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writing what to include in a prenup in washington state

What to Include in a Prenup in Washington State

Marriage doesn’t just change your relationship to your partner, it changes your relationship to your money. Without a prenuptial agreement, marital property is subject to Washington’s community property laws. A prenuptial agreement in Washington state is a contract that allows you and your partner to decide how marriage will affect your property, assets, income, and debts. The factors that will determine what to include in a prenup in Washington state will depend largely on each person’s financial situation and personal values. When you hire a prenuptial agreement lawyer, your lawyer will help you navigate what to include (and what to exclude) in your Washington state prenup.

More and more couples are including a prenuptial agreement as part of their wedding planning. Having discussions about finances before you get married can contribute to a healthier relationship, especially given the reality that many marital conflicts stem from financial disagreements. According to the journal of Couple and Family Psychology, 50% of divorcing couples surveyed cited financial problems as one of the reasons for filing for divorce. Communication about money before you get married can potentially prevent future conflict.

In this article we’ll explore why a prenup might be especially important given Washington state laws regarding community property and marriage, and then we’ll explore the different topics that you and your future spouse may want to address as you navigate what to include and exclude in your prenuptial agreement.

These topics include:

Washington State Law

Under RCW 26.16.030, Washington is a community property state. This means that any property acquired after marriage is considered community property (or shared property) under Washington law (unless the property was acquired using separate assets and the purchase is traceable to those separate assets). Community property is subject to Washington’s equitable division laws in divorce.

But community property laws can impact what you can and cannot do with shared property during your marriage. Under Washington law, you cannot bequeath more than half of your community property in a will (without getting permission from your spouse), and you cannot give away community property without your partner’s consent. You also cannot sell or purchase community real estate and property without your partner’s participation and consent. Finally, if a business is considered community property, both partners must consent to major business decisions, including buying or selling real estate or business assets. If only one partner traditionally manages the business, then the managing partner may be able to make decisions regarding business assets, but the property may still be considered “community property” in the eyes of the law.

If your partner is bringing debts or child support obligations into your marriage, distinguishing between shared and separate marital property can also be incredibly important. While RCW 26.16.200 notes that neither partner in a marriage or domestic partnership shall be “liable for the separate debts of the other,” Washington law notes that debt claims and child support obligations can be collected from an individual’s “share of community and personal property.” This means that half of any shared marital bank account, shared marital property or real estate, or business interests could be theoretically accessible to a creditor. If one partner makes significantly more money than the other, your partner’s share of your income might be subject to debt collection if you don’t take steps to make your income traceable to you. The law goes on to note that only earnings “which can be identified as the earnings of the nonobligated spouse or nonobligated domestic partner are exempt.” This means that if there is any lack of clarity, or if assets have been so comingled over the years as to be non-distinguishable, then it is conceivable that a debtor could pursue shared community savings to satisfy a debt brought into the marriage.

As you can imagine, in certain situations, Washington community property laws can raise major questions about division of property and can lead to financial disputes during a Washington state divorce, especially if creditors get involved. Let’s say you want to retain sole ownership of your business, or certain real estate properties you purchased before you got married. These are situations where a prenuptial agreement can be incredibly useful.

If you aren’t very careful during your marriage to truly keep assets separate, assets could potentially be viewed as community property during divorce, or even as community property by creditors while you are married. Take for example, the slow business year where your spouse put money from his paycheck (or from shared community accounts) into your business account to help with cash flow, or the time you used money from a shared marital bank account to make capital improvements on a property your partner purchased before your marriage, or the years you used a community bank account to pay a mortgage for a house only in one partner’s name. As you can imagine, these situations could potentially muddy the waters and blur the lines between what is considered separate and marital property.

When it comes to Washington community property laws, a prenuptial agreement isn’t just about protecting a wealthy spouse. It is an important legal contract that can impact debt collection and assets, your ability to manage and make decisions regarding your personal property, and impact you and your future spouse should you choose to get divorced.

In Washington state, prenuptial agreements fall under contract law.

Let’s go into depth about what you’ll want to consider including in your prenuptial agreement in Washington state.

Disclosure of Financial Information

For a prenup to be considered valid, both parties must be transparent about their financial situation going into the marriage. Both parties must disclose their assets, real estate, business interests, and debts.

This transparency will help later when you and your partner make decisions about what property will be considered separate property and what property will be considered community property.

Premarital Assets & Debts

To address some of the concerns raised by Washington community property laws mentioned earlier, a Washington prenup will often affirm that property brought into the marriage will remain each partner’s separate property during the marriage and confirm that debts brought into the marriage will be the sole responsibility of the partner owning those debts. It is also possible to specify that certain assets and debts brought into the marriage will be shared.

Because increases in value to assets, investments, and property can be considered community property, it is important to specify whether increases in value will be considered community property or separate property. If a real estate investment or business will bring in income, your prenuptial agreement should also specify whether business income should be considered community or separate property.

If one partner owns a business, or earns his or her income through a business, things can get complicated. Without a prenuptial agreement in place, both partner’s earnings after marriage would be considered community property. If business earnings are placed under separate property, then a traditionally-employed spouse may be contributing his or her income to community property accounts without the other partner having a similar requirement. In this case, provisions may either need to be made for the business-owning spouse to distinguish between yearly earned income and increased business valuation (which could be used in a business sale as one partner’s retirement income). Or other provisions may need to be made to ensure that both partner’s incomes (and pension benefits) are considered separate marital property. Another situation that can arise is when both partners contribute financially to a business. In this case, the premarital agreement can specify how the increase in business value, or assets, would be divided in a divorce.

It is important to keep in mind that when it comes to benefits and pension plans, you may need to sign additional waivers and documents to keep benefits and pension plans separate. There are also very specific laws that limit the scope of prenuptial agreements when it comes to certain survivor and death benefits (see the Impact of ERISA by Linda J. Ravdin).

Distinguishing Between Separate & Community Property After Marriage

Couples may also want to specify which property acquired during the marriage would be considered separate property. This could include inheritances, gifts, real estate purchases, or business ventures. Couples may also want to specify which debts, if any, would be considered shared debts. Without specific provisions for separate debts, Washington community property laws will consider any debts acquired during the marriage shared debts, including debts taken by a spouse to pursue a degree or to go to school.

Under Washington law, any property or assets acquired during the marriage are considered community property, and subject to division in divorce. This means that legally, each partner has a 50% share in the asset (this 50% share could impact rights involving estate planning and debt collection). This doesn’t necessarily mean that in a divorce, assets would be divided 50-50, because under Washington law assets are divided equitably.

In writing a prenuptial agreement, couples need to decide whether Washington’s community property laws will apply to assets acquired during the marriage, whether all property will be kept separate, or whether property will be considered shared or separate based on how the title is held (are both parties’ names on the title or bank account, or is just one partner’s name on the title or bank account?).

Couples can also specify how income will be treated in the marriage. As in the examples mentioned above (as in the case where one partner is a business owner), there may be situations where couples may want to specify that all income or some income is separate property. Couples with significant investments may also want to treat earned and unearned income differently in their prenuptial agreement.

A prenuptial agreement can also address how contributions of separate property to community property interests would be handled in a divorce. For example, if one partner stands to receive a significant inheritance, and use this inheritance to help put a down payment on a house, the prenuptial agreement could state that this contribution is separate property, alternatively, you could consider any separate party contributions to community property a gift to the marital estate.

Debts

Because it is conceivable that a debt collector could attempt to pursue community property or assets to satisfy non-community debts, even if there is language in a prenuptial agreement specifying that debts should be kept separate (like debts acquired before the marriage), couples may sometimes include language in their prenup that offers added protection. For example, if a debt collector goes after community property to collect a debt or if a former spouse goes after community property to collect unpaid child support, there could be language in the prenup that holds the debt-holder responsible for paying the spouse’s expenses or losses in such a situation.

A prenuptial agreement could also specify that each spouse would be solely responsible for debts taken out in his or her name after marriage. It is important to keep in mind that debt collectors could still go after your share of community property and assets to satisfy these debts. How you plan to handle community property could have implications on how debt collectors could pursue debt collection.

A prenuptial agreement can also specify whether each spouse will be responsible for his or her own business debts.

If you are getting married and know that your partner may go to law school or medical school and incur significant educational debt, or if you anticipate that one or both of you will continue your education in the future, your prenuptial agreement can also specify how educational debts will be handled.

Expenses

A prenuptial agreement can also help you and your spouse with marital financial planning. You can specify whether you will file joint tax returns or separate tax returns. Couples who plan to use the prenuptial agreement to make these decisions may also want to hire a tax advisor or financial advisor to assess shared and separate financial situations to help you find the solution with the greatest tax benefits.

While not legally enforceable in court, a prenup can also outline expectations for each partner in handling household expenses and bills.

Division of Assets in Divorce

If you are careful to clearly specify which assets are shared and which assets are community property, this already offers greater clarity and can prevent many of the disputes that can arise during divorce, because many disputes can arise due to lack of clarity regarding which assets are separate and which should be considered community property.

A prenuptial agreement can also address how community assets should be divided in divorce. You and your spouse could decide to divide these asserts down the middle, a 50-50 split, divide assets according to a pre-set ratio (30-70; 40-60, or whatever you think is fair). You could also decide whether assets must be sold, and proceeds split, or whether certain assets will go to one spouse and other assets will go to the other.

A prenuptial agreement can also include specific provisions for retirement accounts, and instructions for how marital debts will be split.

What You Should Not Include in Your Prenuptial Agreement

According to the book Prenuptial Agreements: How to Write a Fair and Lasting Contract by Katherine Stoner, there are several things that are off-limits in a prenup. Anything involving child support, child custody, or visitation rights cannot be included or enforced in a prenup. While Washington state laws will enforce alimony clauses in a Washington prenup, each state’s laws regarding alimony and prenups can vary, so if you move to another state, you could be subject to the limitations of enforcement regarding alimony in that state. If you are unsure about whether you and your partner will remain in Washington state, there may be other ways you can address concerns about ongoing spousal support, for instance, by addressing these concerns through division of assets, savings accounts, real estate, trusts, or retirement accounts.

Another clause that could cause issues is known as a “bad boy” or “bad girl” clause, which typically penalizes a partner for infidelity. According to Katherine Stoner’s Prenuptial Agreements: How to Write a Fair and Lasting Contract, “such a clause is problematic at best” and may be “unenforceable especially in states where there is no-fault divorce.” Washington is a no-fault divorce state and infidelity doesn’t impact division of property in a divorce.

Collaborative Law and Your Prenuptial Agreement

According to Elizabeth R. Carter, in Rethinking Premarital Agreements: A Collaborative Approach the legal profession tends to view “entry into a premarital agreement as an antagonistic process.” However, there is another way, a way that is less adversarial. The collaborative legal process not only affords each party their own attorney but approaches the premarital agreement as a collaborative negotiation. Couples writing their prenuptial agreement are especially good candidates for the collaborative process because they already want to work together to create a fair agreement and sound foundation for their marriage. Truce Law is a collaborative law firm that helps couples with prenuptial agreement. Reach out to our Seattle, Washington collaborative prenuptial agreement lawyers today.

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