Marital Agreements

With nearly 50% of all marriages now ending in divorce, it is not unusual for couples to sign a pre-nuptial agreement, or marital agreement, as it is now called under Colorado law. While it is important for couples to be optimistic about their future together, it is also imperative, as it is in the formation of any legal partnership, to discuss the financial concerns that will arise in the unfortunate event that the partnership fails.

Under Colorado law, the marriage contract assigns property rights for each spouse. For couples who do not have a prenuptial agreement, Colorado law will determine who owns the property that was acquired during the marriage, as well as what happens to that property in the event of death or divorce.

For example, in the absence of a prenuptial agreement, a spouse generally has the right to:

• Share ownership of assets acquired during marriage
• Share responsibility of all debts incurred during marriage
• Share in the management and control of all marital property
• Inherit in the estate of the deceased spouse, regardless of what their will may provide

The Colorado divorce statutes define two categories of assets:

• Separate Property
• Marital Property

Marital property is defined as assets acquired from the date of marriage to the day of the divorce decree. Marital property is to be divided equitably, but not necessarily equally. This means that if the matter goes to court, the division may be a percentage other than 50/50.

Separate property is defined as assets acquired prior to the marriage, and includes assets acquired by gift or inheritance during the marriage. The Colorado divorce statute provides that each party is entitled to retain his or her separate property.

In drafting a marital agreement, the parties get to create their own ground rules as to what constitutes separate and marital property, as well as how the property will be divided in the event of divorce or death.

Rights Upon Death

In the absence of a validly executed Marital Agreement, when one of the spouses passes away, a considerable portion of his estate may pass to the surviving spouse, regardless of what any will document might state. The reason for this is that the Colorado legislature has determined that it is unjust for a deceased spouse’s estate to pass to someone other than the surviving spouse.

The only way to get around this provision is to have a carefully drafted pre-nuptial agreement that provides the property to pass to someone other than the surviving spouse.

Creating a Valid Marital Agreement

A Marital Agreement may call for a severely one-sided property division, and as unfair as the property division may seem, the Court will uphold the agreement as long as both parties made full and reasonable financial disclosures to the other prior to signing the agreement, as well as both parties knowingly and voluntarily signing the agreement. This means that both parties understand the agreement and how it alters their rights under Colorado law. As long as those two requirements are met, the agreement will be enforced.

Spousal support, or maintenance as it is known in Colorado, is a different story. The parties can agree to waive spousal support if they divorce, or agree to a particular amount in advance of a divorce. However, if the agreement is unfair at the time it is to be enforced, then the court can strike this provision of the marital agreement, although the rest of the agreement will not be jeopardized.

Agreements regarding children's issues such as visitation are not likely to be enforceable, although a properly structured agreement regarding child support could be enforceable.

Conclusion

The marital agreement should fully detail the financial arrangements that will take place in the event of divorce or death. Having a well-drafted agreement in writing can streamline the court case in the event that divorce becomes unavoidable. It is important that couples negotiate and have the agreement written in a way that is clear, binding, and legally sound. It is important for parties to seek the advice of counsel in preparing such agreements based upon the magnitude of rights involved. A well prepared marital agreement will be less expensive in the long run than a poorly prepared agreement, which may involve trips to court and hearings on interpretation and the soundness of the agreement.

Note: Income from separate property that accrues during the marriage, as well as the increase in the value of separate property that occurs during the marriage is considered martial property.

For example, if a husband enters into a marriage with a piece of commercial real estate valued at $500,000, and the income from the property during the marriage is $100,000, and the property increases in value to $900,000 prior to their divorce, this means that $500,000 of the value of the real estate is the husband's separate property, but the $100,000 of income from the real estate, and the property's $400,000 increase in value is marital property.