What it means
A premarital agreement lets two people decide in advance how their property, income and debts will be treated if they divorce or one of them dies. This matters to business owners and investors, because it can protect a company, a family inheritance or a future income stream from being divided.
The UPAA was drafted by the Uniform Law Commission in 1983 to give states a common set of rules. A uniform act is a template and not a national law, so each state must choose to adopt it, and many states have adopted it with changes.
Some other states use their own rules or a later model, the Uniform Premarital and Marital Agreements Act, which was released in 2012. A couple therefore needs to check which version applies where they live and where they are likely to divorce.
Under the UPAA approach, an agreement must be in writing and signed by both people. It takes effect only when they marry, and it does not need any payment or promise in exchange to be valid.
That removes an old argument that a prenuptial agreement lacked consideration, which is the legal term for something of value exchanged. The act allows the parties to cover property rights, the division of assets, the management of property, the terms of any support payments and arrangements on death.
It does not allow them to harm a child's right to support. Courts also keep the power to refuse enforcement if a person did not sign voluntarily, or if the agreement was grossly unfair and the person was not given a fair disclosure of the other's finances.
Disclosure is why finance people are involved. Each side normally lists its assets, debts and income, and the quality of that list can decide whether the agreement survives a challenge.
Valuations of businesses, pensions and investments should be recorded with the date and the method used. For companies, the practical issue is control.
If a founder's spouse could claim part of the shares in a divorce, investors and co-owners may ask for a prenuptial agreement or a waiver before they invest. Shareholder agreements often require this for the same reason.
In practice
Real-world examples.
Example
A founder with a 60% stake in a software company plans to marry. Her lawyer prepares a premarital agreement stating that the company shares, and any growth in their value, remain her separate property. Both sign after exchanging financial disclosures, and the investors in the company are given a copy of the relevant clause.
Example
A couple in their fifties, each with children from earlier marriages, sign an agreement so that each person's investments pass to their own children. They list a rental property worth $900,000 and a pension pot, and they agree a modest monthly support payment if they separate. A court later enforces the terms because both had independent legal advice.
Example
A man asks his fiancee to sign a prenuptial agreement the night before the wedding, without any financial information. When they divorce, her lawyer argues that she did not sign voluntarily and had no disclosure. The court may refuse to enforce the agreement because it failed the fairness tests.
Case study
Seen in the real world.
Ashford Brewing is an illustrative, fictional family business owned by a founder named Daniel, who held 70% of the shares. Before his second marriage, his advisers recommended a premarital agreement based on a state version of the UPAA.
The agreement stated that the brewery shares, valued at $6,000,000 at the date of signing, were his separate property, while the couple's home and savings would be shared. Both parties received a schedule of each other's assets and signed with separate lawyers six weeks before the wedding.
Years later the marriage ended, and the brewery shares stayed with Daniel, while the home was divided. The illustrative lesson is that early disclosure, separate advice and enough time before the wedding made the agreement far more likely to be upheld.
Watch out
Common mistakes.
- Assuming that a UPAA is a federal law that applies everywhere, when it is a model that each state may adopt in full, in part or not at all.
- Signing the agreement at the last minute, which makes it easier for a court to find that it was not voluntary.
- Leaving out a full list of assets and debts, when poor disclosure is one of the main reasons agreements are challenged.
Questions
People also ask.
Can a premarital agreement decide child support?
No, it cannot reduce a child's right to support, and courts keep the power to decide child matters in the child's best interest.
Is the UPAA still the latest model?
A later model law, the Uniform Premarital and Marital Agreements Act, was released in 2012, and some states have adopted it instead.
Does the agreement take effect before marriage?
No, it becomes effective only when the couple marry, so a cancelled wedding means it never applies.
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