Summer is peak season for weddings and family celebrations. Amid the preparations, it’s easy to overlook the legal nature of marriage: it's a property rights contract. While marriage may not feel like a major life change for many, the legal distinction between cohabiting and married couples is significant. Marriage forms a legal contract, bringing all assets under matrimonial property laws.
Interestingly, spouses’ property rights become relevant only when the marriage ends, either through divorce or death. During the marriage, these legal rules usually have little impact, except for some specific regulations like restrictions on asset management and mutual support obligations. However, when the marriage ends, these rules become crucial, often surprising spouses when it’s time to divide the assets.
Spouses' right to each other's property means that when the marriage ends, all assets, regardless of whose name they are in, are added together. Half of that total is the amount each spouse is entitled to receive, known as the "half-sharing principle." The property division is carried out through a settlement, where the wealthier spouse compensates the other to equalize the assets. The only exception to this rule is the surviving spouse's "widow's privilege," which allows the wealthier spouse not to transfer their assets to the estate. The settlement can either be agreed upon by the spouses or carried out by a court-appointed estate administrator. The latter involves a long and costly process, which typically doesn’t give the parties much control over the outcome. In a prolonged and contentious process, one thing is certain: lawyers will charge for their work, and the assets cannot be fully utilized during the "settlement period," leading to financial loss.
It is advisable to create a prenuptial agreement
Fortunately, everything mentioned above can be influenced in advance. A prenuptial agreement between spouses defines which assets are subject to matrimonial property rights and which are excluded from them. Another variable in the prenuptial agreement concerns how the marriage ends. The agreement specifies whether the terms remain the same in both divorce and death, or if the contents differ depending on how the marriage ends.
Perhaps the most classic model for a prenuptial agreement is one that completely excludes matrimonial property rights, which remains valid both in the event of divorce and death. In this model, no assets are transferred between spouses, regardless of how the marriage ends.
Another very common model is one where all assets received by the spouses as gifts, inheritance, or through a will are excluded from matrimonial property rights, while property acquired during the marriage is subject to these rights. This model aligns with the sense of justice held by many today. Although it is often perceived as fair, applying it in practice may not be easy: inherited and personally acquired assets can become thoroughly mixed before the prenuptial agreement is eventually enforced.
The third model deserving of special mention is the so-called "romantic prenuptial agreement." In this type of agreement, the spouses have full marital property rights over each other’s assets upon the dissolution of the marriage due to death, while no such rights exist in the event of separation. This model is legally appealing: divorce does not trigger the burdensome and often justice-testing process of property division, while in the event of death, the surviving spouse retains all the rights guaranteed under the Marriage Act and the Inheritance Code. Furthermore, when the spouses have property rights over each other’s assets in the case of death, it is possible to carry out a property division before inheritance distribution, which can result in substantial tax benefits in terms of inheritance and gift tax, capital gains tax, and transfer tax for both the surviving spouse and the heirs.
Before getting married, every couple should carefully consider which type of prenuptial agreement best reflects their wishes. Even if the best option is to not enter into a prenuptial agreement at all, it is still important to thoroughly address the issue of marital property rights to avoid any surprises later on. As a general rule, it can be said that prenuptial agreements are particularly advisable in cases such as blended families or when there is a significant disparity in the financial situations of the spouses.
In the thick of wedding planning, discussing a prenuptial agreement is rarely one of the more enjoyable conversation starters. However, the time and cost involved in drafting a prenuptial agreement is only a fraction of the other time-consuming and financially draining expenses associated with marriage preparations. I write this newsletter both as a lawyer and as someone with personal experience: I have drafted numerous prenuptial agreements in my professional capacity, and in addition, I am looking forward to my own summer wedding in June 2022.
