Prenuptial Agreements are an excellent investment in a marriage. In many, if not most, cases, prenuptial agreements prevent or minimize disputes at the time of dissolution or death. A properly executed prenuptial agreement will be enforced at the time of dissolution or death and will control the division or distribution of a party’s assets and debts.
It is important that a prenuptial agreement be properly drafted as few options exist to nullify a prenuptial agreement. Nullifying a prenuptial agreement generally requires that some form of wrongdoing occurred during the execution, such as duress at the time of execution or fraud in the execution. Emotional stress caused from the threat of not getting married if a prenuptial agreement is not signed is not duress in the context of nullifying a prenuptial agreement. Duress is a pretty high standard to prove.
In the event a prenuptial agreement is contested, interpretation of the terms of the prenuptial agreement is critical. Unfortunately, the drafting of a prenuptial agreement can unintentionally create enforceability issues at the time of divorce or death. The Indiana Court of Appeals recently issued an opinion on this very issue. The Court of Appeals interpreted the language of a prenuptial agreement in the context of appreciation of separate property during the marriage. One party argued that the appreciation of their separate property was separate property and not subject to division, while the other party argued that the appreciation of their separate party was marital property subject to division. This caused a significant difference in the division of assets.
The appellate court held that a premarital agreement that makes premarital property separate property, but which does not include specific language about appreciation of those assets, is interpreted to mean that appreciation of assets is not separate property pursuant to the prenuptial agreement. This meant the increase in the parties’ assets after the date of their marriage was marital property that was to be divided between the parties. This was a devastating result for the party that thought the prenuptial agreement protected those assets from division.
The recent Court of Appeals case supports a strict interpretation of the language of prenuptial agreements. A strict enforcement of prenuptial agreements requires careful drafting to prevent these issues at the time of enforcement of the agreement. If you are considering executing a prenuptial agreement, contact the experienced attorneys at Slotegraaf Niehoff, P.C. to discuss your options.