Prenups, Postnups And Alimony: What Happens To Your Mortgage And Your House In The Event Of A Divorce?
If you’ve just bought the perfect diamond ring to propose with, you might be thinking that you just handled the biggest financial decision for your marriage. However, while nothing says “wedding” to you quite like your wedding band of choice, marriage brings a host of financial questions with it.
One of those questions is how property would be distributed in the case of death or divorce. A legal, contractual agreement can protect you and your spouse if you own a home or are looking to buy one. A prenup mortgage will allow you to plan financially for all possible eventualities, including death and divorce.
What Is A Prenup?
A prenuptial or premarital agreement, commonly referred to as a prenup, is a legally binding contractual agreement between parties before marriage. It specifies how property purchased before and during the marriage will be distributed in the event of death, disability or divorce.
Prenups can be useful when one person in the relationship generates a higher level of income than the other or holds significantly more assets or debts. Also, they are indispensable for estate planning.
How Can A Prenup Protect My House?
Prenups don’t just outline what happens to property after a divorce. Couples with children will also find prenups helpful as estate planning tools. By clarifying who becomes the owner of the property in the event of a spouse’s death, prenups can ensure the home is transferred according to the couple’s intentions.
In Divorce Situations
Though not the most romantic of topics, prenups are vital for engaged or newly married couples to discuss. A pair of cool, cooperative heads are better for discussing how property and finances should be handled. A couple contemplating divorce might have more difficulty agreeing on sensitive financial issues, particularly if there is a disparity of income between spouses or if children are involved.
A prenup gives both members of a couple the same plain understanding of what will happen should they divorce. For example, a spouse who earns less income but has no debt can have peace of mind from a prenup that spells out that they will not be responsible for any of their spouse’s debt in the event of a divorce.
While prenups allow couples to prepare thoroughly for death or divorce, there are limitations to what they can specify. A prenup cannot lay out provisions for child custody, the amount of child support to be paid and responsibility for household chores.
For Estate Planning Purposes
Let’s say a middle-aged couple is engaged and sits down to create their prenup. Both members of the relationship already have property and children from before. A prenup will allow them to leave their respective possessions and assets to their children rather than each other.
By signing a prenup, this financially secure couple can guarantee their property stays with their children as intended. In addition, the contract overrides other family members’ desires and prevents state laws from determining what happens to the couple’s assets. Therefore, prenups are essential estate planning tools.
Prenup Before Buying A House
When it comes to a mortgage, a home buying prenup protects couples purchasing a home together. If the couple is unmarried, the contract states the consequences if either member of the couple becomes unable or unwilling to fulfill their financial responsibilities in the relationship.
For married couples, the contract defines who is responsible for mortgage payments, whose name is on the mortgage and whose name is on the home’s title. It also states who is responsible for mortgage payments if the couple divorces.
Therefore, a married couple buying a home must decide if they want to add the property to their prenup. A solid estate plan or prenup requires the couple discuss their present financial status and vision for the future.
Additionally, a prenup that specifies when and how much alimony will be paid could be essential for a spouse seeking to refinance to avoid foreclosure. The alimony would be a significant source of income to a lender.
Prenup After Buying A House
Whenever a couple acquires new assets or wealth, it’s advantageous to review and update their prenup. A couple buying a house together should agree on who it belongs to and how it should be distributed in occurrence with death or divorce. The contract can also account for children who are minors.
If you and your partner or spouse have begun to acquire property and don’t have a prenup, it’s not too late. You can have an agreement drawn up without a prenup from before, and your postnup will operate just as effectively.
You can attach different conditions to a prenup. For example, a prenup might be set to expire after a certain number of years of marriage. Or, say a prenup allocates more wealth to the spouse earning more income. Then, once the couple retires, the prenup could distribute assets more equally.
Prenups, Property Ownership and State Law
If legally valid, prenups are enforceable and override state property law. Even if the prenup significantly disadvantages one spouse, its stipulations will take place as long as they don’t violate state law. How laws affect property varies by state.
Community Property States
In community property states, couples jointly own all marital assets. Therefore, assets are split equally in the event of divorce. Since prenups supersede state laws, couples who want to have their assets allocated in specific ways should have a prenup if they live in a community property state.
Often, people associate prenups with California since it is the largest community property state. However, there are nine total community property states. All assets acquired during a marriage are considered marital property by these states. Thus, unless you have a prenup stating otherwise, community property state law will take effect if you get a divorce.
Common Law States
Conversely, common law states consider property acquired during the marriage to belong to one member of a couple. Of course, couples can put both their names on a newly purchased home if they wish.
Under common law, a couple must create a prenup to ensure that one spouse will inherit the other’s property if they pass away. Otherwise, a car collection or summer home might not belong to a surviving spouse under state law.
Whether you live in a community property state or common law state, estate planning is vital for couples with specific intentions for their assets in the event of death or divorce.
What Are Postnups?
A couple who didn’t create a prenup but has more property and life experience after a few years of marriage may wish they had a prenup. Fortunately, postnups operate similarly to prenups.
After marriage, a couple can enter into a contractual agreement identical to a prenup. The postnup will state how their property will be handled if the couple divorces or a spouse passes away.
Tips For Prenuptial Agreements That Protect Your Home
Just because a couple has a prenup does not mean it’s valid. Prenups must pass specific requirements determined by your state’s laws. Because of the complexity of prenuptial law, consulting an attorney at all stages of your prenup creation will ensure that it’s valid and enforceable.
It Must Be Valid
Your prenup should account for everything: real estate, bank accounts, debts and other assets. Both spouses must provide complete and accurate financial disclosure and must have the chance to consult counsel independent of the other spouse. Overall, the agreement should be fair.
It Should Be Comprehensive
A comprehensive prenup deals with all details and thoroughly prepares for future possibilities. For example, a well-designed prenup will have conditions laid out for what would happen should children enter the picture.
The Bottom Line: Prenups Should Reflect What Will Happen To The House And Mortgage
When functioning correctly, prenups give financial protection to couples. Prenups allow couples to distribute property how they want if a death or divorce happens and will override state property laws.
If you’re thinking about writing up a prenup or postnup, always consult an attorney. It’s unwise to enter into any contract without proper legal representation.
If you already have a prenup and are ready to buy a home with your spouse, take the first step toward homeownership by applying for preapproval online today.