A contract that protects you and your life partner.
By Pamela Miller, OD, FAAO, JD, FNAP
August 16, 2023
There are many contracts you have probably signed over the years to protect your practice and personal finances. However, there is an important one which you may have overlooked–a prenuptial agreement.
Who Is a Prenuptial Agreement For?
This contract is traditionally only thought of for situations in which one person in a life partnership has much greater assets than the other person, or much more to lose than the other person. It is not typically a contract that two people who equally have very little have felt they needed. However, it could be seen as a way to protect the future assets and earnings of both people. It also could be seen as a way to ensure no one has to inherit the debt and liabilities of their life partner.
Let’s say you have accrued significant debt in your quest to become a practice owner. If you were to die or part ways (separate or divorce), you probably would not want your partner to be liable for that debt load. A prenuptial agreement can be written in a way that avoids the other person inheriting your debt.
Prevent Future Problems Before they Arise
Having a prenuptial agreement is different from having a will or community property. A will only stipulates what will happen to each person’s assets upon their death, and community property is hard to pull apart when two people want to go their separate ways.
A prenuptial agreement allows you to document each other’s assets at the time that the marriage or life partnership begins, noting what is going to remain separately owned and what is going to be jointly owned, and what will happen to all those assets in the case of a divorce or separation.
If only one spouse is a partner in a practice, it makes sense for that person’s stake in the practice to be owned separately by just that one person, rather than owned jointly with the spouse. If both people are partners in a practice, it might make sense to stipulate in the prenuptial agreement that each person owns only their own stake in the practice. That means that one spouse could buy the other out of their partnership in the practice, but that neither person could claim the practice was owned by themselves alone.
One dicey situation which a prenuptial agreement could simplify is when a spouse has been working in the other spouse’s practice, and contributing to the growth of that practice, but doesn’t have any ownership in the practice. If there is a divorce, what is that other person, who is not a practice owner, but has contributed to the success of that practice, entitled to? It’s good to have the answer to that question put into a contract. Hopefully that answer will never have to be put into effect, but it’s good to know that it’s been decided in advance.
Create a Document that Withstands Legal Challenges
To create the strongest prenuptial agreement, it is important that both parties have their own attorneys in the process, and that there is no way for either spouse to argue later on that they were coerced into signing the document. Both spouses should be sure to disclose all assets and liabilities to the attorneys, so neither person can claim they signed under false pretenses or with insufficient information.
You have to think about who you want to own future assets, not just what you own at the moment. If one spouse is likely to purchase a practice, or become a practice partner, it is important that the attorney for that spouse is aware of those plans because significant money will be in question in that case. It also is important for a spouse to let their attorney know if they expect to inherit a practice from a parent, or anyone else, during the course of their marriage.
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It’s Never Too Late–Post-Nuptial Agreements Are an Option
If you and your life partner have been married, or living together for many years already, you still can create a document that stipulates what will happen to each person’s assets in the event of a divorce or separation.
As with prenuptial agreements, the two spouses would need to list all of their assets and specify in the contract who owns which assets and what happens to each asset if there is a divorce or separation. Stipulating what will happen to assets as they pertain to children from the current marriage or partnership, or a previous relationship, also is important to document. This is a separate and unique document in addition to a will, trust, or other legal paper, you need as part of your estate plan.
It can be emotionally difficult to consider what will happen if two people in a marriage, or two people who live together long-term, divorce or separate, but it can save you tremendous future stress and financial loss. It’s a way to hope for the best, but have plans in place should the worst occur.
Pamela Miller, OD, FAAO, JD, DPNAP, has a solo optometric practice in Highland, Calif. She holds a law degree and a therapeutic license, is California State Board-certified and glaucoma-certified to prescribe eye medications, and offers comprehensive vision care, contact lenses, visual therapy and low vision services. To contact her: firstname.lastname@example.org.