-statistics-2018/#5392e42b7310.

[10] https://www.azleg.gov/viewdocument/?docName=https://www.azleg.gov/ars/25/00213.htm.

[11] A.R.S. § 25-319(B).

[12] For further information on this new change to the federal alimony tax deduction rules, please review our blog, “Alimony Tax Consequences Under the New Tax Cuts and Jobs Act.”

[13] Olliver/Pilcher Ins., Inc. v. Daniels, 148 Ariz. 530, 533, 715 P.2d 1218, 1221 (1986).

[14] A.R.S. § 25-203 (A)(8).

[15] A.R.S. § 25-403.