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How Your Prenuptial Agreement Impacts What You Inherit

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How Your Prenuptial Agreement Impacts What You Inherit

A prenuptial agreement determines your financial and property rights should you and your spouse ever get a divorce. However, your prenuptial agreement can actually have more broad implications than merely how you will divide your marital assets in the event of a divorce. A prenuptial agreement can impact your inheritance as well.

What a Prenuptial Agreement Is

A prenuptial agreement is a contract entered into before marriage, which contains an agreement about how the couple will share their assets and debts in the event of a divorce. 

The agreement must be:

  • In writing
  • Created prior to marriage
  • Signed by both parties
  • Executed correctly
  • Preceded by honest financial disclosure to each other
  • Entered into without fraud or duress
  • Conscionable and reasonable

The agreement can determine decisions that arise at the time of divorce about:

  • How property will be categorized as separate or marital (or community) property
  • Distribution of debt
  • Life insurance proceeds
  • Rights to buy, sell, lease, or transfer real property
  • Spousal maintenance (also known as alimony or spousal support) and its amount and duration
  • Rights to business ownership

A postnuptial agreement functions exactly like a prenuptial agreement, except it is executed after the couple has gotten married. Postnuptial agreements can be used in place of prenuptial agreements or as a way to modify an existing prenuptial agreement. 

Inheritances and Your Prenuptial Agreement

In addition to detailing how you and your spouse will share your assets and debts if you divorce and your rights to spousal maintenance, a prenuptial agreement can also control your inheritance rights. 

New York state has a wills and estates law called the spousal right of election. This law provides that a surviving spouse cannot be completely disinherited in the deceased spouse's will. This means that if your spouse dies before you, you cannot be left with no inheritance in your spouse's will. If your spouse does attempt to disinherit you (or provide less than the right of election law establishes), the law gives you a right of election against your spouse's estate. In New York state, the right of election allows you to opt to take $50,000 or one-third of your spouse's net estate as your elective share, whichever is larger. 

The net estate includes assets distributed by the will and non-testamentary devices such as deeds, jointly held or payable on death bank accounts, living trusts, retirement beneficiary designations, and life insurance payments. It's important to note that a person's estate in New York contains separate only. Any jointly owned property transfers to the spouse at death. A will passes the deceased spouse's separate property – property which is generally not distributed in a divorce

An example of an elective share is if your spouse has an estate worth $10 million at death but passes away with a will saying you as their spouse will receive $100. You have a right of election to take one-third (or $3.3 million) of the net estate. If your spouse left a net estate worth only $100,000, you could take $50,000 as the elective share.

The right of election is absolute, but there is one exception to it. You can agree to waive your right of election in a prenuptial agreement. You can agree that you will not exercise the option to take your elective share against your spouse's estate upon their death if you are still married at the time of their death. 

Implications of Waiving the Elective Share

Waiving your elective share means you will only be entitled to inherit anything your spouse leaves explicitly to you in a will or trust. On its face it might sound inequitable to agree to give up this minimum inheritance threshold, but there can be many reasons for it. The most common reason has to do with children of a previous relationship. 

If one or both members of the couple have children with other partners, they may want to be certain those children will receive an inheritance. Some spouses may agree to leave their assets to each other and then provide for each other's children, but there is no guarantee that the surviving spouse won't change their will and disinherit their spouse's children. To protect children, the spousal right of election can be waived so that each spouse can be sure their separate children will inherit from them.

A couple who married late in life after becoming financially established may decide to waive the right of election so that there is absolutely no commingling of their assets with each other, during life or after death. This can give the spouses a feeling of independence and freedom. It also ensures that they can support their own independent interests and charities without interference from the other spouse. 

It is possible to waive the elective share in exchange for another minimum inheritance specified in the prenuptial agreement if you and your spouse wish to agree to another amount. For example, your prenuptial agreement could stipulate that you waive your right to an elective share, and in exchange, your spouse agrees to leave you $3 million in their will. This ensures that you will not be completely disinherited and will have some funds to live on, but protects the estate from the one-third elective share. 

A prenuptial agreement is an essential document for a couple with a lot of assets to consider. Not only does it prevent a complicated, time-consuming divorce and the accompanying conflict and expense that generally goes with it, but it allows the couple to plan ahead and make thoughtful decisions about their financial matters for the rest of their lives. 

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Dror Bikel

Dror Bikel is a Manhattan-based divorce and child custody lawyer. He founded and leads Bikel and Schanfield, New York’s best-known firm for high-conflict matrimonial disputes.

As founding partner of the Manhattan-based firm, Bikel & Schanfield, LLP, Dror Bikel’s 20+ years of trial and litigation experience offers invaluable insight in facilitating settlements, mediating disputes and obtaining superior results for his clients. A recipient of the New York Super Lawyers Award, Mr. Bikel is voted among the Top 5% New York State Family Law Attorneys.

To connect with Dror: 212.682.6222 or [hidden email] or online
To learn more about Dror Bikel: drorbikel.com
To learn more about Dror's book The 1% Divorce: When Titans Clashsuttonhart.com

For media inquiries or speaking engagements: [hidden email]



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