For individuals who are unmarried or contemplating a second or third marriage, understanding how a prenuptial agreement can protect assets brought into the relationship is essential. Wisconsin is a marital property state. In Wisconsin, all assets (real estate, bank accounts, income, etc.) acquired by either spouse during the marriage carry with them a presumption that they are marital property. Consequently, these assets are considered equally owned by both spouses. Marital property or marital assets are owned equally by the parties unless, prior to marriage, the parties execute a prenuptial agreement classifying some or all of their property as individual property.
Prenuptial agreements can be an essential tool for managing asset division and protecting individual interests, both for divorce and estate planning purposes, but their enforceability often can depend on the duration of the marriage. In some cases, the duration of a marriage can affect how courts evaluate a prenuptial agreement. Courts, which oversee divorce proceedings, operate on principles of equity and aim to ensure fair outcomes, potentially leading to the discounting of prenuptial agreements if the divorce court deems it to be inequitable. Knowing the basics can help determine if you would benefit from a prenuptial agreement, which stands up to scrutiny and aligns with your long-term goals. In the event of death, a well-crafted prenuptial agreement can help ensure that property is divided according to the terms agreed upon, rather than default statutory rules. Probate courts in Wisconsin are generally inclined to uphold prenuptial agreements when the document is properly drafted and executed.
Prenuptial Agreements and Pre-Marital and Inherited Assets
Assets acquired before marriage can be designated as individual property through a prenuptial agreement. However, once married, assets brought into the marriage are generally presumed marital unless specified otherwise in the prenuptial agreement or a postnuptial agreement. A postnuptial agreement, i.e. an agreement classifying assets as individual after marriage, have a number of additional considerations which are not discussed in this article. Gifted assets are an exception to this rule and are typically called out as individual assets in prenuptial agreements. In the absence of a prenuptial agreement, Wisconsin law classifies gifts after marriage to one spouse as that spouse’s individual property.
Protecting Business Assets
Individual business assets can be safeguarded by classifying them as individual property in a prenuptial agreement. This classification helps protect the business in case of divorce. For specifics regarding property division and prenuptial agreements in Wisconsin, refer to section 767.61(3) of the Wisconsin Statutes. It can also be beneficial to allow the non-titled spouse to benefit from the appreciation of a business asset but not have control over it to avoid shareholder disputes or business interruptions because of divorce. This can be done both in a prenuptial agreement and through a carefully crafted estate plan
Property Division
A prenuptial agreement can delineate which assets are marital and which are individual, impacting how property is divided in the event of a divorce or death. Prenuptial agreements are generally binding concerning property division upon divorce, unless they are found to be inequitable either at the time of signing or at the time divorce proceedings commence. To ensure a prenuptial agreement remains enforceable, it is crucial for each party to seek independent legal counsel to review the agreement for fairness and compliance. It is also important to understand that each county may enforce a prenuptial agreement differently as divorce courts, being courts in equity, are allowed some discretion in dividing property. The county in which you live can dictate how your prenuptial agreement may be interpreted or enforced.
Waiving Maintenance at Divorce
In addition to property division, prenuptial agreements can address spousal maintenance (also known colloquially as “alimony”). Parties may agree to waive maintenance entirely or set specific terms for support in the event of divorce. While such provisions are generally enforceable, Wisconsin courts will review them for fairness at the time of divorce. Including clear language and considering future financial scenarios can help strengthen these provisions.
Avoid Commingling
To protect non-marital assets, including gifted assets like stock or cash, it is essential to avoid commingling these individual assets with marital property. For example, using non-marital funds to purchase additional stock or providing a loan to a company from marital assets can jeopardize the separate status of the individual property. Income generated from non-marital, individual assets, if deposited into a marital bank account, becomes marital property. To maintain its non-marital status, income should be kept in a separate account, though this may present administrative challenges. There are many ways people commingle individual property with marital property; these are just some examples. Understanding the nature of asset appreciation is critical to preparing an effective prenuptial agreement.
Please reach out to our attorneys who can help navigate the complex landscape of marital and individual property with the goal to protect client assets.