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Prenuptial Agreements

Prenuptial (or premarital) agreements can be of great assistance in protecting assets in the event of a divorce or when a person marries and wants to protect assets for the children of a previous marriage.

History

For many years, husbands and wives were legally prohibited from making any contracts between themselves. Then, in the 1800s, the laws gradually changed to permit husbands and wives to make contracts with each other by which they could agree about what assets would be held separately by either of them during the marriage. Other than that, prenuptial agreements, particularly to provide for property rights following a divorce, were prohibited. The thinking was that premarital agreements were against “public policy” because, it was argued, they encouraged divorce.

It is not a coincidence that, in 1970, Florida, which has a significant population of senior citizens, became the first state to allow spouses to make premarital agreements that would take effect upon a divorce or death. Florida then and now has a large number of senior citizens who marry after having had previous families. These remarrying senior citizens often make prenuptial agreements to preserve assets for children of an earlier marriage should the parent later divorce or die.

Think about it. Marriage is a contract between two people that can end in one of only two ways—either by death or divorce—neither of which sounds particularly attractive. Yet, we still marry. I guess love really does conquer all.

Enforcement

Generally, for a prenuptial agreement to be enforceable, there must be full and fair disclosure of all the assets of both people. An agreement will not be recognized if it was based on fraud, misrepresentation, duress, or compulsion. At the time of the signing of the agreement, the agreement should be fair and reasonable. Most states follow the standard that, for the agreement to be enforceable upon death or divorce, the agreement must not be unconscionable. This term has been defined as occurring when “the inequality is so strong, gross, and manifest that it must be impossible to state it to one with common senses without producing an exclamation at the inequality of it” (Kathleen Short v. Howard N. Short [Missouri Court of Appeals—Eastern District No. ED95663]). For a visual aid in interpreting the standard, I refer people to the scene in the movie Home Alone where Kevin slaps shave lotion on his face while staring in the mirror and contorts his face in pain. If the agreement would solicit that effect, it is unconscionable. It is also certainly advisable, although not strictly required, that each person be represented by his or her own lawyer.

Allowable Provisions

About half of the states follow the Uniform Prenuptial Agreement Act, which provides for a number of matters that may properly be the subject of a prenuptial agreement. These include

  1. The right to make a contract in regard to property.
  2. Disposition of property upon separation, a breakup of the marriage, death, or the occurrence or nonoccurrence of any other event.
  3. Modification or elimination of spousal support.
  4. Ownership rights and disposition of death benefits from a life insurance policy.
  5. The making of a will, trust, or other arrangement.

Provisions for the making of a will are particularly important, because without appropriate provisions in a prenuptial agreement, your surviving spouse is permitted by law to claim a statutory share of your probate estate, usually one-third, if the survivor receives nothing in the will or is dissatisfied with the inheritance.

Medicaid Implications

Senior citizens may want a prenuptial agreement to protect assets for themselves and their children from previous marriages in the event that a spouse goes into a nursing home and Medicaid coverage is sought. Unfortunately, in this instance, the state goes by its version of the Golden Rule, namely, “The state has the gold, so the state makes the rules,” and the rule here is that the states are not bound by the provisions of a prenuptial agreement and may consider the assets of both spouses if one requires long-term care through Medicaid.

Living Together Agreements

More older Americans are choosing to live together without getting married. According to Bowling Green State University demographer Susan Brown, in 2006, 1.8 million Americans above the age of 50 lived together as couples without being married, which is an increase of 50 percent from just six years earlier. These numbers may even be higher today. There are many reasons why seniors may choose to live together rather than get married, including, quite significantly, the possible loss of pension benefits from a previous spouse. Some people refrain from remarriage under the false belief that if they remarry, they would lose Social Security survivor benefits derived from the earnings of their deceased previous spouse, but this rule only applies if you remarry prior to the age of 60 (or 50 if you are disabled).

Perhaps the primary reason that many seniors live together rather than remarry is so that, in the event that one has to go into a nursing home, his assets will not be considered in determining eligibility for Medicaid coverage. If they are living together, the partner’s assets would not be considered in determining Medicaid eligibility for the spouse entering a nursing home and applying for Medicaid benefits, while if they were married, the income and assets of both spouses are considered in determining the eligibility for either or both of them should either or both require long-term care to be paid for by Medicaid.

It is important for older couples living together without being married to have a cohabitation agreement that clearly provides what their respective responsibilities are in the event of death or separation. They should also be wary of combining assets in joint accounts, such as joint bank accounts, because in so doing, each opens himself or herself up to the debts and liabilities of the other.

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