Why Couples Should Draft a California Prenuptial Agreement If One Spouse is Considering Bankruptcy
This is the next post in my series on when to consider a prenuptial agreement prior to a California marriage. My last post discussed tax planning issues that can be impacted with a prenuptial agreement. In this post, I will be discussing why a prenup is a smart decision if your future spouse has a great deal of individual debt.
A prenuptial agreement minimizes liability for California spouses in the event that one files for bankruptcy
An individual spouse will sometimes need to file bankruptcy in order to address individual debts incurred prior to marriage. However, a non-filing spouse’s income may be included in the bankruptcy calculations if the parties do not have a premarital agreement. This means that the bankruptcy court will consider the non-filing spouse’s income as part of what is available to repay the filing spouse’s debts. If your future spouse has a large amount of credit card debt, medical expenses, or a home in foreclosure, then it is important to consider having a prenuptial agreement to protect your income. A prenup is able to do two things- it can establish that income/assets prior to the marriage will remain separate and it can establish that income/assets accrued during the marriage will remain separate. Also, debts can be kept separate as well. These designations will protect the non-indebted spouse from having to use income and assets to pay the other spouse’s personal debt in the event of a bankruptcy.
In a California prenup, it is important that the document outline how the couple plans to keep all assets separate. It is common for assets to become co-mingled during a marriage; many spouses open joint checking accounts and acquire other assets together. A premarital agreement can outline a financial plan to keep all assets and debts separate along with designating which spouse will be responsible for what bills. It will be important for a couple to comply with the terms of a prenuptial agreement. Creditors may be able to come after any assets that would otherwise be considered community property if the agreement is not complied with.
Prenuptial agreements can provide protection from financially irresponsible spouses
Too often a couple marries without ever discussing finances. This often results in one spouse finding out that the other is a much more liberal spender. A prenuptial agreement can often force spouses to have a frank discussion about spending, debt and finances. If one spouse is concerned over the other’s relationship to money then a prenuptial agreement can outline spending limits, agreements on credit cards, how much debt will be incurred, and how much financial control each person has. If two spouses cannot agree on spending, but wish to marry, a prenuptial agreement can provide a way to keep debt separate so that a more conservative spouse is financially protected.
If you are concerned about a future spouse’s debt, or spending habits, a prenuptial agreement can provide a great deal of comfort. Contact our San Diego family law attorney today to schedule initial consultation.