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What comes to mind when you think of a prenuptial agreement? If you are like most people, you probably think about wealthy celebrities protecting their wealth from divorce. You may also think that a person would have to be a greedy, heartless jerk to ask a fiancé to sign a prenuptial agreement. In most cases, a prenuptial agreement is simply the responsible way for an established adult to enter into marriage, but the “greedy, heartless jerk” stereotype often discourages love-struck people from marrying responsibly. This article expands on our 2016 article entitled, Best Intentions – Paving Material for a Bad Road, to explain why established adults should consider prenuptial agreements carefully before marrying.
Most people misunderstand the functions and purposes of prenuptial agreements. To understand those functions and purposes, it is helpful to consider the consequences of marrying without a prenuptial agreement. Those consequences arise differently, depending on whether a marriage ends in divorce or the death of the husband or wife.
Most states, like Indiana, divide a divorcing couple’s assets under the concept of “equitable distribution.” Unless the parties agree to a particular property settlement, the divorce court judge orders the couple to divide their assets between them according to what the judge determines to be fair under the circumstances. Because there is no set rule for measuring “fairness,” the judge has tremendous discretion about where to draw the asset division line.
When a married person dies without a prenuptial agreement, the surviving spouse is entitled to receive a substantial part of the deceased spouse’s assets. In Indiana, if the deceased spouse’s only children are also children of the surviving spouse, the surviving spouse inherits $25,000 and half of the deceased spouse’s other assets, regardless of the provisions of the deceased spouse’s last will and testament. The surviving spouse’s share of the deceased spouse’s assets is slightly smaller if the deceased spouse had children born of a previous marriage.
Couples that marry late in life often speak about not wanting to claim each other’s assets. However, if the surviving spouse is disabled, that person’s family may use a power of attorney or guardianship to claim the surviving spouse’s share in the deceased spouse’s estate. Also, if the deceased spouse’s estate plan leaves nothing for the surviving spouse, and if the surviving spouse requires nursing home care, the state may disqualify the surviving spouse for Medicaid assistance to pay nursing home bills unless the surviving spouse or the spouse’s family contests the deceased spouse’s estate plan.
A prenuptial agreement can prevent Indiana divorce and probate laws from imposing asset distribution rules on a married couple. The couple can specify any property division rules that it wants to establish within the prenuptial agreement terms and conditions. Most prenuptial agreements also permit the couple to modify the property division rules in a variety of ways if the couple wants to update the property division plan.
The Indiana Family and Social Services Administration (FSSA) does not honor prenuptial agreements. When a married person applies for Medicaid to pay nursing home bills, FSSA considers both spouses’ assets and income, regardless of whether the couple has a prenuptial agreement. However, if the spouse residing at home dies and leaves an estate plan that provides for distributions to family members other than the surviving spouse residing in the nursing home, a prenuptial agreement may be able to prevent FSSA from forcing the surviving spouse to claim the deceased spouse’s assets, because the surviving spouse cannot claim more than his or her legal entitlement.
A prenuptial agreement protects can protect farms and other business assets owned by multiple generations of family members by sparing them the necessity of borrowing money to buy back family business assets that a former in-law may acquire through divorce or death. In some cases, that kind of protection may save the family business from forced liquidation.
A prenuptial agreement may not be the most romantic way to propose marriage, but it is the responsible way to protect and preserve family assets.
Jeff R. Hawkins and Jennifer J. Hawkins are Trust & Estate Specialty Board Certified Indiana Trust & Estate Lawyers and active members of the Indiana State Bar Association and National Academy of Elder Law Attorneys. Both lawyers are admitted to practice law in Indiana, and Jeff Hawkins is admitted to practice law in Illinois. Jeff is also a registered civil mediator, a Fellow of the American College of Trust and Estate Counsel and the Indiana Bar Foundation; a member of the Illinois State Bar Association and the Indiana Association of Mediators; and he was the 2014-15 President of the Indiana State Bar Association.
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