As a family law attorney, Certified Divorce Financial Analyst, and professional mediator, I work with couples both when they are creating a prenuptial agreement and when they go through a divorce process. Creating a prenuptial (prenup) agreement is incredibly important to protect not only what you have created prior to your marriage, but also your income capacity or growth during a marriage.
Often, prenups will be very vague i.e. you get to keep all of your separate property if you were to divorce. But, they fail to address the realities of life, particularly how our finances change over time.
Let's consider that Husband has a home prior to marriage and the prenup says it is his separate property. What if he sells this property, and then puts some or all of the equity into a new home? Is that home now his? In totality or only partially? Is it only going to be in his name on title and mortgage? Or have both spouses now been included on the mortgage and/or title? Most prenups fail to address this.
In pre-marital mediation, we believe in helping couples work through multiple options for the future to make their prenuptial agreement as thorough as possible. In the example of this house, we can describe this more specifically addressing future needs. For example:
If a couple purchases a property, their equity upon divorce will be based on the percentage they contributed to the original down payment. This proportional split could be only for the down payment, with the remainder of the equity split 50/50 or in another proportion. Or the equity of the house can be completely split in proportion to how the down payment was made.
This allows us to parse out portions of the home as separate versus community (or shared / marital) property based on the spouse-to-be's goals and intentions, rather than how the law may interpret these portions in the future should they get a divorce. We may use language such as the following:
Should the Parties purchase real property during their marriage, at the time of dissolution or legal separation, it shall be divided as follows:
The down payment on the property shall be split in proportion to the initial contribution made by each party to the payment. For example, if one party pays one hundred percent (100%) of the down payment at the time of purchase, said party shall be awarded an amount equal to one hundred percent (100%) of the initial down payment upon dissolution or legal separation. If the parties contribute in a 70/30 proportion to the down payment, upon dissolution or legal separation, each party shall be awarded their proportion of the down payment accordingly (70/30). Should the equity of the property at the time of dissolution (divorce) or legal separation fall below the value of the initial down payment, the equity shall be awarded to the parties in the proportion they contributed to the down payment accordingly.
The remainder of the equity or liability in the property shall be dispersed equally between the Parties, regardless of their contribution to the mortgage during the marriage.
The above distribution of real property at the time of dissolution or legal separation shall apply even if the equity from the Residence is used to purchase additional property, such as a different home. Any money from the Residence used towards the down payment of another property shall be designated as the owning spouse's contribution.
Thus, at the time of divorce, the property can be divided accordingly. While it typically only needs to be included in a prenup (premarital agreement), some spouses will also mirror the agreements in their title or deed on the home. For instance, one party has a 1/3 interest and the other has a 2/3 interest on their deed for the home. It is important to consider the effect this could have if one of them were to pass away rather than divorce though. This is why a premarital agreement is important, in conjunction with estate planning documents such as a will and trust.
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