What is a Prenup?
A prenuptial agreement — also commonly referred to as a premarital agreement — is a written contract created between two individuals intending to marry each other. The purpose of a prenuptial agreement is to handle financial matters should the couple divorce or have their marriage annulled. Ohio law states that the contract must be voluntary and cannot promote or be in lieu of any illegal activity. It cannot go against public policy in Ohio, or limit or eliminate a right to alimony, spousal support, child support, child visitation or custody.
More often than not, a prenuptial agreement is created when one or both of the parties wishes to protect property, assets or income before marriage. They may be protecting themselves from debts or obligations from the other party . The contract essentially allows individuals or couples to determine their own legal rights before marriage, and forces the other party to have no choice but to adhere to those rules should the couple divorce later on.
Not all individuals will require a prenuptial agreement, however. Those who have children from prior relationships, have inherited property or assets, are entering marriage with substantial debt or earn significantly more money than the other party may benefit from a prenuptial agreement. Similarly, a couple that anticipates a significant change in their financial circumstances over the next few years (selling a business, receiving an inheritance, etc.) may want to consider a prenuptial agreement.
Requirements for a Valid Ohio prenup
In Ohio, for a prenuptial agreement to be valid and enforceable, it must meet certain legal requirements. First and foremost, it must be in writing, per the Statute of Frauds, in order to be enforceable in a court of law. Ohio Courts have held that both partners in a marriage must sign the agreement, and that the agreement must be either signed in the presence of a notary public, or acknowledged in the presence of a notary public. Generally, stamp or embossed seals must be affixed to or placed by the signatures of the parties, in order to be accepted as evidence of the agreement.
Ohio law also requires that an Ohio prenuptial agreement must be fair and reasonable at the time the document is signed. While the language of the law refers to the language "at the time of enforcement," it is worth noting that a court will still review the fairness or reasonableness of a prenuptial agreement at the time it is created. A document deemed not to be fair or reasonable is likely to be rejected by a Court hearing upon the divorce or dissolution of a marriage.
In the past, an Ohio prenuptial agreement could be set aside only if one party proved that the agreement was either the product of fraud, that the agreement was unconscionable when made, or that one party did not receive a reasonable disclosure of either the property or financial obligations of the other party. Now, however, it is well established in Ohio that the party challenging the validity of the prenuptial agreement bears the burden of proof to demonstrate that the agreement was either the product of fraud, that the agreement was unconscionable when made, or that one party did not receive a reasonable disclosure of either the property or financial obligations of the other party, or, in the alternative, the party challenging the validity of the prenuptial agreement voluntarily elected not to require disclosure of the property or financial obligations of the other party beyond that which was provided, and had adequate knowledge of the property or financial obligations of the other party. In other words, any time the information exists, even if it is not shared, a person could not sign an unfair prenuptial agreement.
Advantages of Ohio prenups
For those who may be unfamiliar with premarital assets and liabilities and the potential for their appreciation in value, or for how property may be acquired during the marriage, a prenup provides an opportunity for the parties to have an educated discussion about whether what assets or property they acquire during the marriage are marital property or separate property and what their options are in characterizing what they own.
There may be a distinct advantage for parties to avoid the typical state parameters as set forth in the Ohio Code if they want to have a unique approach or perhaps not abide the premarital policy of the state. There may be a distinct advantage for each party individually or for them both collectively. For example, a spouse who will marry at 40 and has substantial wealth going into the marriage can negotiate a favorable outcome for himself or herself if they own property that may appreciate dramatically during the marriage in a defined period of time. One could argue that it is unfair for the marriage to be dissolved two years after the wedding and the former spouse is entitled to ½ of the appreciation that occurred during that two-year period. If there are no premarital agreements or statutory parameters, the ½ slice of the appreciation pie is not avoidable.
The protection afforded by an agreement made prior to the marriage can be especially beneficial where a party obtains assets after the marriage that were separate and he or she may not want the other spouse have any interest or rights to the property should the marriage fail.
Consider also the implications for a person who has a company they own on the date of the marriage. Perhaps that company was started by that person years ago and appreciate significantly year after year. If the company is lawfully valued at $X on the date of the marriage, and then there is value added to the company each year thereafter, the spouse with the company may not want the other person to be entitled to a share of value that occurred after the marriage. The statute in Ohio provides guidance that 50% of the appreciation is marital and the spouse should be entitled to half. However, if the parties agreed prior to their wedding that ONLY the value of the company on the day of the marriage is marital property and anything that happens thereafter is separate property, that agreement can go a long way in situating the parties in a much easier place should they divorce.
Premarital assets and liabilities are not even considered in Ohio or many other states so there is no guidance for the spouses on how assets and liabilities that they bring into the marriage will be treated should the marriage fail. It’s possible that the spouse with substantially more wealth may be disadvantaged by having to pay support or divide his/her assets with the less wealthy spouse. The agreement can provide a fair result to both.
Common terms to include in Ohio prenups
A variety of clauses might be included in an Ohio prenuptial agreement to provide structure or clarity regarding the couple’s rights and obligations before and during the marriage. While a couple may include any provision that is not against public policy or statute, some common provisions appear in many premarital agreements.
Inclusion of these clauses in a premarital agreement commonly addresses the following concerns: Under Ohio law, unless subject to some type of waiver, Ohio property acquired by a spouse before marriage remains his or her separate property during the marriage, while property acquired after marriage is marital property. Public policy will not allow a spouse to waive or be estopped to contest property to which he or she is entitled under state law.
One of the most commonly included clauses in Ohio prenuptial agreements provides for a waiver of the property laws of Ohio with regard to all property acquired after marriage. In the absence of the waiver clause, if a spouse who acquired property during the marriage dies without a will or other instructions for the distribution of his or her property, Ohio law favors the surviving spouse and could result in transfer of as much as half of the deceased spouse’s property to the surviving spouse.
By including a waiver clause, each spouse may retain the ability to devise upon death all of their property to whomever they wish, subject to some limitations for elective share purposes. Elective share is the right of a surviving spouse to receive a minimum amount of property regardless of what was devised by will. The Ohio elective share law entitles the surviving spouse to a statutory percentage of property in the "elective estate." As of October 6, 2011, this percentage is half of the elective estate for marriages of more than nine years and one-third for marriages of less than nine years. Subsequent changes to the law have based the amount of the elective share in Ohio on an amount of assets rather than a percentage.
As described above, any property owned before marriage and inherited or gifted during marriage is separate property. Similarly, any income on that separate property also is separate property. Thus, upon divorce or death, that separate property generally is protected from claims by a spouse, except to the extent deemed marital as a result of conversion or commingling. A prenuptial agreement may exclude all or part of separate property from being included in either a divorce or a will.
Many spouses agree to expand their existing rights regarding spousal support beyond what is in the Ohio statutes. A waiver provision should require full disclosure of the spouse’s financial status, including current assets, debts, expenses, and income. Common provisions allow states other than Ohio to apply their laws if the spouse later moves from Ohio. If the spouses remain in Ohio, Ohio law controls unless otherwise agreed.
Debt responsibility clauses address the responsibility for debts incurred both before and during the marriage. Ohio law provides that a debt incurred before marriage is separate property of the spouse who incurred it, while debt during a marriage is marital. Unless the parties specify, both parties ultimately are responsible to the creditor for debts incurred during the marriage. Therefore, the creditor might pursue collection from either spouse for the debt, regardless of who incurred it.
Disadvantages and Limitations of Ohio prenups
While prenuptial agreements can address a wide range of future divorce-related issues, Ohio law places certain limitations and restrictions on their enforceability. Ohio Revised Code section 3103.06 specifically provides that prenuptial agreements may not modify or limit the right to child support for any child. Further, while parents may stipulate to the amount of child support to be paid (or waived) prior to divorce, such agreement will not be binding and subject to review and approval by the court at the time of a divorce. In other words, a child support agreement in a prenuptial agreement cannot limit the ability and/or right of a trial court to ultimately make a child support determination at the time of a divorce .
Ohio law also prohibits spouses from contracting to release one another from any obligations arising out of a separate property estate of either spouse. In other words, Ohio law does not permit spouses to contract away fiduciary duties or liabilities that arise out of the possession of property or the management thereof. Similarly, Ohio law precludes spouses from agreeing to absolve the other from any liability to third persons. Therefore, if one spouse is a personal injury or workers’ compensation attorney, the ex-spouse cannot agree to release such fiancé/ex fiancé/ ex-spouse without being subject to liability to third persons.
How to create a prenup in Ohio
In Ohio, a prenuptial agreement is a contract subject to the laws of contract. Ohio Revised Code Section 3103.06 provides the statutory framework for drafting a valid prenuptial agreement. A prenuptial agreement must be in writing, signed by both parties and voluntary. If the agreement modifies or eliminates spousal support, it "shall be conscionable at the time of enforcement." A prenuptial agreement made in another state is enforceable in Ohio so long as it is valid under Ohio law or the law of the state where executed. Ohio Revised Code Section 3103.06 also lists provisions that are unenforceable. The essential concept of a prenuptial agreement involves full financial disclosure through the completion of a net worth statement by each party. Net worth is a shorthand way to refer to one’s assets and liabilities. Without full financial disclosure, each party cannot make informed decisions about negotiating terms for the prenuptial agreement. The prenuptial agreement is drafted by a family lawyer for one party. The second party needs legal counsel too. An existing relationship with a family lawyer assists because the law firm has already represented the first party and completed the net worth statement. The family lawyers involved act cooperatively during the drafting phase to reach an agreement that is acceptable to both parties. It is not the nature of this process to take an adversarial role involving extremely aggressive advocacy for one party or the other. A couple best practices for negotiating a prenuptial agreement include the following. First, each party should discuss objectives with his or her family lawyer. Second, listen carefully to the family lawyer’s feedback about the appropriate role of the prenuptial agreement in a client’s case. Third, listen to your partner’s objectives and concerns about the prenuptial agreement. Fourth, work through negotiations and the drafting with a calm and reserved demeanor. Critical factors include the length of engagement, whether one party is wealthier than the other, the presence of children from a prior relationship, and if there are significant estate planning objectives.
Enforcing and challenging Ohio prenups in court
There are several grounds upon which an Ohio prenuptial agreement can be contested: Generally, in Ohio a prenuptial agreement is open to challenge on any of the same grounds as any other contract. These grounds include: By way of example, a prenuptial agreement will be held to be void if the signatory can demonstrate that he or ,she did not have an understanding of what he or she was signing. This might result from the fact that the agreement was presented to the signatory a short time before the wedding, or if the agreement contained legalese that would not be understood by a reasonable person and was not explained adequately. Also, an incomplete or inaccurate picture of assets in an attached disclosure statement might result in a finding of inadequate disclosure. Clearly, in these situations, a reasonable person would not understand the nature, extent and value of property being disclosed. In Ohio, a prenuptial agreement is a contract and is subject to Ohio contract laws and its defenses.
Case studies and examples
A prenuptial agreement is generally signed prior to the marriage and becomes effective upon the finalization of the marriage. Thus, a prenuptial agreement is not entered into during the pendency of a divorce. However, some case study analysis should be included to assist in the understanding of how prenuptial agreements are construed in Ohio. A common case involving a prenuptial agreement is Werner v. Werner, 2000 Ohio App. LEXIS 2330 (Ohio App. 1999). In this case study, the issues and disposition will be broken out into three separate headings to allow for a complete analysis. First, the provision creating and affirming the validity of a prenuptial agreement will be discussed. Next, the division of property in accordance with the prenup. Finally, the discussion will conclude with any involvement of a waived right to spousal support.
1. Potentially Invalid Provision Creating and Affirming the Validity of the Prenuptial Agreement
A key issue in this case is whether or not the provision creating and affirming the validity of the prenuptial agreement is valid under Ohio law (R.C. 3103.06) and whether or not the parties were required to execute a separation agreement contemporaneous with the dissolution of their marriage. The parties in this case had a separation agreement in anticipation of the dissolution of their marriage. The agreement stated: "had this marriage been dissolved immediately prior to the execution of this [a]greement, the individual provisions of the [a]greement would have been the basis of the parties’ respective rights and obligations." The trial court determined this clause nullified the prenuptial agreement as it violated Ohio R.C. Section 3103.06(A), which provides "that if a separation is not imminent, the parties to a prenuptial agreement are not required to enter into a contemporaneous separation agreement." The appellate court, however , did not agree with the trial court’s analysis. It stated that parties to a separation agreement do not have to enter into a contemporaneous prenuptial agreement under the statute as long as their agreement is in writing and after full disclosure. In order for the prenuptial agreement to be invalid as a matter of law, the statute requires a finding that parties’ rights must be based on the terms of the separation agreement. Further, if the court concludes that the prenuptial agreement as a matter of public policy is not voided due to a separation agreement, then the provision in question is likely to be upheld as valid means for implementing the respective rights of the parties in the event the marriage is later terminated.
2. Provision for Division of Property
A prenuptial agreement may be entered into by the parties in anticipation of marriage to better provide for the parties’ respective rights upon dissolution of the marriage. Provided its substantive provisions are otherwise valid, a prenuptial agreement is regular and binding and must be enforced according to terms and tenor. Erowid v. Erowid, 10 Ohio St. 3d 319, 321, 462 N.E.2d 408 (Ohio 1984). A prenuptial agreement in practice, sets forth terms the parties have negotiated without coercion. If the parties reach an agreement, they should be held to their agreement consistent with the statue and common law unless a specific exception to enforcement exists.
3. Waiver of the Right to Spousal Support
In want of divorcing a prenuptial agreement the parties may have also agreed to waive the right to spousal support. Generally, a sint of the equitable doctrines of waiver, estoppel, and impossibility of performance will prevent actions seeking the enforcement of promises made in a divorce decree which conflict with promises found within a prenuptial agreement. O’Brien v. O’Brien (1990), 69 Ohio App. 3d 381, 590 N.E. 2d 881 (Ohio App. 1990).