The enforceability of marital agreements in California
Marital agreements in California grant couples the power to address their property rights and legal duties to each other upon their marriage. In the event the couple relocates to another state, the marital agreements should be revisited.
Couples can enter into marital agreements either prior to getting married, pre-marital agreement, or subsequent to the marriage, post-marital agreement. Marital agreements become effective upon death or divorce.
Both agreements are considered contracts; therefore, they must comply with specific requirements pursuant to the law of contracts. For instance, couples are required to enter into them willingly, and in the absence of fraud, duress or coercion. In addition, a post-marital agreement has to meet more stringent guidelines.
Inasmuch as pre-marital agreements are executed before marriage, neither party owes the other a fiduciary duty, duty that obligates each of them to behave “in the highest good faith and fair dealing” with regard to their relationship with each other. Additionally, according to the fiduciary duty rule, a post-marital agreement that culminates in an unjust benefit to one spouse is believed to be the effect of undue influence and is therefore, void.
Spouses can use pre-marital agreements to verify their property rights in their separate property, and keep the community estate from acquiring an interest in one spouse’s separate property, which includes assets obtained prior to marriage, and property inherited after marriage.
Post-marital agreements can take place with respect to a pre-marital reconciliation or a marital separation. They can include a change in the character of property rights and can impact estate planning objectives in a blended family. In California, as of 2002, marital agreements have focused on the issue of spousal support, or alimony.
In order to be enforceable, marital agreements are required to incorporate full and fair disclosure of each spouse’s assets, income and liabilities, and must allow each spouse seven days to look over the contract. In addition, each spouse must be represented by separate legal counsel.
Pre-marital agreements are often used as a way of protecting the owner’s interest in a multi-generational business or a closely held corporation. However, in situations where the co-owner is a family member, especially a child or grandchild, a trust can also be used to accomplish some of the same objectives.
A trust may be more effective because pre-marital agreements are sometimes set aside, and not enforced. They are often challenged by the parties regarding the disclosure of the property or financial obligations and other communications that occur between them. They can also be set aside because they are over-reaching in attempting to establish future amounts for spousal support that are unfair and unconscionable.
Furthermore, pre-marital agreements can be set aside in the event the parties co-mingle separate property and community property. For these reasons, a better option is the use of an irrevocable trust to facilitate the transfer of business assets during the life of the grantor and after death.