The California Prenup: A Marriage Plan

Every married Californian has a prenuptial/premarital agreement (“prenup”)—it’s the California Family Code.  The Family Code governs during the marriage and during a divorce. Even if California spouses ‘don’t want to plan for a divorce,’ the state legislature has already codified marital division.  A prenup is a couple’s opportunity to personalize the rules of their relationship and create their own financial status quo.

Like a marriage, a prenup is a contract. The prenup does not need to focus on if something happens (like a divorce). Rather, the prenup should address what will happen: how is income earned, a student loan paid, a family home financed, and investments made? A prenup is a meeting of the minds on what will happen during the marriage. It is a roadmap. A prenup is not a divorce plan—it is a marriage plan.

Prenups do not need to plan divorces. Divorces are difficult, whether financially or emotionally, and the steps to a divorce are the same with or without a prenup[1]. However, marriages built on open communication can be stronger.  When couples discuss and memorialize their intentions, whether it be to leave the workforce to raise children or grow an investment portfolio, there is less uncertainty and greater transparency. If potentially 38% of divorces are due to financial problems, it makes sense that setting expectations around money is a vital component to a long lasting marriage. Put another way, if a couple never talks about assets and debts, the marital union will dissolve not because of a prenup but because of an impasse and financial resentment.

With so much focus on getting an “I Do” to a marriage proposal, it may seem there is less romance in proposing a conversation about how the marriage will work.  However, from a legal standpoint, marriage is an economic union (not just a romantic union). Marriage creates a “community” (California is one of nine community property states) and a fiduciary duty between spouses.  In the absence of a prenup to the contrary, under California’s community property structure, the community owns property acquired with earnings and efforts during the marriage.  By saying “I Do,” spouses orally enter into a fiduciary contract, governed by the Family Code.  While lawyers draft prenups, legal counsel is not the only way to navigate what can be an emotional journey to come up with the terms for a prenup. Kate Stoddard, a licensed marriage and family therapist based in the San Francisco Bay Area, suggests starting the prenup conversation by coming to an understanding first with yourself, and then with your future spouse. Partners should understand what they each hold as a personal narrative[2] about a prenup before attempting to understand their future spouse’s perspective and signing any agreements.[3]

Self-inquiry is the first step to asking your partner for a prenup. Parties should ask themselves: what does a prenup mean to me, what does a prenup secure for me, and why does someone wish to deviate from California’s default accumulation and division codification?  Then go deeper: are these perceptions based on external expectations or pressures—like from parents or friends—or might they be based on a desire to force a partner into a rigid financial agreement?

If self-inquiry yields the realization that a prenup is sought for self-centered motivations, acknowledge this at the beginning before asking a spouse for a prenup.  Hidden one-sided motives may make for a bitter divorce, and prenups should not foster contempt and resentment. A party should also be interested and willing to hear and understand the other party’s thoughts, feelings, and needs. For example, if a more-resourced party wants to safeguard a business started before marriage as their separate property, understanding what the Family Code has to say about pre-marital property might foster an agreement. Similarly, if a less-resourced spouse wants safeguards around spousal support, understanding already codified legal obligations might move the conversation towards agreement.

Conversations about prenups can start with a marriage counselor before involving lawyers. On the other side of the spectrum, away from having a discussion, is the volatile outcome of Barry Bonds’ divorce with his former wife, Susann Margreth Branco. Bonds’ prenup had a triple play of flaws: no independent counsel, no economic parity (which creates the risk of a party seeking to invalidate the prenup), and last-minute planning the day before the altar (…and English-proficiency issues impacting Susann’s ability to timely review the agreement).[4]  The Bonds’ prenup resulted in the California legislature updating its rules on prenup validity, statutorily encouraging parties to reach agreements rather than spouses pushing each other into contract terms.

If a party is seeking to financially limit their own exposure or secure economic certainty, having a space to talk about perceived inequities can be vital. When asking a significant other for a prenup, be ready to understand each other’s perceptions about prenups, what it means to get married, expectations around family roles,[5] and be ready to adjust and compromise.  If the couple can create and construct a prenup together, it may ease their legal fees. While prenups are contracts, flip the script on the concept that a contract must be a negotiation battle between attorneys. Instead, reach for an understanding of each other’s motivations and goals to allow for collaboration.

If a less-resourced spouse is asking for a prenup, it can be an opportunity for a greater-resourced spouse to put parameters around their pre-marital (separate property) assets. If a greater-resourced spouse is asking for a prenup, it can conversely be an opportunity for a less-resourced spouse to gain economic parity. The prenup goes both ways.  The ideal prenup does not maximize one partner’s self-interest above the other, but rather builds a partnership. The purpose of independent counsel on both sides is not only to advocate for one party’s best interest, but also to educate on the law and provide insight on financial inequalities resulting from the agreement.

Popular culture has also at times wrongly villainized prenups as opportunistic or a backdoor to a divorce. Yet as more and more Americans enter prenups, there is a shift in the way they are viewed. A prenup, when understood thoughtfully, can be a means toward financial transparency and alignment of marital expectations. More and more Americans are also open to the idea of getting prenups, so their presence will likely increase.

Of course, a prenup cannot mitigate all marital sore spots. California is a no-fault state, and a prenup cannot circumvent public policy.[6] Cheating and children are generally off-topic.  Issues surrounding child custody and visitation are based on what is in the child’s best interest, not a contract signed by child’s parents prior to marriage.  Similarly, provisions regarding child support in a prenup are not likely enforceable, as child support is meant to flow to the child, not the parties.

Yet even without kids and financial resources, a prenup is a useful tool to resolve debts and future accumulations.  Certified divorce financial analyst Laurie Itkin has worked with California spouses for more than a decade.  She recommends a prenup to all of her clients, especially those entering marriages as real estate owners, getting married for the second or third time (because often there is built up separate property/debt), and parties who plan to have children (because a parent may leave the workforce, and not be able to contribute to retirement savings).  The recommendation applies to same-gender and different gender couples. In Itkin’s (financial) world, marriage is firstly a fiduciary relationship. Having this conversation sets expectations for both parties—which should minimize the opportunity for conflict later on.

Emotionally, legally, and financially speaking—having a plan is a good idea.  A California divorce can be a difficult process, so it makes sense to put the work in before marriage and align your expectations early on. Don’t plan for a break-up but do plan for richer or poorer, and sickness and health.

[1] A prenup may make the divorce proceeding potentially less contentious by addressing how certain assets and debts are characterized and whether spousal support (alimony) will be limited in some way.

[2] In psychology, a personal narrative is a person’s own understanding or his or her own story, and how that person’s needs and issues fit into the context of that story. By identifying how a person sees and understands a prenup, the person can better navigate understanding and communicating to their partners why they want a prenup.

[3] California also allows post-marital agreements (post-nups). Parties to a post-nup have to be mindful that as married people, they already owe one another a fiduciary duty.  Planning a prenup and a wedding can be a tough juggling act, and it might be necessary to discuss with an attorney the timing and procedure of these two legal documents.

[4] The California Legislature reacted to this divorce, and codified Family Code Section 1615, which governs enforcement of premarital agreements.

[5] Some of the factors a California court must consider when setting spousal support is a party’s ability to engage in gainful employment “without unduly interfering with the interest of dependent children,” and the extent to which the supported party’s present-day or future earning capacity is impaired by time devoted to “domestic duties.”  If a spouse getting married cannot have a conversation about household expectations, they may find themself discussing this issue during a divorce proceeding.

[6] Prior to Governor Ronald Reagan making California a no-fault state in 1968, spouses needed to prove abuse, abandonment, etc.  Once the nation moved to no-fault, divorce “skyrocketed.”  Couples no longer needed to sue and show a refusal to have sex (Diemer v. Diemer 1960) and proving impotency to get out of marriage.  Compare that to an English senior citizen who was denied a divorce by the English Supreme Court in 2018 because her husband refused the split.