Your Assets, Your Future: The Power of a Well-Crafted Premarital Agreement

Marriage is one of life’s most meaningful commitments, intertwining not only love but also finances and legal responsibilities. While planning a wedding is exciting, protecting your future should be just as important. That’s where a well-drafted premarital or prenuptial arrangement comes in, allowing you to set clear financial expectations, protect personal assets, and avoid uncertainty in the event of unforeseen circumstances. The process of drafting the agreement can assist you in opening and improving your communication with your future spouse. 

California’s community property laws can significantly impact your financial future in the event of a divorce or the death of one of your spouses. Without a premarital agreement in place, decisions about asset division may be left to the courts rather than to you and your spouse. You need strong legal guidance to ensure that your prenuptial agreement is both fair and enforceable. Many couples think that just because they keep separate accounts, they do not have community property, however, this is not the case.

Many people assume that premarital agreements are only for the wealthy, but this is a common misconception. In reality, these agreements serve a variety of purposes beyond just protecting high-net-worth individuals. Whether you own a business, have children from a previous relationship, or simply want to set clear financial expectations, a premarital agreement can provide security and peace of mind for you and your soon-to-be spouse. A premarital agreement allows you and your spouse to determine how you can build wealth together and also how you can maintain separate wealth. 

Key Benefits of Premarital Agreements in California

A premarital agreement, also known as a prenuptial agreement or prenup, is a legally binding contract between two individuals who plan to marry. It outlines how your financial matters will be handled during your marriage and, in the event of a divorce, how your assets and debts will be divided. Your agreement may also assist your estate planning attorney in preparing for what happens in the event that you or your spouse passes away. For many couples, it’s a prudent step to take before tying the knot.

According to California’s community property laws, any assets you acquire during your marriage are generally considered jointly and equally owned between you and your spouse. Without a prenup in place, courts will split your finances 50-50 in the event of a divorce, which might not align with your personal wishes. Additionally, community property will pass to your spouse in the event of your death, which may not align with what you want particularly if you have children from a prior relationship. A solid prenup allows you to take control of these decisions rather than leaving them in the hands of the legal system.

Some key reasons to create a premarital agreement include:

1. Protecting your individual assets from getting commingled into marital property – Without a premarital agreement, any assets you’ve acquired before marriage may become intertwined with marital property, making them hard to distinguish in a divorce. A well-drafted agreement ensures that assets such as real estate, investments, and business interests remain separate, protecting your financial independence. This agreement can also serve as a blueprint for how you and your fiance will handle finances during the marriage. 
2. Clarifying your financial responsibilities – Debt can be a concern in any marriage. A premarital agreement can specify whether one spouse’s premarital debts (such as student loans, business liabilities, or credit card debt) remain their sole responsibility. This prevents the other spouse from assuming unintended financial burdens. A premarital agreement can also provide you with indemnification clauses in the event that a creditor attempts to collect on a separate debt of one of the spouses. 
3. Avoiding lengthy and costly disputes in the event of a divorce – Divorce litigation can be emotionally and financially draining. A premarital agreement helps streamline the process by predetermining how your assets, debts, and financial matters will be handled, reducing your legal fees, court battles, and uncertainty in the event of a separation.  You can also agree in advance on issues relating to spousal support or any limitations or waivers of support. 
4. Safeguarding family businesses or investments – Similar to how you can safeguard your individual assets, you can do the same for business assets and investments. If you own a business or have significant investments, a divorce without a prenup could mean splitting your business assets with your spouse or being forced to buy out their share. A well-drafted prenup can define who keeps ownership of the business in the event of a divorce, prevent your spouse from acquiring a stake in your company, and protect future earnings and business growth from becoming marital property.
5. Ensuring that your children from previous relationships inherit specific assets – If you have children from a previous relationship, a premarital agreement can ensure that specific assets or inheritance funds are designated for them rather than being subject to property division in a divorce or in the event of your death. This can be especially important for protecting generational wealth, family heirlooms, businesses, or real estate properties.

Premarital agreements are not one-size-fits-all. They can and should be tailored to suit your unique needs, ensuring that you and your partner feel comfortable with the terms and that your agreement reflects your individual and shared priorities. We go through a comprehensive process of learning about your goals and assisting you and your spouse in having an open dialogue about how you will handle your finances during your marriage and in the event of your divorce or the death of one of the spouses. 

Creating a premarital agreement encourages couples to have honest discussions about finances ahead of marriage. This process can help build trust and prevent misunderstandings later on and assist you in having an understanding of how you and your spouse can work together. By having these important conversations before you get married, you and your partner can enter your union with greater transparency, alignment, and confidence.

What Can and Cannot Be Included in a California Prenup

While a prenup offers you the ability to define property division and other financial rights in your marriage, these agreements are not limitless. There are clear legal boundaries regarding what your prenuptial agreement can and cannot include. The following terms are allowed:

• Division of Assets and Debts – One of the primary functions of a prenup is to define which assets remain separate and how marital property will be divided in the event of divorce. You can also allow for the creation of community property and set clear provisions on how community property can be created. This can prevent disputes over ownership of real estate, investments, savings accounts, and other financial assets. Additionally, a prenup can clarify debt responsibility by ensuring that any liabilities such as student loans or business debt remain the sole responsibility of the spouse who incurred them, not to be charged against their spouse. 
• Business and Investment Protections – Without a prenup, a business that you’ve started before or during your marriage may become commingled or considered community property, meaning it could be subject to division in a divorce. Even if the business remains separate property, the community can develop an interest in the business or earnings from that business may be community property. A premarital agreement can establish separate ownership of business assets and shield future earnings from becoming shared marital property. This is particularly important for entrepreneurs and investors who want to maintain control of their ventures.
• Estate and Inheritance Rights – A prenup can help ensure that family assets, heirlooms, or real estate remain with the intended beneficiaries rather than being subject to division. If you have children from a previous relationship, you can use the agreement to protect their inheritance and prevent certain assets from being classified as community property.
• Financial Responsibilities During Marriage – While a prenup primarily addresses asset division in the event of a divorce, it can also define how finances will be handled during the marriage. This includes outlining how income, expenses, and major property purchases will be managed, helping couples establish clear financial expectations.

While a prenup gives you significant control over asset division and debt allocation, certain provisions are not enforceable under California law:

• Child Support or Child Custody Decisions – In California, courts keep the power to determine child custody and support based on the best interests of the child at the time of the divorce. Attempts to predetermine these matters in a prenup will be invalid.
• Unfair or Unconscionable Terms – A prenup must be fair to both parties. If one spouse waives all rights to spousal support without reasonable compensation or the agreement leaves one party financially destitute, a court may refuse to enforce it. Therefore it is important to carefully develop clauses that provide for those protections. 
• Non-Financial Personal Matters – Prenuptial agreements cannot dictate lifestyle choices such as household responsibilities, infidelity clauses, or family planning decisions. Courts generally do not enforce these types of provisions. However, many premarital agreements do address how to handle arrangements pertaining to frozen embryos. 
• Anything That Violates Public Policy or Law – Any provision that is illegal or goes against California’s public policy will be invalidated. This includes anything that attempts to waive legally required rights, such as the right to legal counsel in certain situations.

A strong prenup should be fair, legally compliant, and carefully crafted to ensure that its terms hold up in court. Understanding what can and cannot be included is crucial to protecting your assets and ensuring that your financial future remains secure. By working with an experienced family law attorney, you can create a legally sound agreement that protects your property, defines debt responsibility, and gives you confidence in your financial future. You also want the confidence that if the agreement is challenged, the court will uphold the agreement. 

Common Misconceptions About Premarital Agreements

Despite their many benefits, premarital agreements are often misunderstood. Some people hesitate to create one due to misconceptions about their purpose, particularly when it comes to property division and financial protection. Let’s address some of the most common myths:

Myth #1: A Prenup Means You Expect a Divorce

Reality: A premarital agreement is not a plan for divorce – it’s a proactive financial strategy. Much like having insurance, a prenup ensures that, in the unlikely event of a separation, both spouses are protected. Rather than weakening a marriage, a prenup encourages open financial discussions, which can strengthen trust between you and your spouse. In fact a premarital agreement must contain language that indicates that it does not promote or encourage divorce. 

Myth #2: Premarital Agreements Are Only for the Wealthy

Reality: While high-net-worth individuals often use prenups, they benefit people of all financial backgrounds. If you have real estate, retirement savings, investments, business assets, a professional license or even significant debt, a prenup ensures that these financial matters are handled according to your wishes rather than California’s community property laws.

Myth #3: A Prenup Can Cover Anything

Reality: Prenuptial agreements primarily address property division and financial matters. They cannot dictate child custody, child support, or personal lifestyle choices. Additionally, if the terms of a prenup are grossly unfair to one party, particularly in provisions related to spousal support, a court may refuse to enforce them. It is important to have language and provisions that can overcome any future court arguments. 

Myth #4: A Prenup Automatically Protects All Separate Property

Reality: While a prenup can explicitly outline which assets remain separate, merging finances or using joint accounts can cause assets to become commingled and potentially subject to division in a divorce. For example, if one spouse owns a home before marriage but later adds their spouse’s name to the title, that property may no longer be considered separate. A well-drafted prenup provides clarity and safeguards separate assets. It will also provide language as to what actions may or may not convert separate property to community property so that there is no ambiguity later. 

Myth #5: Without a Prenup, Each Spouse Gets What’s Fair in a Divorce

Reality: Without a premarital agreement, California’s community property laws dictate that most assets acquired during marriage are split 50-50 – even if one spouse contributed significantly more financially. Additionally, all money earned during a marriage is considered to be community property even if you do not share bank accounts with your spouse.  If you want control over how your property is divided rather than relying on the default laws of the state, a premarital agreement is essential.

The Role of Independent Legal Counsel in Drafting Your Prenup

For a premarital agreement to be enforceable in California, it must meet strict legal standards – including the requirement that each person has independent legal counsel. This does not mean that this is an adversarial process. To the contrary, we use a collaborative process to create your agreement and we can discuss the key terms with your spouse and their attorney. This step is critical to ensure that the agreement is fair, legally sound, and properly protects your property rights.

When you and your soon-to-be-spouse get your own attorneys during this process, you:

1. Ensure Full Understanding of Your Property Rights – By having your own attorney, you are their highest priority. They can make sure that you fully understand what you’re agreeing to regarding asset division, debt allocation, and financial responsibilities. Because a prenup is a legally binding contract, it’s critical to know what you’re signing. We make sure that you understand the impact of your agreement on any existing or future property rights that you may have. 
2. Prevent Claims of Coercion or Unfairness – If your spouse later argues that they didn’t fully understand the agreement or were pressured into signing, courts may invalidate your prenup. When you both have your own lawyers involved in making the prenup and you document the participation in the preparation and negotiation of the agreement, this reduces the risk that your agreement will be challenged on these grounds.
3. Meet California’s Legal Requirements for Enforceability – Under California law, if either party wants to waive their right to an attorney during the process of creating their prenup, they must sign a written waiver acknowledging their decision. Without this step, courts may refuse to enforce an agreement if one party did not have counsel. Our office discourages the use of this waiver as we wish to ensure that our agreements are fully enforceable. An exception would be if your spouse is an attorney and there is language in the agreement to document their knowledge of the law and experience as an attorney. 
4. Help Identify and Avoid Problematic Terms – An experienced attorney can review your agreement to ensure fairness and avoid clauses that could later be considered unfair or excessively one-sided. This is particularly important for property division, as your terms must not unfairly deprive one spouse of financial security. Your attorney may provide you with alternatives so that your agreement is enforceable and may create ways to protect you while also ensuring that your agreement is not one-sided. 

The best time to consult an attorney is early in the process, long before your wedding. We recommend getting started before you send out wedding invitations. California law requires that each party be given at least seven days to review the final terms of your prenuptial agreement before signing. Rushing through this process could raise red flags and weaken the enforceability of your prenup if it’s ever challenged. If you wait until close to the wedding date, we may require you to sign an additional document that confirms the terms of an agreement signed in close proximity to the wedding date. 

A premarital agreement is more than just a legal document – it’s a tool that can strengthen your relationship by fostering open discussions about finances and future expectations. By taking the time to address these matters now, you can avoid potential conflicts down the road and focus on building a strong, lasting marriage. And if, for some reason, things don’t work out as you envisioned, your prenuptial agreement can guide you on how to move forward.

At Moradi Neufer, we help our clients draft premarital agreements that meet their unique needs. Contact us now to get started on protecting your future with an experienced legal team.