What is a Prenup Agreement?
Prenuptial agreements, also referred to as antenuptial agreements or premarital agreements, are contractual agreements made in contemplation of marriage. Their primary purpose is the division of property and liabilities should the parties divorce. They cannot include any provisions regarding child custody or support since child custody and support is the jurisdiction of the State.
At this point, I would like to clarify a common misconception about prenuptial agreements. Many people believe that these agreements are for people who are in their second or third marriages . In reality, however, many of the people I draft prenuptial agreements for are in their first marriages. Having a prenuptial agreement allows the parties to better plan for their future in the event the marriage does not work out. By knowing what property will be subject to division at the time of divorce, parties can better set aside marital assets which can then be used for post-divorce life. Having a prenuptial agreement is not an indication that the parties expect their marriage to fail. Simply put – it’s not about planning to fail, it’s about failing to plan.
Legal Considerations for Prenups in Colorado
The Uniform Premarital Agreement Act, codified in C.R.S. §14-2-304 through 308, sets out the requirements for a valid and enforceable prenup. Co-mingled with other Colorado statutes and case law, these provisions explain when a prenup may be considered valid and enforceable.
In Colorado, a prenup is effective upon marriage. C.R.S. §14-2-305(2). That said, the prenup must be signed by both parties and acknowledged before a notary public. C.R.S. §14-2-305(1)(c). The prenup must be in writing and contain a complete and fair disclosure of all assets of the parties. C.R.S. §14-2-306(1). If the prenup fails to contain a complete and fair disclosure of assets, it will not invalidate the contract if the party against whom enforcement of the contract is sought was given a fair chance to discover the property and the obligations before the contract was executed. Id.
A premarital contract is void if the agreement was not conscionable when it was executed AND if the person against whom the contract is being enforced was not provided a fair and reasonable disclosure of the property or the debt, did not expressively waive the right to disclosure, and did not have adequate knowledge of the property or debt of the other party. C.R.S. §14-2-307(1). Additionally, a prenup is invalid if the person against whom enforcement is being sought could not be found or was not given a reasonable opportunity to seek independent legal counsel. C.R.S. §14-2-307(2). Keep in mind, consent may be withdrawn at any time, but for it to be valid initially, all of the above elements must be met.
Advantages of Having a Prenup in Colorado
The primary purpose of a prenup is to outline the distribution of assets and financial responsibilities in the event of a divorce. Though some people perceive them as exclusively for the wealthy or those marrying for a second or third time, prenups are increasingly seen as an effective tool for organizing finances and establishing agreement between spouses, regardless of age or financial expectations. In Colorado, they can help prevent assets acquired during the marriage from being distributed equitably during divorce.
Before you can obtain a divorce in Colorado, you must file a petition with your local court. Colorado requires that divorce applications be filed according to one of two procedures: "simplified" or "traditional." Conciliation within 91 days is required for the simplified process; the traditional procedure allows for 181 days between filing and resolution. Courts may urge parties to consult with mediation or collaborative services during this period.
While prenups are not mandatory in Colorado, failing to create one can have a number of financial ramifications. The benefits of having a prenup, on the other hand, are numerous. Consider the following advantages:
There are no guarantees in a marriage, and even with a premarital agreement, couples may find their financial circumstances changing over time. A comprehensive prenup, however, can help provide peace of mind by establishing a written record of expectations in relation to finances. In the event that financial issues do arise, you can be well-positioned to avoid conflict, protect the interests of you and your spouse, and preserve the ability to keep your assets secure.
Misconceptions About Prenups
Some individuals still carry the stereotype that a prenup is something only for the wealthy. In reality, a prenup is for anyone who has assets to protect, or even those who want to prevent a future litigated divorce. Nothing in life is guaranteed, not even love. Some people believe that discussing a prenup means that you do not love the other person, but rather, just want their money. Nothing could be further from the truth. A prenup can be used to ensure each party walks away with what they came into the relationship; this is especially true for a second or third marriage. It can also be used to protect assets from a former relationship, or for a business owner to protect his or her company from a future spouse. There is a long list of reasons why people use prenups and a good attorney will listen to your story and find the right solution for you.
How to Write a Valid Prenup
A prenup agreement requires that both you and your future spouse enter into a negotiation. Colorado law requires full and honest disclosure of your assets and debts, and if you fail to disclose something, your spouse may be able to challenge the prenup on this basis if you later divorce.
It is not a good idea to hand over a listing of your assets and debts and say, ‘Here, just sign this.’ You each should use the information in those lists – including the value of your assets and liabilities – to reach an agreement on how your property will be divided in the event you divorce later on. If a judge believes that the prenup was really unbalanced between the two of you, they may refuse to enforce it.
Colorado law states that each spouse to a prenuptial agreement has at least one week to consult his or her own attorney before signing the agreement. Although this waiting period is part of Colorado law , it does not substitute for consulting your own attorney about the prenup.
The standard in Colorado is that each spouse must disclose the information in the prenup agreement to the other spouse before the one-week consultation period far enough in advance that the other spouse has sufficient time to do so.
If you believe your spouse is hiding assets from you that are relevant to the state of your financial affairs and could have an impact on any agreement you sign, you need to start gathering evidence of those assets now. If you later have a dispute about assets you failed to disclose, a judge may need to decide whether the agreement should be enforced. Information can include email correspondence, wills, bank statements, etc.
Each spouse should review the final draft of the prenuptial agreement. Upon agreeing to the terms, both of you execute the document before a notary public. The notary will sign the prenuptial agreement and attach a certificate, verifying the authenticity of your signature and that of your spouse.
Enforceability of Prenuptial Agreements in Colorado Courts
The Supreme Court of Colorado has held that the validity of a prenuptial agreement must be examined by the court during a divorce. This may seem obvious, but the circumstances surrounding the existence of the prenuptial agreement and how it was signed by each party can have a significant impact on whether or not a prenuptial agreement is ultimately enforced or declared invalid by the court.
In Colorado, a circumstance might arise where one of the spouse’s attorneys in a divorce action will try to argue that the prenuptial agreement is invalid and the property division in the divorce should not be governed by the terms of the prenuptial agreement, but instead by Colorado’s equitable distribution statute, or, if children are also involved, the provisions of Colorado’s Uniform Dissolution of Marriage Act.
A party arguing against a prenuptial agreement in a divorce may try to challenge the validity of the prenuptial agreement by arguing that they did not sign it of their own free will, or they entered into the agreement without having the benefit of independent legal counsel, or that the prenuptial agreement is inequitable on its face. It is a legal phrase of art in Colorado that if a prenuptial agreement is unfair or inequitable on its face, then it may be invalid. One of the other common challenges to the validity of a prenuptial agreement is if one of the parties was not given sufficient time to review the agreement with their attorney before signing it.
When to Revise a Prenup
A premarital agreement, commonly referred to as a prenup, is a binding contract made by two parties before their marriage delineating how their assets would be divided in the unfortunate event of a divorce. Although an established prenup decides how marital assets should be allocated, there are countless situations when a prenup may become obsolete. In some states, a prenup can be challenged in court if it has not been revised since being executed. In Colorado, a prenup is considered living document and can be amended or revoked by a signed agreement. As with any contract, prenups can be updated to adapt to the ever-changing landscape of life’s circumstances.
Several situations arise that warrant an update to a prenup in order to address significant changes in either spouse’s financial status or the evolution of the marriage. If the couple welcomes a child or has children, it is vital to obtain a prenup update in order to address potential inheritance issues that may arise. For example, if one party received a sizeable inheritance while the couple was married, the assets acquired could be at risk of being classified as marital property rather than being segregated as separate property. A court in Colorado will consider several factors such as the intent of the spouse and if the inheritance has been co-mingled with marital funds. Another factor to consider is if the inheritance is placed into a trust account; however, it may still be subject for an equitable division. Because there are nuances to each situation, consulting with a seasoned family law attorney is critical.
Another critical situation that may trigger an update to the terms of a prenup is if one of the parties’ employment changes and one spouse earns substantially more income than the other. The case of Bugs v. Bugs, 80 P.3d 983 (Colo. App. 2003) presented this scenario. In Bugs, the plaintiff was a professional magician and performer with a worldwide career . During their 12-year marriage, the plaintiff toured the world and lived in high-profile settings. In 1998, the parties entered into a premarital agreement regarding a variety of assets. Several years after their marriage, the wife suffered serious medical issues preventing her from working, and later she and the husband separated. At the proceeding court hearing, the trial court determined that a portion of the income the plaintiff earned on tour was marital property. On appeal, the plaintiff attempted to challenge the validity of the trial court’s ruling contending that the parties’ premarital agreement voided any spousal income sharing because the terms did not address how income would be divided between the two parties. Nevertheless, the Colorado Court of Appeals ruled that the premarital agreement addressed the division of all marital property in the event of a divorce. The court pointed out that the parties had signed the prenup agreeing to be governed under the terms of Colorado law and a court could review the agreement if a reasonable basis existed to do so. In this regard, the court determined that it was not apparent that the plaintiff’s income was so exceptional that a separate property status was appropriate.
In consideration of the above case, it is recommended that a prenuptial agreement contain a specific provision addressing income. The analysis of whether the plaintiff’s income is marital property or separate property is based not just on the amount of income, but how that income is derived, the manner in which the income is used and the intent of the parties. In Bugs, the issue was the interpretation and application of the term "income" in the parties’ agreement. In an effort to prevent this situation from arising, it is prudent to be as specific as possible and detail the income sources potentially to be earned in the future.