What is a Prenuptial Agreement?
Arizona law permits spouses to enter into an agreement with one another prior to their marriage, generally referred to as ante- or pre-nuptial agreements ("prenuptial agreements"). Allowable aspects of these agreements range from those concerning the validity of property to those related to spousal support/spousal maintenance, liability for debts, transfer, division and disposition of property, and choice of non-Arizona law to govern the agreement. Prenuptial agreements may even waive spousal rights conferred by Arizona statutes relating to intestacy (i.e., in the event of the death of one spouse), property rights, and spousal support rights. Having a prenuptial agreement allows spouses to agree as to their rights upon the death or divorce of one of them . Although those who have a prenuptial agreement should review it with counsel who is familiar with current Arizona law, the fact that an agreement is executed does not authorize a court to modify the agreements made in it. Specifically, the agreement of the parties shall be enforceable according to its terms unless the court determines: 1) that the agreement was not entered into voluntarily; 2) it was unconscionable when made and, before execution of the agreement, the spouse was not provided a fair and reasonable disclosure of the property or financial obligations of the other; 3) the spouse did not voluntarily and expressly waive, in writing, the right to disclosure of the property or financial obligations of the other spouse beyond the disclosure provided; and 4) the court finds grounds for voiding an agreement under the law of contracts.
Requirements under Arizona Law
In addition, both parties, separately or together, must disclose in writing their assets and liabilities. The law in Arizona does not require a full and complete accounting of every financial document however the financial disclosures must be full and fair and must identify all the assets as separate and community assets. If the prenuptial agreement does not meet the disclosure requirements, the agreement may be set aside by a court unless the party who seeks to set the agreement aside, voluntarily and with knowledge of the other spouse’s assets, signed the agreement.
The law provides a long list of other things that cannot be obtained in a prenuptial agreement:
• A limit or eliminate spousal support (except for a contractual waiver of a future spousal maintenance obligation)
• Waive child support obligations
• Waive a child’s right to support
• Determine thereafter the amount of child support
• Waive child custody
• Waive visitation rights
• Determine child custody
• Deprive a child of an intestate succession (if the contract is invalidated)
• Equivalent to a will or a trust
• Create, assign or divest the right to manage or control the property of the other spouse
• Divest each other of their common law property rights
• Limit the liability or exposure of either party for charges related to domestic violence against a child or spouse
• Waive posthumously the right to cause the disposition of one’s remains
• Permits an increase in an award to a plan participant or beneficiary under an employee benefit plan except if the contract calls for the payment of a fixed amount of money (not calculated based upon the life expectancy of either party) to the participant or for the shared payment of expenses incurred by either party in addition to the payment of pension benefits to either party.
The prenuptial agreement must be executed before the marriage, be in writing, signed by both parties, and notarized.
Advantages of a Prenuptial Agreement
Prenuptial Agreements are not only for the wealthy or famous. Prenuptial Agreements are for everyone. Not every marriage is a long-term marital affair. A high percentage of marriages end in divorce, and Arizona is among the highest. Having a Prenuptial Agreement certainly calms the waters in the event of divorce.
Arizona is a community property state and has some very positive aspects to the law. For example, the separate property consists of assets or debts acquired before the marriage, or by devise or descent during marriage. The assets and debts that you acquire during marriage are divided in a very equitable matter. If you are overwhelmed by debt prior to marriage, having a prenuptial agreement can be a life saver, and the same thing is true if you are entering marriage wealthy. You have worked hard in your profession and deserve the fruits of your labor.
More specifically, under Arizona law, separate property may consist of one of the following:
If all or part of the separate property is earnings from earnings during marriage, the parties will benefit from their earnings and not the divorce process. Also, if you have been married before and have children, a prenuptial agreement can protect your child/children’s inheritance.
In determining whether it is appropriate for you to enter into and execute a prenuptial agreement, there are many considerations. The law is very technical and there are many issues that need to be discussed.
Common Myths
Many people have ideas about prenups that simply are not true. We have also listed some of these misconceptions below to educate those not familiar with prenuptial agreements in Arizona.
Myth: Only the rich can afford a prenup
Reality: A prenup is a useful tool for any couple, with any amount of assets. It can save time and money in the divorce process, and protect your assets if it comes to that.
Myth: Prenups are only for protecting assets
Reality: While a prenup is often used to protect the financial assets of each party, it can also be used to clarify individual rights and responsibilities, such as debt repayment or spousal support.
Myth: If it’s not written or signed during the engagement, it is not enforceable
Reality: A prenuptial agreement can be changed at any time, whether or not you are already married. However, both parties must agree to the changes, and those changes must be acknowledged in writing.
Myth: Prenups are unfair to the spouse with less assets
Reality: Any prenuptial agreement is open to negotiation between the two parties – both of whom should have their own legal representation to ensure that the agreement is fair. Courthouses will not enforce an agreement that was not negotiated fairly, so it is in the best interests of both parties to hire a lawyer.
FAQs
The following are some frequently asked questions about prenuptial agreements in general. As a general rule, the topics of the discussions in this article relate to the same time periods regardless of the local area, unless otherwise stated.
Should prenuptial agreements be recorded? Recording a prenuptial agreement is not as important as recording a deed. Recording a prenuptial agreement serves to inform the county recorder that the parties have an agreement amongst themselves. It does not serve to notify the general public of interest in a parcel of real property.
If one of the parties to the prenuptial agreement fails to sign it, is the agreement binding on the other party? The laws of contracting govern this situation, just like any other situation involving breach of a contract.
If a party does not fully disclose his/her assets and income, is the prenuptial agreement enforceable? This is determined on a case-by-case basis. As a general rule, the failure to give full disclosure will render the agreement ineffective and not enforceable against the non-signing party. However, if the non-signing party had full knowledge of the assets and income of the other party and if the non-signing party was neither misled nor deceived into signing the agreement, and if the non-signing party entered into the agreement knowingly and willingly, the agreement is enforceable.
Do you provide a legal review of the prenuptial agreement for the other party? No. We only represent one party to a prenuptial agreement. Prior to signing a prenuptial agreement, we encourage our client to recommend that the other party consult with independent legal counsel. When that discussion of the matter occurs, we also recommend that each party sign a waiver of the right to have the prenuptial agreement reviewed by independent legal counsel. This waiver should be signed regardless of whether the other party actually consults with independent legal counsel.
If both parties have independent legal counsel review the prenuptial agreement, will the prenuptial agreement be binding on the other party? We are aware of cases where prenuptial agreements are enforceable even if each party has independent legal counsel. However, these cases are not the norm. In those cases, the party opposing the enforcement of the prenuptial agreement will have a much higher burden to prove that the prenuptial agreement should not be enforceable. We do not believe that each party having independent legal counsel is necessary in order to make the prenuptial agreement enforceable; however , there is no downside to this process.
Can a joint revocable living trust be incorporated by reference into a prenuptial agreement? Yes. There is no requirement that the subject of the prenuptial agreement must be limited to a prenuptial or post-nuptial agreement. A prenuptial agreement can incorporate by reference any agreement, including a joint revocable living trust. A common practice would be to identify the joint irrevocable living trust in the prenuptial agreement; however, it should be referred to as a joint revocable living trust. If the prenuptial agreement fails to make that distinction, it is possible that a future court may misinterpret the agreement. A better practice would be to specifically identify the jointly held revocable living trust in the prenuptial agreement.
Should all the assets of each party be titled to a joint revocable living trust before signing the prenuptial agreement? This will depend on the specific facts and circumstances. In some situations, this may be advisable. In other situations, it may not be necessary, or advisable. For example, if one party has a much greater net worth than the other party, and if that greater net worth is going to be treated during the marriage as a separate property of the party with the greater net worth, it may not be necessary to retitle the assets prior to the prenuptial agreement. On the other hand, it might be advisable to retitle all assets to the joint revocable living trust prior to the prenuptial agreement if there is any question regarding whether the parties intend the assets to be separate or community property. If each of the parties has a high net worth and wishes to form a presumptively separate property at the outset of the marriage, it would be prudent to title all assets to the joint revocable living trust to avoid any issues that could arise after the marriage commences regarding the characterization of assets thereafter acquired. A better approach, in our opinion, is to not focus on the titling issue at the time of the prenuptial agreement. Instead, authorize each of the parties to the prenuptial agreement to employ the legal counsel of their choice to advise them on the pros and cons of titling the assets to a joint revocable living trust during the time period between the execution of the prenuptial agreement and the date of the marriage.
Drafting a Prenuptial Agreement
Addressing the main issues that most couples want to consider in connection with a prenuptial agreement, the parties need to determine. First, what constitutes marital property? Their agreement should define marital property and those items that fall under this label. If one of them starts with a net worth of $1 million, they need to determine in advance whether that starting amount will be their property or marital property. They also need to decide what will be considered separate property coming into the marriage.
Second, the parties agree on spousal support or lack of spousal support in the event of divorce. Many couples waive spousal support in their agreement, even though some of them would be entitled to spousal support upon divorce, as in the case of a long marriage to a well-established professional and/or business owner. Still, it’s not uncommon for those agreeing not to seek spousal support to negotiate a provision addressing spousal support if a child or children of the marriage is later diagnosed with a serious medical condition or other disability. In such a case, the spouse providing his or her services to care for the disabled child would qualify for spousal support under the terms of the prenuptial agreement.
Third, the parties must decide how any community property will be divided upon divorce. Each spouse will have different assets at the time of the marriage, but over the years, it is quite possible that they will acquire multiple assets together and/or through their respective career pursuits. It is crucial for them to agree in advance on this division.
Finally, the parties need to determine how debts accrued during the marriage are divided. Although Arizona’s community property laws would dictate that the debt is jointly owned by both spouses without some other agreement, they can override the community property laws by defining the division of debt in their agreement.
All prenuptial agreements should include a choice of law provision that clarifies which state’s law applies to its construction and enforcement. Although Colorado contract law can supersede Utah contract law, Utah contract law will always apply to issues involving marriage or divorce. Most often, the law of the state in which the parties reside at the time the contract was executed will apply to any issues under the agreement.
Enforcement of Prenuptial Agreements
In Arizona, prenuptial or premarital agreements are generally enforced – even in cases where a party fails to comply with the exact requirements of enforcement set forth in A.R.S. § 25-201. Our State Court of Appeals, in Marriage of O’Connor, 118 Ariz. 390, 576 P.2d 788 (App. 1978), held that an otherwise enforceable prenuptial agreement did not fail for lack of consideration, so long as one of the parties still received some benefit from the agreement. The Court, there, stated: We have found nowhere in the statute a necessity for an actual independent benefit to each party to the pre-nuptial agreement in order for such an agreement to be considered supported by adequate consideration. (Emphasis added). In fact, the deficiency of a prenuptial or premarital agreement may result because it fails to comply with the requirements of A.R.S. § 25-202, which states: B. A premarital agreement must be in writing and signed by both parties. C. A premarital agreement is enforceable without consideration to the same extent that a contract without consideration is enforceable. D. An issue of unconscionability of a premarital agreement shall be determined by the court as a matter of law. If the court finds that the premarital agreement was unconscionable when it was signed, the court shall decline to enforce the agreement or any provision of it except: 1. The obligation of a party to make support to a child under the age of 18 years. 2. The right of a child to support. 3. The right of a third party. In construing a premarital agreement a court shall presumptively find the agreement was unconscionable if the court makes a finding that before execution of the agreement that party did not: 1. Have sufficient knowledge of the property or financial obligations of the other party. 2. Voluntarily and expressly waive the right to disclosure of the property or financial obligations of the other party beyond the disclosure provided. With this statutory authority in mind, Courts have applied the following principles in enforcing prenuptial agreements in conjunction with evidence presented at a hearing: • Generally, Courts hold prenuptial or premarital agreements enforceable without specific performance of detail of statutory requirements A.R.S. § 25-202 (B) and (C) Unrealized expectations of these requirements does not automatically render a prenuptial agreement invalid • In Arizona, a prenuptial agreement will be deemed unconscionable if the party did not have a full and fair disclosure of the other party’s financial circumstances and did not have meaningful knowledge of such circumstances.
Seeking Legal Assistance
Engaging the services of a qualified and experienced family law attorney for the preparation or the review of a prenuptial agreement is never a bad idea. In fact, obtaining quality legal advice before exercising this option will not only help you make an informed decision, but it may also prevent you from making a grave error that could impact you and your loved one in the future .
Depending on your unique situation, you should consult with a lawyer licensed to practice law in Arizona. When meeting with an attorney, you should be prepared by doing the following: When it comes to creating a valid prenuptial agreement in Arizona, three things are paramount: If neither you nor your spouse obtains legal counsel, the contested aspects of the contract could be easily attacked in court, thus nullifying its enforceability.