Usually we only hear about celebrity couples worth hundreds of millions of dollars having prenuptial agreements to protect their assets, money, properties and even season basketball tickets in the event their marriage dissolves.
Okay, so you’re not a movie star, but you do have a business or a career? Would it survive if it was cut in half because of a failed relationship? We increasingly see clients open to the idea of a legal agreement before entering into serious romantic relationships. However, it still might be an uncomfortable conversation to have with your partner; that is where we can help.
Arizona has community property laws, meaning that assets and debts a couple acquired during marriage belong equally to both spouses. Even if you brought property into the marriage, it is often “commingled” with community property, so that it loses its nature as separate property and becomes part of the community. Some of us bring debts as well as assets into a marriages. In certain situations, Arizona law provides that the community, meaning the couple, is liable for premarital debts or liabilities of one spouse. After marriage, either spouse may contract debts on behalf of the community. Without a marriage plan, creditors can sometimes turn to community property to satisfy the debts of just one spouse.
If you want to make sure that saying, “I do” does not mean saying, “I owe,” you can use a marriage plan to limit your liability for each other’s debts. A marriage plan gives you a chance to opt out of the standard default rules the government has provided and replace them with criteria that works for you and your spouse-to-be.
There are some limits on what can be done in a marriage plan. While fundamental rights given to a spouse under state law can be waived in these agreements, no state will honor agreements which limit or give up future child support, custody and visitation rights. Private agreements that would impair a child’s right to be supported or to have a relationship with a parent in the future will not be enforced.
Because property and inheritance laws vary from state to state, a marriage plan can take this into consideration. The plan can provide that in the event of a dissolution of the relationship, the legal action will be filed in a state of the parties’ choice, providing an outcome most beneficial to the parties.
A fundamental requirement of a marriage plan is the full disclosure of each party’s assets and income to the other party. Any party waiving his or her rights must understand the financial rights they are giving up when the agreement is signed.
In addition to full disclosure, the agreement will recite the consideration for the agreement which, generally consists of mutual promises encompassing various rights of the parties.
The agreement needs to be formally executed as a testamentary document (i.e. a will) if it contains testamentary provisions and will waive certain statutory rights. Some of these waivers have specific legal requirements in order to be effective.
In Arizona, community property rules only apply to married couples. For couples living together without a marital relationship, there could be possible claims under a theory of contract law when one of the partners leaves the relationship or dies.
A cohabitation, or partnership plan serves the same purposes as a marriage plan. It sets forth the terms and obligations of the relationship and handles the resolution of issues if the parties break up or if one party passes away. Arizona has found that by living together there is an implied contract between the cohabitating couple which supports the division of property. For couples in serious relationships that are buying a home together, living together or sharing assets, it is important to have a plan. In these situations, we call this a cohabitation agreement, or a partnership agreement. While these are not “marriage plans,” most of the same principles apply. However, estate planning and cohabitation agreements may be more important for couples who never marry because there are no default laws such as the community property rules that apply to married couples.
Financial stress is one of the greatest sources of conflict in romantic relationships. A good marriage plan will clearly defines how expenses will be paid and finances will be handled, benefiting any relationship. When considering potential legal issues, anyone who is bringing assets into a relationship or has a partner who is coming into the relationship with debt will receive protection from a marriage plan. Even after the marriage has already occurred, couples can enter into agreements to manage their lives going forward. Creating a plan can remove the financial stress a couple may be experiencing and actually revitalize a marriage as future financial plans are clearly articulated.
Not only do marriage plans provide clarity, but they substantially reduce the likelihood of litigation in the event of a divorce. Both parties know what will happen if the relationship fails or if one of them dies during the marriage.
Contact us today to schedule your free one-hour meeting with an attorney to assess your estate planning needs.
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