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Premarital agreements – Advantages.
The following is a brief discussion of the advantages and various uses of
Premarital agreements.
Avoiding Litigation Costs
Premarital agreements can eliminate litigation costs associated with contesting the will of a deceased spouse. They can be used to ease the divorce process and to make sure that the property will be distributed as the couple's wishes. Individuals who have experienced a lengthy, messy divorce realize that a considerable amount of wealth can be lost during a legal battle, including legal fees and the fees charged by appraisers and expert witnesses.
Fears of Family Members
Children of a first marriage may worry about the distribution of family wealth in the event of a second marriage. A Premarital agreement can ease these fears by setting forth the details of property distribution in the event of either divorce or death.
Family Assets
Family members may want to keep the ownership of a family business, heirlooms, or other family assets within the family and to protect them from the claims of an unintended heir, such as a descendant’s spouse. A Premarital agreement can be written to provide that such assets are immune from claims by the new spouse.
Most states include a provision in their probate laws preventing one spouse from completely disinheriting the surviving spouse and instead give the surviving spouse the right to elect against what was provided in the will and to take a set percentage of the deceased spouse's assets. Typically, the elective share is one-half or one-third of the estate Unified Probate Code Sec. 2-201, 8 U.L.A. 74 (1983).
For instance, if one spouse has built a family business with her children and has willed ownership of the business to them, her husband could elect against the will and take a large portion of the business away from her children. To insure that a Premarital agreement in which the spouse gives up his right to an elective share is honored, it should be written so that in the event of divorce or death, he satisfies any marital property rights with assets other than the family business. For instance, the wife could agree that at the time of her death, a percentage of her assets is transferred into a trust with the income to go to her husband for the remainder of his life and the property to go to the children upon his death. The remainder of her estate would go directly to her children. In the event of her death, he would be unable to elect against the provisions in the will.
Protecting Business Assets
Owners of a closely held corporation or a partnership may want to prevent a spouse from obtaining voting rights or claims against the business. This can be accomplished by entering into an agreement that each member executes a Premarital agreement that provides for the prospective spouse to waive all rights to the owner-spouse's interest in the business in the event of divorce or death. Alternatively, they might wish to enter into a buy-sell agreement, where upon the death of a shareholder or partner, the remaining owners are required to purchase the decedent's interest in the business for a specified amount over a specified period.
Protection Against Creditors
If one spouse incurs substantial debts before marriage, there may be a desire to protect the assets of the new spouse from the creditors of the debtor spouse. This can be accomplished in a Premarital agreement by having the debtor spouse waive any claims to the new spouse's assets, except in the event of divorce or death.
Disposition of Property
Disputes frequently arise over how marital property should be allocated. Premarital agreements can assure that a couple's property will be disposed of according to their intentions, by designating ownership of property in the event of divorce, separation, or death of either spouse. The Premarital agreement may provide for certain property to be transferred from one spouse to the other to create separate or joint property rights.
Published: 06/14/2003
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