Definition of Premarital Agreement
Antenuptial agreements, sometimes referred to as premarital agreements or prenuptial agreements, are contracts that are voluntarily signed by two parties prior to the date of their marriage, which address the ownership of assets, maintenance, division of property and custody of children in the event of divorce. A party seeking to sustain an antenuptial agreement has an obligation to establish that the agreement is valid. It should be noted that the only mandatory requirements for the validity of an antenuptial agreement, which obligates a court to uphold the enforceability of an agreement, are the provisions of the Divorce Act relative to enforcement of such agreements.
Section 7 of the Divorce Act provides that the antenuptial agreement must comply within the statutory provisions of the Divorce Act (including the above noted provisions) and the requirements of the Domestic Contracts Act.
The Domestic Contracts Act establishes seven requirements for the validity of antenuptial contracts. First, the contract must be in writing, with specific reference to the fact that oral antenuptial agreements are unenforceable at law. Second , the agreement must be signed by the parties in the presence of at least one witness, who must also sign the agreement. Third, it is a requirement that the parties have received independent legal advice in relation to the provisions of the agreement, with the exception of the provision of Section 18(8) of the Divorce Act which relates to cohabitation. Fourth, it is required that a party disclosing all of his or her assets to the other party, sign the agreement in the presence of witnesses and notwithstanding the aforementioned requirement of full financial disclosure, the court may still consider the validity of the antenuptial contract and may find it to be enforceable on other bases if the full financial disclosure is not adhered to. Fifth, the agreement must be in writing and identifiable from its terms as having been made in contemplation of marriage. Six, the agreement must be executed in the presence of at least one witness. It does not need to be registered, although it is advisable that it be registered in terms of the Property Registration Act. Finally, there must be compliance with lawful provisions of the act, which generally refers to the provisions of the divorce act.
The Significance of a Premarital Agreement
The importance of an Antenuptial Agreement is easy to identify when considering its potential purposes and functions. It serves as a useful tool for protecting assets prior to a marriage, such as family trusts and inheritances; it provides clarity and certainty regarding the division of financial assets and responsibilities in the event of marital breakdown; and it creates an opportunity to establish a comprehensive estate plan for a couple who chooses not to marry.
Antenuptial agreements are also important because they can provide a degree of protection from future legislative developments affecting marital property rights. For example, imagine the effect on your carefully considered arrangements should the legislature introduce a completely new regime governing the division of property at divorce, wholly in conflict with the existing Divorce Act.
In the absence of an antenuptial agreement, all real property owned by a couple during the course of a marriage is automatically treated as joint property, regardless of who paid for it or who maintains it. Similarly, all debts acquired by the couple during marriage are considered to be joint debts, meaning that they would require contribution toward repayment by each partner.
Through an antenuptial agreement, couples have the power to designate certain properties and assets to remain as their own property, eliminating the automatic application of a statutory property regime upon marital conflict or breakdown. It provides an opportunity to specifically exclude spousal support calculations from their contract as well. By clearly identifying terms and conditions outlining the treatment of financial assets and responsibilities during the course of their partnership, they empower themselves to withstand the possibility of unfair treatment from the laws that apply in their jurisdiction.
Requirements for a Valid Premarital Agreement
There are certain legal formalities that must be adhered to in order for an antenuptial contract to be valid. For example, in South Africa one of the parties to the contract must have had the intention of having his or her property regime governed by the provisions of the Matrimonial Property Act, although the contract need not mention the Act specifically. Both spouses must be of sound mind, a free agent and over the age of majority, and witnesses to the signatures. Any rectification or cancellation of a contract can only be effected if there is a court order to that effect, although there are some exceptions to this.
To effectively draft an antenuptial agreement, it is well worth testing its validity under the different matrimonial laws that are applicable to each of the signatories. Herein there will be many exceptional circumstances as some regional laws may, in fact, be overruled by various national laws, so this exercise often proves complicated. However, whilst this type of marital regime is very common in most civil law countries, and is easily adaptable, the uniqueness of each various regional law is the reason why the individual rules cannot be stipulated here.
A number of formalities must be followed for a valid antenuptial contract. In South Africa, both spouses must have the intention to be governed by the provisions of the Act, although this does not have to be mentioned expressly. The spouses must not be married to each other before entering into the contract. Each of the parties must be a natural person. Both parties must be over the age of majority and be of sound mind. They must be free from the influence of alcohol and drugs when they are entering into the contract.
The parties to the contract must sign in the presence of two competent witnesses, one witness for each spouse. It is preferable that each spouse should define their separate property clearly in the contract. A short preamble should be included, setting out the date and place where the contract was signed, as well as the names and addresses of the parties.
If an antenuptial contract does not comply with the prerequisites, it may be rectified or cancelled by a court order. However, the courts tend to prefer to give effect to an ablative clause in the absence of the other legal requirements.
If the agreement is signed before the Marriage Commissioner, the Commissioner must witness the signature and attest to the signatures in the contract. The Commissioner must also sign the contract and only then will the contract be valid.
In terms of South African private international law, there are no legal restrictions as to the formalities for an antenuptial contract to be valid, which means that there are no restrictions when drafting these contracts for spouses who are domiciled in different countries.
Common Clauses in a Premarital Agreement
The provisions in most antenuptial agreements relate to ownership of assets and liabilities, and maintenance and support. The general disposition of each type of provision is as follows:
Assets
The agreement could provide that assets belonging to either of the parties remain the property of that party irrespective of the period of their marriage. This would allow your spouse to continue to own the assets without sharing them with you, notwithstanding that they were acquired during the marriage.
It is not uncommon for one or both parties to maintain a separate bank account to which only income earned by that person (as opposed to one made during the marriage) could be deposited. This could allow the funds received to remain separate and not be ‘commingled’ with marital funds. Since funds deposited to a joint account are usually viewed as marital funds, the agreement could provide that such accounts might also be included in the commingling unless otherwise specified.
The agreement should also provide for the disposition of assets acquired during the marriage. This could include any increase in the value of the assets owned by the parties in addition to identifying new assets acquired during the marriage.
Debts
It is also common for the agreement to address debts and liabilities so that any loans or debts entered into before or during the marriage will be the obligation of the spouse who incurred the debt.
Spousal Support
The agreement could provide that spousal support or maintenance would not be paid by either party if the marriage terminates. It is important to understand that if the parties are married and do not have an agreement providing for spousal support, upon the entry of a Judgment of Divorce either party could seek and the Court could award spousal support without the other party having the right to object to the award.
The agreement could also provide for spousal support in the event of divorce if the marriage terminates. If the parties intend for the Agreement to limit spousal support and they enter into an agreement limiting or eliminating it, the Court is required by law to enforce that provision.
Pros and Cons of a Premarital Agreement
Having an antenuptial agreement can save both spouses time and money upon divorce because it provides them with financial clarity and a clear plan for the future of the marriage if it ends. Marital agreements also provide spouses with an important tool for risk mitigation and for strengthening their negotiating positions in the event of a divorce . In fact, by addressing the multitude of issues that might arise when a couple breaks apart, a well-written marital agreement can prevent unwanted confrontation, expensive litigation, and delays in obtaining a resolution. S.153 of the Act, in particular, provides a set of pre-printed clauses that will give each spouse the maximum benefit of certainty, simplicity, and enforceability possible under South African law.
Disadvantages of a Premarital Agreement
The potential drawbacks or controversies surrounding antenuptial agreements are not necessarily the primary focus of parties entering the agreement or drafters of the agreement. The possible negative implications of an antenuptial agreement are just not something most people want to focus on. However, while it might not be within the purview of the people entering into an antenuptial agreement and making the choice of whether or not to enter into an antenuptial agreement, it is an important consideration for attorneys who are drafting antenuptial agreements.
From a litigation perspective, there are issues that can range from unconscionability to the circumstances surrounding the execution of the antenuptial agreement including the availability of assets, timing of the signing, knowledge of the contents on the part of the party. The latter three items can all be considered as issues of the circumstances surrounding the execution of the agreement.
Issues of unconscionability or the absence of consideration on the part of the antenuptial agreement can arise even if the agreement appears to be entered into with full disclosure of all the assets to be included. The circumstances of why the person signing the agreement entered into the agreement without receiving consideration can implicate issues of unconscionability. Parties to premarital agreements often think of unconscionability as making sure there is no significant unfairness in the distribution in the event of a divorce. However, unconscionability also includes a situation where a person does not have independent advice prior to the signing of the agreement and/or does not understand what the agreement says prior to signing the agreement.
Potentially the most difficult problem could arise as a result of the lack of emotional buy-in for the person who was required to sign the agreement in order to get married. Although this adverse reaction may be the reason the person agrees to sign the antenuptial agreement as an individual unwilling to marry without such an agreement, it can result in the spouse challenging the agreement post marriage alleging that the agreement was signed under duress. Arguments against the validity of antenuptial agreements also involve arguments against the validity of the waiver of counsel provisions.
How to Draft a Valid Premarital Agreement
The antenuptial agreement must be in writing and signed by both parties before the marriage. We will first deal with the basic provisions that must be included in a valid antenuptial agreement. Firstly a decision regarding the matrimonial property system must be made. The two options available are out of community with accrual and out of community without accrual. It is important to note that accrual does not apply when spouses marry out of community without accrual and no mention must be made thereof in the antenuptial agreement. We will in this article deal only with an antenuptial agreement entered into out of community but without the inclusion of accrual. The general principles for the conclusion of a valid antenuptial agreement are that it must be in writing and be executed by the parties in the presence of the Notary Public and two competent witnesses. The agreement must also comply with the provisions of the Matrimonial Property Act, 1984 and the Insolvency Act, 1936. Every antenuptial agreement must contain a registration clause whereby a reference is made to the Act under which the agreement is registered. It must be noted that where one or both parties intend to permanently reside outside the Republic of South Africa it is essential that legal advice be sought prior to signing the antenuptial agreement. This is not necessary where a party intends to reside outside the Republic of South Africa on a temporary basis. In addition to the mandatory provisions mentioned above, the antenuptial contract can provide for the manner in which the spouses’ property will be dealt with, and the care, guardianship and custody of children born of the marriage. After the marriage, the antenuptial agreement must be registered within six months if the parties wish to have complete protection of the provisions of the agreement. If registration takes place more than six months after the marriage the claims of unsecured creditors accrue against the estate of the party who is liquidated, if married out of community of property. If this happens legal advice again should be sought to determine the ramifications that may have arisen. Where parties decide to make use of an antenuptial agreement it is very often the case that they do not follow all the legal requirements that accompany a valid and enforceable antenuptial agreement. It is therefore essential to seek legal advice so as to ensure that the agreement you conclude is valid and enforceable. In addition, if the decision is made to marry out of community but with the inclusion of accrual it is essential that proper legal advice and explanation be provided and recorded in the antenuptial contract. Parties should always ensure that all terms of the antenuptial contract are clearly understood and comply with the legal requirements. In my experience it is important that the party that provides the assets obtain independent legal advice from the party seeking to marry.
Examples and Case Studies of Premarital Agreements
Antenuptial agreements (also known as prenups) can sometimes go wrong, but in the cases and examples below, learn how various antenuptial agreements turned out for a range of couples.
Case Study 1 – High-Spirited "Glam" Couple
A dapper young couple was determined to plan for their future in case something happened to their relationship. They hired a prenuptial lawyer to help them create an antenuptial agreement that would protect both of their interests. While they came into the marriage with some debt, they had dreams of buying investment property later on. They wanted to make certain that they each took away from the marriage what the brought to it, without disenfranchising their families.
With legal counsel, the young couple created a solid antenuptial agreement that highlighted their assets, debts and desire to work together in their marriage, but allowed them to part amicably if nibbling maraschino cherries broke another $25 martini moment.
While the couple’s relationship ultimately suffered from entropy (the third law of thermodynamics states that order tends to disorder), the marriage did not end in financial calamity.
Case Study 2 – A More Traditional Couple
Other couples are content with more traditional arrangements whereby one person takes the lead in managing finances, while the other stays at home with children or merely balances the budget. They have been together for years and now decide to get married. Even though they have lived together for many years, when they transfer from domestic partners to legally married partners, it’s like starting from scratch. As part of the premarital planning process, the couple determined that they would definitely benefit from having an antenuptial agreement .
The couple met with a prenup lawyer and negotiated the agreement and the assigned roles within their marriage. Then, once the document was signed, each of them felt greatly relieved. Having discussed their finances, goals and agreed on how to manage the marriage, they felt comforted that they could look forward to clearer expectations, a better understanding of their priorities and a greater appreciation for what the other wanted in the relationship.
Case Study 3 – The Second Time Around
Second or third marriages often lead to the most extensive and detailed antenuptial agreements as they deal with increased complexity, greater concern about protecting assets through a subsequent marriage. Additionally, considerable emotional effort is expended in the preparation of these agreements.
In one case, an older couple got married after having been together for over twenty years as close friends. During that time, they had discussed everything from asset protection to estate planning, so they had greater appreciation for their joint and separate assets. They drafted an agreement that separated tossed away matchbook covers from a lavish estate, and they talked openly and honestly about their feelings.
Even as the couple continued their conversation about the need for a prenuptial agreement, they ensured that they were not end up like Bob Cheev, whose friend told him to get a prenup after he had made such a terrible mistake to marry Edith Faso, a former librarian and bowler who wore a black glove with a huge fake diamond the first time they met. She had promised never to quit her bowling league, but she was convinced that a prenup would "give her a limit on what she could spend, and just that would free her to spend[]."