Consider Adding a Sunset Clause to Your Prenuptial Agreement
No matter how intently a couple believes their marriage will last forever, the reality is that the divorce rate in the U.S. is between 40 and 50 percent for first marriages. The rate is even higher for subsequent marriages.
Many married couples are now entering into prenuptial (prenup) agreements to deal with the future division of assets and liabilities and whether or not there will be alimony in the event that they do later decide to divorce. Although planning for a divorce before the marriage even takes place is a sensitive issue, it gives the couple a chance to learn more thoroughly what assets they each have and to be honest with each other. It also allows them to plan on how to divide assets in the future at a time when they still love and care for each other.
Prenups are more common in second marriages when each party may want to preserve assets for his or her own children. Courts will generally uphold a prenup if, at the time of the execution, assets were fully disclosed and each party was represented by their own individual counsel.
In Massachusetts, family law courts give the prenup a “second look” at the time of the divorce to be certain that upholding its terms will not be unconscionable, leaving one party unable to support themselves. If the “second look” reveals no reason the prenup should not be enforced, it will be deemed valid and its terms honored.
A prenup can cover almost any eventuality. Clauses can be agreed to which determine who gets the family pet to clauses that award the family vacation home to one party or the other. One not-so-common clause is referenced as a “sunset clause.”
What is a Sunset Clause?
A basic sunset clause is a stipulation in the agreement itself that establishes a time when the prenup will no longer be valid. There are typically two types of sunset clauses. One includes language saying the prenup will be invalid if the marriage lasts a certain number of years. The second type phases the prenup out over a period of time.
Prenups That Expire After a Certain Number of Years
This type of prenup will have language identifying a date in the future when, if the couple is still married, the prenup will expire. Something like, “after five years of marriage, the prenup will no longer be valid.” If the couple is still married on that date, the prenup will expire and assets and liabilities will be distributed according to the law of the state. It will be as though there never even was a prenup.
State laws concerning the enforcement of prenup terms vary. There are very few cases in the country that deal with the issue of an expired prenup pursuant to a sunset clause. One Connecticut case may be instructive. There, a couple signed a prenup that said if the couple was still married on their seventh anniversary, the prenup would expire. Four months before the anniversary, the husband filed for divorce, but they were still married on the anniversary date. The husband argued that since he filed for divorce before the anniversary, the prenup should be enforced.
The Connecticut appellate court disagreed and said if the couple had meant for the prenup to only expire if they were still happily married on their anniversary, “they could have added that the agreement would become unenforceable on the parties’ seventh wedding anniversary provided that the parties remained married and living together and there was no pending separation or divorce action” but they didn’t.
Since the clear language was simply “married on their seventh anniversary” and they were married on their seventh anniversary albeit separated, the court deemed the sunset clause was in force and the prenup had expired. The property distribution would be done according to state law as though there had never been a prenup.
Prenups That Are Phased Out Over Time
Sunset clauses that are phased out over time are often used when one party has substantially more assets than the other. As time goes by, and it seems likely the marriage is doing well and will last, more assets are shared with the less wealthy party. Examples of these types of clauses include:
- The less wealthy spouse will receive a lump sum of money if the couple divorces after a certain number of years, with the amount increasing periodically until eventually, there is a 50-50 split of assets and the prenup expires.
- The less wealthy spouse will receive a certain amount of money for each year the marriage lasts until a certain date when the prenup will expire.
- The prenup may expire on a specific date, but certain designated property and income will never become marital property.
If you are contemplating marriage and interested in a prenup, whether or not you decide to include a sunset clause, contact our prenup lawyers at Infinity Law Group for a free phone consultation and to schedule an appointment.