The engagement party is over and the happy couple is diligently planning for their joyful wedding day. One of the intended spouses, I will call him Danny, is wealthy. Danny’s intended wife, I will call her Annie, is not wealthy. Danny loves Annie because she is full of energy and makes him feel young. Danny has made lots of money and has lots of assets, including real estate, which affords him the luxury of not having to work and instead only to have fun with Annie. Because Danny was fully aware of the laws in California, he never asked Annie to sign a prenuptial agreement. Annie was so busy having fun and planning the wedding, it never occurred to her that Danny had not asked her to enter into such an agreement.
Several years later, after they married and had a child, Danny and Annie decide to divorce. Annie’s lawyer soon breaks the bad news to Annie that there is no community property to divide and that Danny’s assets are his separate property even without a prenuptial agreement. Moreover, at this point there is little Annie can do about it.
The “Self Prenup”
A prenuptial agreement allows couples to opt out of the California Family Code (and its community property provisions), in part or in whole, by reaching their own agreement about their financial affairs before marriage. However, not everyone needs to, or wants to, opt out. The Family Code also protects a person who has separate property, without the need for a prenuptial agreement. Therefore, sage legal advice can make it possible to maintain certain assets as separate property without ever signing a prenuptial agreement. I call this a “Self Prenup.”
Advantages and Disadvantages
While a “Self Prenup” cannot work in all situations or may not secure all separate property, it can do a very good job when the facts and circumstances allow. The downside is that the laws on spousal support (alimony) will be applied at the time of divorce. A prenuptial agreement allows for the negotiation of spousal support (never child support), so if there is no prenuptial agreement in place, the spousal support laws will apply rather than some negotiated arrangement in a prenuptial agreement. Deciding whether this is a good result or not is part of the conversation the person who wants a “Self Prenup” must have with his or her lawyer.
The “Self Prenup” Process for Each Person
If you are Danny, legal advice is critical for two reasons. First you can find out how to maintain separate property so that it is not part of community property. Second, you must determine if this active yet unilateral process breaches a fiduciary duty should a confidential relationship exist between you and your intended spouse.
If you are Annie, who has not asked for a prenuptial agreement, you should also seek legal advice. This will enable you to determine whether a “Self Prenup” might exist; to understand its impact; and to learn about options to counter this quiet yet powerful technique. This will enable Annie, or anyone in her position, to determine if she wants a prenuptial agreement to prevent being destitute at the time of divorce as a result of the harsh impact of a “Self Prenup.” If Annie determines she is the one who wants a prenuptial agreement but is not able to secure such an agreement with Danny, Annie’s legal adviser may have to advise Annie about the option of calling off the wedding.
No one should underestimate the importance of self-protection before marriage, and the creativity of lawyers to secure that protection. It can be vital to future financial survival, no matter what happens in the marriage itself.