Premarital Agreements in North Carolina (commonly referred to as "prenups" or "prenuptial agreements") address the property and financial rights and obligations between a couple who are soon to marry.
Typically, a premarital agreement addresses both rights that the law provides by virtue of marriage (such as inheritance rights) and rights and obligations that arise in the event that the parties separate following marriage.
Why should I sign a premarital agreement?
No one gets married with the expectation that they will eventually separate. Yet many marriages do not last and end in lengthy, costly disputes, and even lawsuits. A premarital agreement can provide the parties with assurances prior to entering the marriage, more control over their assets during the marriage, and prevent drawn-out disputes in the event that the marriage ends.
Some of the protections provided by a premarital agreement include:
1. Establishing Ownership of Assets Owned before Marriage
People engaged to be married have often already accumulated property before marriage, such as real estate, savings or retirement funds, interests in a business, or investments. Often, premarital assets such as these are used to support the married couple during their marriage. For example, real property that was already owned by one party might become the marital residence. Additionally, mortgage payments paid during the marriage with money earned by either spouse during the marriage will almost always lead to a marital interest in the real property.
Depending on the circumstances, the law of North Carolina may recognize a marital interest in property owned prior to the marriage; in other words, if the parties separate down the line, the spouse who did not previously have any ownership interest in that asset may have a valid claim to some portion of it upon separation. A premarital agreement can eliminate this situation.
2. Protecting Ownership of Assets Acquired during Marriage
What is considered marital property in North Carolina?
"Marital property" means all real and personal property acquired during the marriage and before the date of separation—by either spouse or both spouses. Marital property includes, but is not limited to, ownership interests in businesses, contributions to retirement accounts and investment accounts made during the marriage (even if these accounts were opened prior to the marriage), stocks, artwork, jewelry, vehicles, gifts between spouses, and most any other property you can think of. Marital property is distributed between spouses in an action for equitable distribution.
Importantly, it does not matter which spouse acquired the property during the marriage or in whose name the property is titled. If the property was acquired during the marriage with marital property (for example, with income earned during the marriage), the property will be considered marital.
Premarital agreements are an effective tool to protect or limit the marital interest in what would otherwise be a marital asset. Premarital agreements can also provide the mechanism for valuing and distributing these assets.
3. Protecting Business Interests and Family-Owned Businesses
A business owned before the marriage could also be at risk of a marital claim. Additionally, if during the marriage, a spouse acquires an interest in a business (including a family business) and that acquisition does not come about by gift or inheritance, the interest will be classified as marital property. As a result, in a divorce, the interest will have to be valued and distributed. For more information on ways in which a non-owning spouse can acquire an interest in a business and tools to protect a business from divorce, view our article on Marriage, Divorce & the Family Business: Protecting the Family Business from Divorce.
How might a business owner protect the business from divorce?
The most protective measure a business owner can take to protect a business from divorce is to insist that any family member (or any other third party) who has an ownership interest in the business, or who might acquire a future interest, enter into a premarital agreement.
If you or a family member (or any other third party) are already married, then a post-marital agreement is an option. Implications of these protective measures are far more common than one might expect.
A business should also look to:
- modify its governing documents so as to specify who may hold an ownership interest in the business; and
- a buy-sell agreement providing that if any owner divorces, then the business would redeem that owner's interest for a set price.
For more information on protecting your business from divorce, see Protecting Your Family Business for When Marriages End.
Without the appropriate protective measures in place, a business may find itself tangled in a divorce proceeding, and a Court could distribute the ownership interest to one spouse, both spouses, or, conceivably, to the non-owning spouse.
4. Establishing What Property Will Be Marital and How It Will Be Divided
When married people separate, all property that exists as of the date of separation must be classified as marital property (which will be divided between them) or separate property (belonging to one or the other). There is a legal presumption that all property owned as of the date of separation is marital property.
After separation, parties often disagree on what property is marital property and what property is separate property, particularly when the property was brought into the marriage or gifted and inherited after the marriage. A premarital agreement may include provisions that establish what property will be marital and what property will be separate to avoid disagreement after separation.
5. Preventing Long, Expensive Litigation
Fighting in court over issues such as spousal support and the distribution of marital property can quickly become an expensive proposition. By signing a premarital agreement, you and your soon-to-be spouse can decide ahead of time how you would like these issues to be handled in the event of separation and thereby avoid costly, time-consuming, and emotionally draining litigation. Couples may also decide that disputes relating to property and spousal support will be decided in private arbitration.
What topics might a premarital agreement address?
A premarital agreement can address most issues that typically arise in the event of separation, with some notable exceptions.
To elaborate, a premarital agreement might address:
Alimony: While the law of North Carolina previously refused to enforce alimony provisions in premarital agreements, that is no longer the case. Now, parties are free to address alimony, whether they decide to establish some alimony obligation to be paid if they separate or to completely eliminate the right to alimony altogether.
Property rights: Premarital agreements often establish the parties' rights and obligations to their property in the event of separation. The parties may choose to designate specific property as separate and thus exempt that property from equitable distribution. For example, one soon-to-be spouse may have an existing interest in their family's business that they want to protect in the event of divorce; a premarital agreement can ensure that their business interest stays in the family and does not factor into equitable distribution.
The parties may decide at the outset exactly how their property should be distributed upon separation. A premarital agreement can also include a complete waiver of property rights arising out of the marriage, which would preclude an action for equitable distribution in the future.
Inheritance rights: By default, a married person enjoys certain rights to the estate of their spouse in the event of the spouse's death. These automatic rights may present an issue when, for example, a spouse has children from a prior relationship or a business interest that would otherwise be classified as the separate property of the deceased spouse.
In a premarital agreement, the parties can contract around those rights, either by waiving or limiting them. For more information on inheritance rights and proactive steps you may take to secure your legacy, view our article: Securing Your Legacy: How Marital Estate Rights and Divorce Impact Your Estate Plan.
Debts: Soon-to-be spouses commonly bring pre-existing debt to the marriage; for example, mortgages on pre-marital real property. Additionally, debts will likely be incurred during the marriage. For example, many people incur credit card debt, loans, medical debt, or take on student loans during their marriage. A premarital agreement can address what debts existing at separation are marital and how they will be distributed.
There are other issues that may be addressed in a premarital agreement.
However, some may not be enforceable.
May a premarital agreement address issues of child custody and child support in North Carolina?
North Carolina courts will not treat provisions in premarital agreements that establish terms for child support and child custody as binding on the court. If separating spouses disagree over child support and child custody, a court will have the final say on those issues, regardless of any language contained in a premarital agreement.
The court may choose to take the premarital agreement's child support and custody provisions into account, but will ultimately decide those issues according to the best interest of the child(ren).
I expect to be financially dependent on my partner after we're married. I am worried that, if I sign a premarital agreement, I will be in a difficult financial situation if we separate. What can I do?
It is hard to know ahead of time what your needs might be in the event that your marriage does not work out. However, you and your soon-to-be spouse may include alimony provisions in a premarital agreement to address your concerns.
For example, a "sliding scale" may be included to calculate the amount of support you might need based on how long you have been married. To elaborate, a sliding scale alimony provision might provide that if you have been married less than 5 years, you would receive a certain amount of alimony, then increase the amount of alimony by a certain percentage if you have been married for more than 5 years, 10 years, etc.
Alternatively, other conditions could be included; for example, the agreement could reduce or eliminate the spousal support obligation in the event that the dependent spouse begins living with a new partner or remarries.
What if I'm unfamiliar with my soon-to-be spouse's finances?
The relationship between soon-to-be spouses is considered under the law to be a confidential relationship, meaning each of you must be open and honest with each other.
Each of you has a duty to fully disclose your finances before you sign a premarital agreement. Failure to fully disclose your finances may be grounds for setting the agreement aside. If you have concerns that your soon-to-be spouse has not given you the full picture of their finances and yet wants you to sign a premarital agreement, the family law attorneys at Ward and Smith can assist you through negotiations to ensure that you have all the necessary information as you make a decision.
I feel like my premarital agreement was fair when I signed it, but it is unfair now. Do I have to follow its terms?
While unfairness alone will not usually serve as grounds for rescinding an otherwise valid premarital agreement, the circumstances surrounding its execution may indicate that one or both parties should not be held to its terms.
Circumstances that may justify rescission of a premarital agreement include:
- duress;
- mistake;
- undue influence;
- fraud; and
- lack of disclosure.
However, the "unfairness" of the agreement is determined as of the date the agreement was signed and NOT as of the date of separation.
An experienced family law attorney can discuss with you the circumstances under which you signed a premarital agreement to determine whether you have a reasonable argument against enforcement. For more information on the enforceability of, and challenges to, a premarital agreement, see our article: Premarital Agreements and the "Voluntary" Signature.
Why select a Ward and Smith Family Law Attorney?
Premarital agreements can be an effective tool to protect property and financial rights between couples who are soon-to-be married.
On the other hand, a poorly drafted premarital agreement can present disastrous consequences, leading to costly litigation.
The attorneys at Ward and Smith are skilled in the intricacies and sensitivities of premarital agreements, and as a full-service law firm, we are able to offer extensive experience in estate planning, business acquisition, and succession planning, in the context of the preparation of premarital agreements.
