(MoneyWatch) I wrote last week that Facebook (FB) founder to get a prenuptial agreement. Let's hope he followed my advice. On Saturday, only one day after his company's long-awaited initial public offering, the billionaire entrepreneur surprised everyone by .
If you are contemplating your own nuptials, such premarital agreements are often prudent. Here are the specific provisions they should contain:
Purpose: Describes why the parties are entering the agreement and what the contract is intended to accomplish.
Effect: Specifies when the agreement takes effect and what property, financial assets, income, and obligations are covered under the pact.
Property Rights: The prenup should address three categories of property ownership -- premarital property (what you had before the marriage); marital property (what you will accumulate during the marriage); and gifts or inherited property. It should also deal with the appreciation of these assets held during the marriage.
Support Rights: This part of the premarital agreement includes a waiver or limitations of support, such as alimony and post-marital support payments. It can even define the kind of behavior (such as adultery or drug use), when if committed by a spouse entitles the other to support or restitution.
Financial Disclosure: A premarital agreement must include clear and complete disclosure of all assets and income that are currently owned and that are projected in the future.
Acknowledgements: Both parties must be advised by separate legal counsel, have adequate time to read and understand the agreement, and state that there was no coercion or duress involved in completing the document.
Premarital agreements are subject to state law. For example, in some states the courts will interpret such contracts under the "equal distribution" doctrines of community property laws. In plain English -- they begin with the presumption that each person is entitled to half a couple's income and other assets.
Other states require courts to decide post-marital financial issues under more subjective equitable distribution laws. In short, the judge decides who gets what. Some states have adopted what is known as the Uniform Premarital Agreement Act in an attempt to standardize the drafting and administration of premarital agreements. In all cases, these agreements must be in writing, and individuals who enter them should have their own attorney.
By contrast, some things can't be stipulated in a premarital agreement. For example, retirement plan laws state that rights to pension and retirement plan benefits (such as 401(k) accounts) can only be waived by spouses. So to protect your 401(k) account accumulated prior to the marriage, you'll need to ask your newlywed to sign a POST- marital agreement.
Courts sometimes end up waiving prenups for several reasons. One is that there was less than full disclosure of the financial picture. Another is that the agreement was signed under stress and coercion. Forcing your engaged to sign the agreement within days of the wedding looks bad. As such, it's generally better to ink a premarital agreement at least a few months before tying the knot.