|Erin A. Smith, Esq.|
You’ve decided to get married. For years prior to meeting your sweetheart, you’ve grown a successful business. Perhaps you inherited a large sum of money from a relative. When you enter into marriage, it is important to discuss financial assets, debts, emotional issues tied to money, philosophy on investing, etc. If you have significant assets or liabilities, it is even more important to plan ahead for both death and a potential divorce. If you discuss the option of entering into a premarital agreement, it can bring many important financial issues to the surface.
Under Virginia law, it is nearly impossible to design an estate plan that leaves out your spouse as a beneficiary. There are a number of allowances and elections that a surviving spouse can claim against his or her deceased spouse’s estate, even if the deceased spouse did not provide for the surviving spouse in his/her will. In the case of a second marriage, especially where there are children from previous unions, this could be an issue. However, you can address these issues before the marriage in a premarital agreement where both parties can waive these statutory entitlements.
In settling divorces, Virginia judges rely on the statutory requirement to divide marital property equitably. First, the court must distinguish the different property rights. “Marital Property” is jointly-owned property and other property acquired by either party during the marriage from the date of marriage to the date of separation. “Separate Property” is property owned by one party prior to the marriage (and is kept separate through the duration of the marriage), property that was acquired after date of separation, or inheritance or a gift to one of the parties. “Hybrid Property” is separate property that has increased in value during the marriage due to contributions made by either party. This type of property could be considered part separate and part marital or purely marital. You can see how these classifications could lead to confusion, controversy and litigation.
Once the marital property is identified, the court can order property sold, order transfers, and grant monetary awards. The distribution that the court makes does not have to be equal. The court uses statutory factors to decide a fair distribution of the assets. The considerations include: monetary and non-monetary contributions of both parties, relative earning potential of either party, length of the marriage, age and condition of parties, tax consequences … to name a few.
Virginia’s Premarital Agreement Act allows parties to waive these rights upon death or divorce of their spouse by written agreement. A good premarital agreement clearly spells out the nature of their property and how they wish for it to be allocated in the event of divorce. Instead of relying on the discretion of a judge who barely knows you and your spouse, consider designing your own post-divorce arrangement. While it might be an unpleasant conversation, it will force you to talk about potential issues with money that may affect your new partnership. It will also provide asset protection for you both.