1) Limit Personal Liability for a Spouse’s Business
Just about any business activity entails a certain amount of liability. In some professions, depending upon the potential damages that a would-be Plaintiff might incur, such liability could be enormous. If a business is a community asset, the community may ultimately be responsible for the cost of any damages caused by the business. By defining a business as your spouse’s sole property (instead of the community’s), you can help insulate yourself from any liability.
2) Prevent a Personal Business from Being Liquidated Upon Dissolution
Many people invest their entire adult lives in developing a business, or inherit family businesses that have been operating for generations. Without a prenuptial agreement, it is possible for a personal (pre-marital) business to become owned by the marriage. If this happens, the spouses would be entitled to a buyout for their portions of the business upon divorce. Moreover, if one spouse can afford to buy out the other, the Court may be forced to order the business sold.
3) Control the Amount of Potential Spousal Support
One of the primary reasons for entering into a prenuptial agreement is to minimize the amount of spousal support that one party has to pay the other after divorce. A spousal-support order can financially cripple a divorcee for years, as a large percentage of earnings are paid to the prior spouse. Should your marriage end in divorce, proper planning before marriage can help insure that you will be able to move on with your life without having to make years of financially crippling payments.
4) Protect Your Assets from a Spouse’s Creditors
Under California law, debts incurred for the benefit of the community or for the benefit of a community asset are jointly owed by both parties to a marriage. In certain circumstances, a spouse’s separate property can be sought by creditors to satisfy a debt incurred during marriage. A prenuptial agreement can help protect your separate property assets, or even your share of what would be community property, from your spouse’s creditors.
5) Minimize Conflicts Over Finances During Marriage
One of the most cited reasons for divorce is disputes over money and finances. Many couples have different priorities and views on how money should be spent. Under California law, the standard presumption is that income earned through a spouse’s time, skill, or labor during the marriage belongs to the marriage. A prenuptial agreement can change this presumption and allow a spouse to have complete control over his or her finances. When you and your spouse have very different spending habits, maintaining control over your own income and allowing your spouse to control theirs can actually decrease conflict and provide for a healthier relationship.
-James J. Steinle, Family Law Attorney