Overview of Prenuptial Agreements and Wills
I suggest you start with a brief overview of what a prenuptial agreement and a will are, and their purpose.
What are prenuptial agreements and wills?
Unlike wills, prenuptial agreements serve a wholly private purpose. They establish or define the parties’ financial arrangements, both with respect to assets at the time of the marriage and with respect to a distribution of income during the marriage and a distribution of assets upon divorce or the death of a party.
And unlike prenuptial agreements , wills serve a public purpose. Wills dispose of a decedent’s assets and therefore must be probated and have the approval of the probate court in order to be effective. Wills may also be contested, if a party has a basis to believe the will was not valid (that is, the decedent lacked testamentary capacity or was subjected to undue influence).
However, prenuptial agreements and wills do share one common feature: both allow an individual to dispose of property at death and to take advantage of various tax planning opportunities.
The Effect of a Prenuptial Agreement on an Estate Plan
Prenuptial agreements can have a profound impact on a couple’s estate plans and, specifically, on the terms of their wills. Often, a prenuptial agreement will identify the property (whether it be bank accounts or real property) considered to be separate property of one or the other spouse. Then, upon a spouse’s death, the property that is the subject of the agreement can be distributed in accordance with that document if the deceased spouse’s will does not dispose of it.
For example, if a spouse owns a bank account in his or her sole name and shows it to the other spouse prior to executing a prenuptial agreement, the spouse may want to set forth in the agreement that the other spouse cannot make a claim to the account provided it remains in the same, or substantially similar, condition at the time the owner spouse dies. This proffered right to segregate certain assets from the surviving spouse by invoking the terms of a prenuptial agreement does not extend to all assets necessarily. On occasion, some assets are specifically excluded from the terms of a prenuptial agreement. The date of acquisition of an asset prior to the marriage can also impact treatment of the asset after the marriage. If a couple purchases real property during their marriage, it may become marital property, and if so, it will be subject to equitable distribution if the couple separates or divorces. It is also possible that the couple can agree to exclude marital property from equitable distribution by stating so in their prenuptial agreement. Of course, these terms should also be discussed with counsel so that the impact on any estate plans can be evaluated.
In a situation where the survivor spouse’s enjoyment of property is foreclosed upon the death of spouse, then the survivor spouse’s interest must be addressed in the estate plan. In other words, the survivor spouse must examine how he/she wishes to address property that may have been designated by an agreement to be separate property of the deceased owner spouse. Without a clear understanding of direction from the will, the surviving spouse may be granted a right of election on the decedent’s estate, which is an entitlement to receive an amount equal to a percentage of the decedent’s elective estate, regardless of whether or not the decedent’s will specifically distributed the shares of a property to the survivors’ heirs. Thus, the prenuptial agreement will influence the terms of the will, which in turn will have an effect on the way estate is administered and the treatment of any taxes. However, in the event that the decedent spouse left a will that set up a testamentary trust that would interfere with the survivor spouse’s rights under a prenuptial agreement, then it will be up to the surrogate to decide whether to honor the prenuptial agreement or the terms of the will.
Precedent: Which Takes Priority – A Prenup or a Will?
The law regarding whether a prenuptial agreement will affect a will is somewhat mixed. Although prenuptial agreements are specifically governed by statutory law in most states, including New Jersey, many states have held that prenuptial agreements are not generally intended to regulate the provisions of a will. Rather, a prenuptial agreement should only be used to regulate the disposition of property during the lifetime of the parties and/or upon the death of one of the parties. See, e.g., In re Estate of McGowan, 67 Cal. 2d 473 (1967). Essentially, courts have refused to allow parties to contract away a statutory right to inheritance. An example of a statute which could be directly affected by a prenuptial agreement is the elective share statute. Essentially, an elective share statute allows a surviving spouse a legal right in their spouse’s estate regardless of the decedent’s will. Most elective share statutes provide that a surviving spouse can take up to one-third of the decedent’s estate.
Although enforcing a prenuptial agreement regarding the proceeds of a will has generally been considered a little more relaxed, it is critical to note that any provision in a prenuptial agreement that allows a waiver of the elective share may not be enforceable in many states. The Uniform Premarital Agreement Act, which has been adopted by both New Jersey and Pennsylvania, provides that any provision in a prenuptial agreement that modifies or eliminates maintenance for a spouse is unenforceable. Likewise, if a prenuptial agreement is intended to modify the elective share it is likely to not be enforceable.
Notably, the New Jersey Supreme Court recently analyzed two cases, one dealing with no contest clause and the other involving an elective share claim, where a prenuptial agreement contradicted the terms of the decedent’s will. See, Regalado v. Laokul, 223 N.J. 254 (2015); In re Estate of Roccamonte, 219 N.J. 72, 89 (2014). The question at issue in the Roccamonte case was whether a prenup was binding to their estate plan which provided for the payment of legal fees to contest a will. In re Estate of Roccamonte, 219 N.J. 72, 89 (2014). In addressing this issue, the New Jersey Supreme Court noted that while the prenup predated the will, the will did not reference the prenup. Id. The Court, for this reason, determined that the prenup did not modify the decedent’s estate plan pursuant to the formula set forth in the will. Id. The Court further noted that although the "no contest clause" in the Roccamonte prenup declared null and void any will unless agreed to between the parties prior to the decedent’s death, and also invalidated all codicils or amendments, the husband’s 2006 will, absent any written agreement to the contrary, was valid under the terms of the prenup. Id. Essentially, the husband’s pre-nup did not invalidate his 2006 will which predated the prenuptial agreement, because no agreement or written consent was made by the wife to waive her ability to receive her elective share in the decedent’s estate. As such, the Supreme Court found that the no contest clause arguments failed.
Many estate planning attorneys have legal forms that diminish spousal rights and yet, these agreements are often disregarded by courts where pre-nuptial agreements exist. For this reason, it is critical that any rights that would otherwise vest in accordance with a will or trust, should be duly waivered in a pre nuptial agreement.
Common Prenup Provisions Regarding Wills
Often, the prenuptial agreement will in some way affect or change the provisions of a will. Some of the more common clauses that may affect the terms of the will include:
No Spouse as Beneficiary: In some instances, the prenuptial agreement may provide for the spouse to expressly waive any rights or claims to be a beneficiary under a testamentary document in order to ensure that the provisions of the agreement are honored and/or as an incentive for the other spouse to perform as required under the agreement. Many issues can be addressed in the prenuptial agreement, such as expectancy or distribution issues, the right to a spousal support award, or a waiver of the right to participation in the marital estate. Rights to Elective Share and Spousal Family Exemption: In some instances, the surviving spouse may be entitled to an elective share or intestate share in addition to any benefits contained in the terms of a will. This is a right created by statute for the purpose of protecting the surviving spouse from being disinherited; however, parties anticipating marriage can agree as to the rights created by statute by addressing this issue in the prenuptial agreement. Beneficial Interests: If for any reason, it is determined under the terms of the agreement that the spouse is entitled to any beneficial interest in an estate, the agreement can address the rights and distribution of such interest, such as a trust fund, a power of appointment, or even a distribution under the law to an heir in the event of the deceased spouse. No Contest Provision: A very common clause in a prenuptial agreement is a "no contest" clause, which is provided so that the spouse cannot challenge the provisions in the will or trust. This clause has the effect of waiving the right to challenge the terms of a will if they are not in conformance with an agreement. Additional provisions are common in prenuptial agreements regarding the ademption of property, distribution of joint assets and accounts, the transmutation of property, and waiver of homestead rights.
How to Modify a Will After a Prenup
Generally, an estate plan must align with a marital agreement. A prenup may dictate beneficiaries and even who manages or inherits property at death so it is essential to amend estate documents when terms of the agreement change beneficiaries or creates powers of appointment, third-party appointment (i.e. boda fide purchaser), third-party inheritance, or third-party trusts. If these issues are not addressed by an estate plan amendment then a spouse may be unintentionally disinherited or may risk losing a right to inherit property by default as a result of intestacy statutes.
A Prenuptial Agreement may be compared to a will because both transfer property and control bequests and inheritances. When a prenuptial agreement is signed, especially one assigning beneficiary designations of bank accounts and retirement accounts, insurance policies, pensions, and property titled in joint names, parties often forget, or do not realize, that they must also amend their wills so that they are in line with their agreement. As with property titles and beneficiary designations, which supersede a will, so too does an amending of a will following the execution of a marital agreement.
So how can a will be amended to comply with a prenuptial agreement? A simple amendment may suffice . Or you may execute a new will altogether. This is not to confuse you, and hopefully it makes sense. A simple amendment to a will is a codicil. A codicil is nothing more than an annexation or addition that is made which serves to change something in an existing document. For example, a decree of any court or a witness affidavit may serve as a codicil. Once the term "codicil" is used in reference to an amendment, however, it is important to remember that regardless of what form the codicil may take, it is only as strong as the document it amends.
The law regarding the revocation of wills and codicils is governed by title 60, chapter 11, article 5 of the Colorado Revised Statutes. Depending on the article of the law, a codicil, amendment, or new will may be revoked or superseded by an "inconsistent" testamentary act. This means that in order to revoke or supersede a will, the intent to discard an old will and replace it with a new edition must be evidenced by a subsequent codicil or will amendment. Under Colorado Revised Statute §15-11-513, the disposition of property under a prenuptial agreement shall supersede a provision in either party’s will. By operation of law without regard to an inconsistent testamentary act.
Prenups and Probate – What You Need to Know
In the unfortunate event of a death, all of the estate documents, account titling, and beneficiary designations should be examined to determine how each document might be affected by the prenup.
In California, the parties to a marriage generally do not have to share their premarital assets with their new spouse. Therefore, unless the domestic property settlement agreement (PSA) provides otherwise, property that was acquired prior to date of marriage will not be subject to the surviving spouse’s elective share, commonly referred to as the "statutory share." The surviving spouse’s elective share applies only to property that is acquired by the deceased spouse during the marriage.
If the decedent had executed a will that bequeathed clearly identified property (e.g., a specific sum of money) to their spouse, the prenuptial agreement does not trump the will. However, if the decedent executed a will that clearly expressed the intention to disinherit the spouse, the spouse’s rights would depend on whether the will was executed prior to the date of marriage or after the date of marriage. If the will was executed prior to the date of marriage, then the surviving spouse would not be entitled to a family allowance or spousal share. If the will was executed after the date of marriage, but prior to the date of separation and the parties had divorce proceedings pending at the time of the decedent’s death, then the surviving spouse would be entitled to the family allowance and/or spousal share. Failure to file a claim for the family allowance and/or spousal share within the time limits set forth in the Probate Code could result in the waiver of these rights. Lastly, if the decedent did not execute a will prior to the date of death and he/she was married, the surviving spouse will be entitled to a statutory share under the PRC. In either case, the surviving spouse’s statutory share is calculated by reference to the decedent’s separate property. If the decedent had no surviving children, then the surviving spouse’s share of the decedent’s estate will be 100 percent. If the decedent had one or more surviving children, then the surviving spouse’s share of the decedent’s estate will be 50 percent of the decedent’s separate property. The surviving spouse’s share is further limited to the lesser of $200,000 for a single decedent or one-half (1/2) of the sum of the decedent’s separate property, community property, and quasi-community property (with the latter two amounts discounted by the amount of the surviving spouse’s share of the decedent’s separate property). Accordingly, when preparing a petition for the spousal share, it is important to consider whether the decedent had any children. If the decedent has children and the statutory share exceeds the amount of the "widow’s" share of the decedent’s estate, then the spouse’s spousal share must be reduced by the amount of the so-called "widow’s share."
A surviving spouse might also seek to enforce some or all of the terms of the PSA in probate court. Whether the terms of the domestic agreement should be implemented, enforced and/or followed in the probate court depends on a variety of factors, including the nature or type of property at issue, if any of the assets are also part of a living trust, the timing of the agreement and whether the surviving spouse helped the decedent acquire the property. Any attempt by the surviving spouse to enforce the terms of the PSA will likely be vigorously opposed by the decedent’s personal representative. If a domestic agreement is determined to be enforceable, it should prevail over the terms of the decedent’s will or the terms of any decrees of distribution that might have been issued by the probate court. A surviving spouse’s right to enforce the terms of a PSA also extends to the decedent’s estate plan, that is, the decedent cannot simply indemnify the surviving spouse against the surviving spouse’s obligations by way of a trust or another will. It is important to remember that any distributions made pursuant to a decree of distribution are final, and a surviving spouse’s rights must be exercised within the time limits set forth in the PRC.
When to Get Legal Help Regarding a Prenup and A Will
While prenuptial agreements may not always be necessary or appropriate, there are specific circumstances where they are critical. These include cases where one or both parties have significant assets or debts at the time of the marriage, assets that are inherited or intended to pass to children from previous marriages, or when one party is forgoing a career that could impact their future earning potential. It’s strongly advisable to seek legal assistance in these scenarios. This ensures the prenuptial agreement is enforceable and made in accordance with state law; divides assets fairly; ensures spouses retain their rights to property if the marriage ends; and considers all possible financial ramifications when the marriage dissolves, including alimony. Without this advice, spouses may void the enforcement of their prenup and could either owe big payouts upon divorce or be legally bound to pay alimony when they can’t afford it.
Wills also require a great deal of advice from an estate planning attorney. "Just because one spouse has their own will doesn’t make them automatically the executor in a divorce situation," Brydges explains. "When one spouse is designated as executor, the other spouse will be left with nothing to cover their funeral costs, making it difficult to pay the corresponding bills." A situation like this necessitates very clear legal direction.
Examples of Prenups Changing Wills
The integration of a prenuptial agreement into a will can produce a range of outcomes that might seem advantageous or disadvantageous, depending on perspective. In this section, we will review a few hypothetical case studies to demonstrate how a prenuptial agreement can reshape the terms of a will.
Case Study 1
In Case Study 1, we imagine a scenario in which Laura and Mark decide to create a prenuptial agreement prior to tying the knot. As part of their agreement, they stipulate that upon the death of either spouse, the survivor will be entitled to an inheritance of each other’s "separate property" as defined by the agreement. Separate property is any asset that was acquired and owned by one spouse prior to marriage, or any property that was inherited by one spouse during the marriage. This means that, in the event of either spouse’s death, the survivor can inherit each of their "separate property." Here, however, Laura’s will stipulates that all of her assets (including separate property, joint property, and community property) will pass to her adult daughter, Sarah. Therefore, the terms of the will are clear that all of Laura’s assets will pass to her daughter, even though Mark would be legally entitled to inherit Laura’s separate property under the prenuptial agreement or a will that incorporates the prenuptial agreement if Laura were to pass away before Mark.
If we assume that Mark tries and fails to disclaim or disavow the terms of the will, then Mark’s rights to Laura’s separate property under the terms of the prenuptial agreement will dictate the terms of the distribution of Laura’s will, despite the express terms of the will. Therefore, pursuant to the terms of the prenuptial agreement, Mark would receive all of Laura’s separate property if he survived her. The remainder of Laura’s property would pass to her daughter per the terms of the will.
The lesson of this scenario is that postmarital agreements and wills must be correctly drafted so as not to interfere with one another. Here, the prenuptial agreement does not work because it is not consistent with the terms of the will. It is important to make sure that the prenuptial agreement and the will do not present two separate and conflicting distributions of property.
Case Study 2
In Case Study 2, we explore a slightly different hypothetical. Here, Laura and Mark enter into a postmarital agreement after their marriage. In the postmarital agreement, they both agree to do estate planning in favor of each other. However, at some point after entering the agreement , Mark refuses to create a new will that includes Laura. Instead, Mark keeps his existing will that leaves everything to his children. Seeing this, Laura creates a new will just prior to her passing that leaves her estate to Mark. Mark’s children then try to enforce their father’s prior will so that the assets pass to them.
This raises the question as to whether the postmarital agreement mandates the creation of a will in favor of the wife or whether Mark at least had to attempt to create a will for the agreement to be effective. Estate planning in favor of a spouse can take several forms. Under the terms of the postmarital agreement, Mark’s obligation could have been to include Laura in the will, to create a brand-new will for her benefit, or simply to do estate planning for her benefit. It is possible that Mark’s obligation could be to do more than one of these. Therefore, Mark’s actions after the postmarital agreement went into effect did not comply with the terms of the agreement. However, the agreement did not require Mark to create a will for Laura, only to do planning for her benefit. Therefore, Mark could still satisfy the obligation in the postmarital agreement during his life by creating another plan for Laura’s benefit.
The next question is whether Laura’s own action in creating a will in favor of Mark satisfies the terms of the postmarital agreement. From the language, Laura likely had a right to create a will in her favor, to have Mark create a will in her favor, or to do both. Here, Laura was free to create a different will that includes Mark. Therefore, her action in creating a will in favor of Mark may have satisfied the terms of the postmarital agreement, and Mark’s children should not be permitted to enforce the prior will.
What happens if Laura’s will does not actually pass to Mark until after Mark passes away? Does Laura’s will pass to Mark even if he dies first? Or does it just pass to Mark’s estate? We know that Laura’s estate does not pass to Mark’s children, but since Mark is long gone, who ends up getting the money? Certainly, if there are no other beneficiaries under Laura’s will, it will go to her estate and become community property. The best practice here is to make sure that the postmarital agreement requires Mark to create a will in his spouse’s favor or a will that gifts to his assets to his spouse. Thus, Mark knows that if he refuses to create a will in favor of Laura, she can always create one in her own favor – and it will be consistent with her obligations under the postmarital agreement.