How Does A Prenup Agreement Affect A Mortgage?
Melissa Brock6-minute read
July 09, 2021
Do you have a prenuptial agreement or plan to get one? Did you know that it can affect more than just protecting your assets like stocks and bonds and your prized 1969 Corvette? A prenup agreement can affect your mortgage as well.
Let's look into prenup mortgage agreements and what you need to know before, during and after getting one.
What Is A Prenuptial Agreement?
A prenuptial agreement, also called a prenup, is a legal agreement that details spousal support and division of property if divorce or death occurs in the marriage.
Experts recommend that before you get married, you and your spouse get a separate lawyer to help with the prenup at least 6 months prior to the wedding ceremony. That way, a court will less likely question whether one of the parties entered into the agreement under duress or coercion in the future. It also gives both parties time to consider all aspects of the prenup.
A lawyer who specializes in divorce or family law can ensure that you meet your state's legal requirements for a prenuptial agreement.
The following items can be included in the prenup:
- Protection against your spouse's debts
- Provisions providing for children from previous relationships
- Estate plan and property protection
- Directions for real property distribution after divorce
- Directions for personal property, which would include savings accounts, stocks and bonds, real estate, vehicles, valuable antiques, etc.
- Business plans
- Retirement benefits
- Arrangements for purchases or projects, like a house or business
- Property distribution to the survivor, including life insurance, in the event of death
- Arranging putting one or the other through school
- Settlement of potential disagreements
- Provisions for alimony and spousal support
You may think that only wealthier spouses initiate prenuptial agreements to protect their property. However, prenuptial agreements aren't just for wealthy individuals. You may want to consider a prenup if you:
- Own a business
- Want to protect assets so children from a previous marriage or relationship receive them
- May receive a large inheritance
- May experience a growth in future income
- Have or will have a license or degree in a lucrative profession
- Have valuable financial assets
- Have parents, siblings or children who need a secure financial future
How Does A Prenup Agreement Work?
As mentioned, you can choose to use a prenup for estate planning, specifically to divide the estate and assets of those who sign the prenuptial agreement.
When those who divorce don't have a prenup, courts can divide marital property in two ways: In community property states, courts generally split marital assets equally, in a 50/50 split. On the other hand, equitable distribution states allow judges to divide marital assets in a way they deem fair. This doesn't always result in a 50/50 split.
If you live in a community property state, anything acquired during the marriage is considered community property and therefore belongs to both spouses. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
Prenuptial agreements work by helping couples avoid long, expensive court battles over physical property if the marriage ends in divorce. They also allow couples to "override" community property or equitable distribution laws.
The lawyer who drafts the prenup agreement will help you determine how to split your estate in advance, instead of leaving the decision up to a judge if you divorce. A family or divorce lawyer will:
- Identify each couple's separate property.
- Write out how it will be allocated in the case of divorce.
It's important for all parties involved to establish a prenup that clearly defines the assets and debts of each individual. Negative outcomes can occur if the details of a prenup agreement are not clear, particularly if you live in a community property state.
How Can A Prenup Agreement Impact A Mortgage?
A prenuptial agreement can affect a mortgage in several ways, depending on the couple’s marital status and when they took on the mortgage. Let's take a look at a couple of scenarios: buying a home with an existing prenup agreement and buying a home as an unmarried couple.
Buying A Home With An Existing Prenup Agreement
Spouses who created a prenup prior to purchasing a home together will have to decide whether to add the new property to the existing prenup. They may choose to make the home shared property, which refers to property that the two parties have either purchased together or have agreed to consider as belonging to both parties.
However, as a couple, you may decide to separate various aspects of the home purchase. If you choose to go this route, it's important to establish clear answers to the following questions before buying a home with an existing prenup:
- Who will make the monthly mortgage payments?
- Whose name will be listed on the house title?
- Whose name will be on the mortgage?
- Who will pay the taxes and homeowners insurance if they are not in escrow?
Note that married couples can avoid adding new assets to the prenup by accounting for future assets in the original document. Married couples interested in adding new property to an existing prenup should consult an estate planning lawyer for assistance.
Buying A Home As An Unmarried Couple
Unmarried couples considering buying a house without a prenup agreement can establish a home buying prenuptial agreement. An agreement can protect co-signers who plan to jointly own a house or other real property by detailing who will handle financial obligations related to homeownership.
The agreement will detail how you will:
- Take title or share ownership.
- Split costs, such as the down payment, purchase price, closing costs, taxes and repair bills.
- Handle the home if you break up or if one of you dies.
- Determine the market value of the house should one of you need to buy out the other.
- Handle expenses if one of you cannot pay your share.
Any agreement between unmarried couples will not stay in effect after marriage unless it was created shortly prior to the marriage, in anticipation of marriage. Consult an attorney or learn more about your state's property laws for married and unmarried individuals for more information.
FAQ: Prenups And Mortgages
Let's go over some commonly asked questions and answers related to how prenups affect mortgages.
How Do I Draft A Prenup That Protects Future Assets?
Describing future assets in great detail in your prenup agreement can protect home purchases or income down the line. If you cannot clearly define a future asset, you may want to have a lawyer draw up a “postnup” agreement. This may be the only way to ensure that the asset remains under the control of only one partner. A postnup is drafted and signed after you and your spouse are already married. This can occur when a couple experiences a major financial change.
How Is Property Divided In The Event Of Divorce?
In the event of a divorce, assets and properties are divided according to the prenup agreement. In most cases, the prenup usually overrides state laws about property distribution. After a divorce, one partner can choose to remove their name from the mortgage in certain situations. Your first step involves talking to your lender about your options. You may be able to refinance, then file a quitclaim deed to transfer the home to one partner.
How Does A Prenup Affect A Post-Divorce Mortgage?
Divorced couples with a previous prenup agreement will have to show their new lenders the financial provisions of the prenup in order to buy a new house. Loan lenders will ask for this prenup house information because they need to know that you'll be able to make your payments on time.
For example, let's say the prenuptial agreement contained information about how much alimony one spouse could receive. Alimony from an ex-spouse will be part of your income calculation because it's considered part of your income stream. Lenders want to see evidence of on-time payments from an ex-spouse. (They will also want to know about child support payments, though you can't outline child custody or support in a prenup.)
This is an example of why it's so important to lay out all future assets, debts and divorce provisions within a prenup agreement, including the prenup house mortgage.
The Bottom Line: Consider Your Mortgage When Creating A Prenup
Many couples choose to have a lawyer draft a prenuptial agreement to protect both individuals at the dissolution of a marriage. Prenups help couples avoid court battles over physical property if the marriage ends in divorce and also allow couples to "override" community property or equitable distribution laws.
A lawyer will identify each couple's separate property and help them write out how it will be allocated in the case of divorce.
Prenups can affect a mortgage, depending on the couple’s marital status and when they took on the mortgage. Spouses who created a prenup prior to purchasing a home together will have to decide whether to add the new property to the existing prenup. They will have to answer questions about who will take care of financial obligations.
Unmarried couples can also get a home buying prenuptial, which also details who will handle financial obligations related to homeownership.
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