Marital Property Agreement – What Is It?
A marital property agreement is a typed, signed, and dated contract between married persons which alters the terms of the statutory marital property system under Wisconsin marital property laws. Its fundamental purpose is to establish each party’s rights in the property acquired during the marriage which is not designated as nonmarital property under the statute. The term "marital property" does not refer to what most people think of as marital or family property, such as the house, the furniture, the vehicles, the retirement accounts, and the bank accounts. Instead, marital property is a legal term of art under Wisconsin law referring to all property acquired by either spouse during the marriage through his or her efforts, whether that be a paycheck, a pension contribution , or a workers compensation award. (The concept of efforts is broader than one would expect and additionally includes gifting and inheritance). The statutory presumption that property acquired during the marriage is marital is set forth at Wis. Stats. 766.31 and also applies to the income generated from that property. Couples may choose to enter into a marital property agreement to eliminate the presumption of marital property with respect to the specific assets listed under the agreement. Separate wise, spouses can enter into a marital agreement changing certain statutory provisions, establishing financial responsibilities for the parties, and addressing the possibility of the dissolution of the marriage. While a separate marital agreement is valid, a marital property agreement must be designated as such and filed with the Register of Deeds.
An Introduction to Wisconsin’s Marital Property Laws
Wisconsin is one of a minority of community-property states. This means that most or all property you and your spouse acquire during the marriage belongs to both of you, regardless of who may be the primary breadwinner. For example, in a traditional division of assets, if you earned $100,000 per year and your spouse earned nothing, you might consider yourself entitled to all the marital assets, particularly if you and your spouse were married for many years. However, Wisconsin law would generally rule that any income you earned during the marriage is equally owned by both you and your spouse. In addition, any property you may have brought to the marriage could be considered to belong equally to you and your spouse.
In most states, property acquired during the marriage and property owned prior to the marriage are considered separately. In most states this means any income you earned during the marriage belongs entirely to you as does any property you brought to the marriage. Wisconsin has a somewhat unique system. Wisconsin Statutes § 765.001 provides that "marriage is a partnership … with respect to the economic resources generated by the efforts of the parties." Unless exempted, marital assets are divided equally or as the judge determines to be fair. One exception is property owned before the marriage or acquired during the marriage as a gift or inheritance. In such cases, it usually is not divided between you and your spouse.
Husband and wife are deemed by law to be partners for economic purposes. Each is the equal partner of the other, and each is accountable to the other in general for his or her involvement in their economic activities. Assets, whether acquired before or during marriage – with limited exceptions – are to be divided equally between husband and wife. The concept is grounded in what is commonly viewed as the Wisconsin ideal of partnership in which spouses share equally the burdens and fruits of their labors. With certain exceptions, any gains of either spouse during the marriage are marital property. On the other hand, there is no responsibility in a divorce for the debt of one spouse made prior to the marriage or which is unrelated to the acquisition of marital property, even if income from marital property or marital labor was used to pay the debt.
Common Features Found in a Marital Property Agreement
The creation of an enforceable marital property agreement in Wisconsin requires compliance with certain legislative requisites. Most importantly, the provisions of Wisconsin’s Uniform Premarital Agreement Act (the "Act") to ensure the validity of the marital property agreement.
At its most basic level, a marital property agreement anticipates what happens to the property of a married couple after one of the individuals in the marriage dies. The choices made in a marital property agreement will dictate whether certain property will pass through a will, like a living trust, or under the intestacy statute. As a result, we have found it helpful to have a formal estate plan that can compliment the terms of the transfer upon death.
Since a marital property agreement allows you to make choices about your property before you pass away, it is important that you be clear about the property you currently own and the choices you want to make.
When drafting a marital property agreement, the Act requires that the agreement must be signed by parties with a witness present, but it does not have specific content requirements. It is also up to the parties to determine when their marriages are legally terminated by death or divorce. Finally, unless a date is specify in the agreement, the agreement will take effect when the parties marry. However, we have seen errors in marital property agreements that have cost spouses money and/or time, so we suggest you work with an attorney to draft your marital property agreement, which should include the following:
- (1) Choice of Law – The marital property agreement should contain a choice of law provision, i.e. what law applies to the agreement. In Wisconsin, the parties may choose Wisconsin law as long as the choice complies with Wisconsin’s statutory requirements. The parties cannot draft an agreement that otherwise violates the laws of Wisconsin. If you live in Wisconsin, the laws of Wisconsin will almost always apply.
- (2) Disclosure – While the Act does not require a spouse to disclose property to the other spouse, it is recommended that you do so. The act provides for a rescission of the marital property agreement if the other spouse fraudulently fails to provide complete disclosure.
- (3) Recitals – Generally, marital property agreements contain common recitals that provide basic facts on the history of the parties marriage to provide context for the agreement, such as the date and location of the marriage and the fact that the parties are entering into the marital property agreement freely and voluntarily.
- (4) Definitions – A definition section in the marital property agreement should contain definitions of terms used in the agreement. Making sure certain terms are "defined" helps eliminate confusion and misinterpretation. Common definitions include wordings such as "this agreement" or "this section" to reference the marital property agreement being drafted.
- (5) Irrevocable Dispositions – We have encountered circumstances where a marital property agreement was null and void because a party made a change to their beneficiary designation, deceasing the death benefit, without the written consent of the other spouse. Therefore, we recommend that marriage property agreements include a section that states, in order to revoke or amend any revocable dispositions of property made in favor of the parties’ spouse or former spouse, without the written consent of the other spouse, the spouses must execute a written modification of the marital property agreement.
- (6) Considerations – While many discussions between parties may not pertain to consideration, so long as the marital property agreement is signed by the parties, the agreement will be binding. However, including language in the agreement that the parties hereto desire to be legally bound by this Marital Property Agreement and the recitals provide the sufficient consideration for this Marital Property Agreement is a good idea.
It’s important to remember that all marital property agreements should be between the parties and drafted to fit the needs of the family. Not all agreements are the same. This is a general agenda of items that should be included.
What Marital Property Agreements Must Include for Enforceability
To be enforceable, a marital property agreement must meet certain legal requirements under Wisconsin law. A marital property agreement, in order to be enforceable, must be signed by both spouses and both spouses must be represented by attorneys at the time of execution.
A marital property agreement will not be enforceable if neither spouse was represented by an attorney at the time of execution. However, if the spouse seeking to disavow the agreement is able to show that the agreement is not "fair and reasonable" then the agreement will not be enforceable. This means the spouse must show that the agreement does not adequately provide for the spouse’s "fair and reasonable" needs after the entry of a divorce judgment. Basically the law presumes that each party is being treated fairly at the time of the execution of the agreement unless there was no attorney present at the execution. If you did not have an attorney at the time the agreement was executed, it will be up to you to prove that the agreement is not fair and reasonable and should not be enforceable.
The Advantages of a Marital Property Agreement
Marital property agreements serve multiple purposes. They can offer protection from claims against assets owned by one spouse, especially should something happen to the particular spouse, such as being sued for malpractice or incurring large debts, in which case creditors may be disallowed from going after the other spouse’s property and assets.
Marital property agreements can also establish what happens to each spouse’s property if a divorce occurs. Marital Property Agreements allow one spouse to retain ownership of their "premarital property." Without a marital property agreement , any property or assets owned by a spouse prior to marriage could be considered "marital property" subject to ownership interests by both spouses in the event of divorce.
Additionally, marital property agreements offer benefits to terminating a marriage in an amicable manner. A marital property agreement allows a divorcing couple to have certainty regarding assets and debts prior to reaching a divorce. For example, by having a marital property agreement a divorcing couple may be able to avoid prolonged property division litigation. A good marital property agreement provides answers to the parties regarding what to do with their property in the event of a divorce and how property will be divided in the event of a divorce.
Creating a Marital Property Agreement – Recommended Steps
Creating a marital property agreement is not a simple process. Wisconsin does not require a couple to execute a written marital property agreement; such an agreement is strictly voluntary. In most circumstances, even if such an agreement is reached, there will be challenges arising at the time of divorce as to its validity and enforceability. In order to avoid any challenges, it is necessary to have the agreement drafted properly, and that you obtain the advice of legal counsel.
The first step is to consult with a lawyer. It is best to have a separate lawyer review the agreement for your protection. You need to be sure that your lawyer is not only familiar with the law applicable to prenups and postnuptial agreements, but also that he or she is experienced and competent in drafting them. All too often, an experienced and competent family lawyer sees prenups and postnuptial agreements prepared by well-meaning lawyers who do not have experience in this area. Such lawyers erroneously believe that a separation agreement or divorce settlement can be converted into a valid and enforceable prenup or postnuptial agreement.
The next step in this process is to have your lawyer meet with your spouse on his or her lawyer’s file in order to explain the document and ensure that he or she understands it. This meeting may take an hour or more, and will cost somewhere in the range of $300.00 to $600.00. But it will be worth it for your peace of mind. At this meeting, you should bring your most recent tax return so that you can disclose your assets and debts. You will also need to execute an Affidavit of Disclosure which requires you to list all of your assets and debts, your income, your Social Security numbers or State driver’s license numbers, and to further represent that the answers given to be full and correct to the best of your knowledge.
The following steps are required to make sure that your marital property agreement is court-ready and enforceable. The agreement must include:
As noted above, it is imperative that you disclose, in writing, all of your assets, debts, incomes and expenses. Wisconsin Statute 766.61(2) suggests that the agreement should include (1) a "good faith, full, and fair disclosure of the nature and extent of each party’s assets and obligations"; and (2) a description of the nature and extent of each party’s assets and obligations, in a listing or otherwise. Wisconsin’s courts have upheld agreements where the parties failed to make a written disclosure of their assets and debts, but the courts have refused to uphold agreements where there has been a material nondisclosure of the asset and/or debt.
In addition, the enforceability of your agreement hinges upon each of you executing the document after reading the disclosure statement, and stating that you have received a fair and reasonable disclosure of the property value then held by the other spouse, and a waiver of any additional disclosure.
The best time to start this process is before you get married. But unfortunately, that’s not the case in most instances. For more information about the process, I encourage you to contact a family lawyer experienced in Wisconsin marital property agreements.
Marital Property Agreement Mistakes to Avoid
Many couples make mistakes that can render martial property agreements ineffective or unenforceable.
Mistake #1: Creating an Ambiguous Agreement.
Any ambiguity in the terms of a marital property agreement can lead to proof problems unless the parties agree to a particular construction. If the parties do not agree to a particular construction, rules of will construction may be applied by a court to determine the intent of the parties. Parties should avoid ambiguous language, particularly where standard rules of will construction may not be easily applied to resolve questions of construction.
Mistake #2: Drafting in the Absence of Counsel.
Couples frequently draft marital property agreements without benefit of counsel. Such decisions can lead to inadequate knowledge of the types of marital property agreements, creditable evidence, or potential solutions to future marital problems. The types of marital property agreements involve:
A couple may also include all of the above in one or more agreements.
Mistake #3: Failing to Disclose Full and Accurate Financial Information.
Parties have done a poor job in disclosing full and accurate financial information in creating pre-marital or marital agreements. Full disclosure of assets and debts is essential to enforceability of marital property agreements. A party may not later seek to set aside even a valid marital property agreement if he failed to disclose full and accurate information.
If a marital property agreement is prepared separate and apart from the marriage, to ensure that each party is fully aware of the financial and other implications of the agreement, a prudent couple will have the attorney draft or revise the agreement after sufficient, but not excessive, time has lapsed to promote emotional detachment. Such a time period will allow the parties to freely discuss and negotiate issues in general terms rather than "by-passing" the important details of the marital property agreement. During this time period, the parties should obtain legal advice to insure the agreement adequately addresses their particular needs and concerns.
How an Attorney Can Help
The creation of a marital property agreement is an important step in Wisconsin to ensure the economic future of you and your family. Marital Property Agreements in Wisconsin, also known as premarital agreements or nuptial agreements, are contracts entered into between two individuals who are considering marriage. To be enforceable, marital property agreements must contain certain provisions, and not all property is as easily divisible as it may seem. It is important to seek the advice of experienced counsel prior to entering into a marital property agreement.
Marital Property Agreements in Wisconsin do not automatically divide property upon death, or divorce, and can be very complex. Likewise , the factors a court will consider when deciding whether to enforce a marital property agreement are numerous, and not everyone is eligible to draft a marital property agreement on their own. This article is intended to inform the reader of the general requirements necessary to create a marital property agreement, as well as outline some of the factors a court will consider when determining whether a marital property agreement is enforceable. The information covered in this article is general in nature and does not delve into great detail on the issue. Due to the numerous issues to consider, it is important to seek the advice of experienced counsel prior to entering into a marital property agreement.