Should You Have a Prenup in Your Estate Plan?

Most people hear the phrase “prenuptial agreement” and think “divorce.” And while it’s certainly true that having a prenuptial agreement in place can make a divorce easier if it happens, prenups have an important place in the estate planning of couples who stay together “till death do us part.”

Not every couple needs a prenup in their estate plan, but for those who do, it can provide a number of benefits, from expediting the settlement of an estate to preserving family harmony. Let’s talk a little bit about what a prenup involves, and who can benefit from having one in their estate plan.

Prenuptial Agreements 101

A prenuptial agreement is simply a written contract entered into by two people who are planning to be married. Prenups don’t just cover what will happen between a couple in the event of a divorce. They can address how the couple will manage certain issues (typically, but not necessarily, financial ones) during their marriage. Prenuptial agreements are also often used to determine how certain assets will be distributed in the event of the death of one spouse; that is why they are useful in estate plans.

Not just any agreement between a couple that is engaged to be married is an enforceable prenuptial agreement. In order to be enforceable in New Mexico, a prenup must:

• Be in writing
• Be made voluntarily by both parties in contemplation of marriage
• Not be unconscionable (grossly unfair) at the time it was made.

Parties to a prenuptial agreement in New Mexico must make a fair and reasonable disclosure of their assets and liabilities or waive receipt of such a disclosure in writing, especially if one party did not already know or have reason to know of the other’s financial situation.

While it is not required that parties to a prenuptial agreement be represented by attorneys, it is a good idea. When a party to a prenuptial agreement is represented by an attorney of their choosing, it makes it more likely that they will fully understand what they are agreeing to and that their interests will be represented in the agreement. It also makes it more difficult for one party to later claim that they signed the agreement under duress.

It is important to note that New Mexico is a community property state. That means that all property, income and assets acquired by either spouse during the marriage belongs equally to the members of the community—the spouses. When one spouse dies, their estate plan can dispose of their half of the community property, but not their spouse’s half.

However, a valid prenuptial agreement can override state law regarding property ownership. A prenuptial agreement could, for instance, allow a spouse who earned significantly more than the other to have the right to dispose of more of the couple’s assets in their estate plan.

Who Needs a Prenuptial Agreement?

Prenuptial agreements are not just for the wealthy, although the more assets you have when you enter into a marriage, the more it makes sense to have a prenup. There are also certain specific situations in which it is especially beneficial for couples to have a prenuptial agreement as part of their estate plan.

Second or Subsequent Marriages With Children From Prior Marriages

Second and subsequent marriages may be the most common scenario in which couples benefit from a prenup in their estate plan. Especially if a subsequent marriage takes place later in life, the spouses may have accumulated significant assets that they want to pass down to their children from a previous marriage or relationship. The prenuptial agreement can specify which assets will be treated as separate (not part of community property) and how they will be distributed. The prenup can also include an agreement that the couple will create wills, trusts, etc to give effect to the intentions they expressed in the prenuptial agreement.

This is one situation in which a prenup can promote family harmony. When the spouses and their children are satisfied that everyone’s rights are being protected, they are less likely to harbor suspicion of each other and are freer to form good relationships.

Often, in a second marriage, one spouse will move into a home owned by the other. The house is technically separate property; if the spouse who owned it dies first, the grieving spouse could find themselves losing their home as well as their spouse. A prenuptial agreement can provide for the second spouse to remain in the home until their death, at which time the children of the first spouse to die will inherit it.

Couples in Which One Spouse Owns a Family Business

Small businesses are the backbone of our economy, and many are owned by families. If one spouse is employed in a family business, they may want to keep their ownership interest in their lineage, or allow other family members to absorb that interest. A prenuptial agreement can clearly specify that a surviving spouse will not inherit an interest in the family business. (Of course, this protects the business in the event of a divorce, too.)

Couples With a Significant Wealth Disparity

When most people think about a couple with a prenup, this is often the scenario they imagine: one spouse with a lot of money, the other with significantly less. In these situations, a prenuptial agreement clarifies everyone’s expectations about who will inherit what (especially if the wealthier spouse is also significantly older than the spouse with fewer assets). For wealthy individuals who want to be assured that their intended spouse is not just marrying them for their money, a prenup can provide for a modest inheritance if the wealthier spouse dies after a relatively short marriage. The agreement can also provide that the share of the inheritance will increase with the length of the marriage.

If you have questions about whether a New Mexico prenuptial agreement would be a helpful part of your estate plan, please contact our law office to schedule a consultation.