Quick Overview

In this Prenuptial Agreement Arizona Guide, I’ll cover all of the basics and then some to answer all of your Arizona prenup questions.

A prenuptial agreement is essentially a contract entered into between two people who are planning on getting married. The primary purpose of a prenuptial agreement is to:

• identify the separate property and debt of both people,
• determine how that property and debt will be treated during the marriage, and
• determine how property and debt acquired during the marriage will be treated.

In addition, a prenuptial agreement can establish parameters for spousal support in the event of a divorce. It can also establish certain financial obligations and actions during the marriage, such as operating joint bank accounts and how to file annual income taxes.

A prenuptial agreement can offer many benefits, which can be summed up as

1. identifying and securing separate property and debt,
2. financial planning for the marriage,
3. estate planning for blended families, and
4. reducing litigation costs in the event of a divorce.

If you think a prenuptial agreement may benefit you, then I recommend that you schedule a consultation soon. The timing of a prenuptial agreement in Arizona can have an impact on its enforceability.

A prenuptial agreement is often worth its weight in gold by:

• saving future court and lawyer fees, and
• pre-defining and determining property rights (even if you never get divorced).

As the saying goes: an ounce of prevention is worth a pound of cure.

Prenuptial Agreement Arizona Requirements

Arizona has a specific set of laws for prenuptial agreements called the Arizona Uniform Premarital Agreement Act, which can be found in ARS title 25, section 201-205.

A prenup is defined as “an agreement between prospective spouses that is made in contemplation of marriage and that is effective on marriage.” ARS 25-201.

In order to be binding and enforceable, a prenup has to be in writing and signed by both parties. ARS 25-202. By definition, the prenuptial agreement has to be entered (signed) prior to marriage. It will become effective upon marriage. ARS 25-202.

Pursuant to ARS 25-203, you and your prospective spouse may contract on the following types of issues:

1. The rights and obligations of each of the parties in any of the property of either or both of them whenever and wherever acquired or located.

• This covers a lot of ground. Under this provision, you and your spouse could identify separate property and debt before marriage, the obligations of either of you with respect to maintaining any separate property or payment of separate debts, and how property acquired during the marriage (such as income) will be characterized and who has right to it. These types of provisions are great for estate planning and avoiding future litigation costs should a divorce occur.

2. The right to buy, sell, use, transfer, exchange, abandon, lease, consume, expend, assign or create a security interest in, mortgage, encumber, dispose of or otherwise manage and control property.

• This provision allows for you or your spouse to specify or clarify a variety of use rights to property during the marriage. Typically, you have full control and rights to your own separate property, and either party has binding rights (much like a business partner) on community property (see ARS 25-214). If desired, a prenup could create exceptions to this by further limiting or expanding either spouse’s rights to using certain property during the marriage. This could be useful for debt planning situations to avoid one spouse’s creditor from coming after certain assets.

3. The disposition of property on separation, marital dissolution, death or the occurrence or nonoccurrence of any other event.

• This allows you to plan how certain property will be disposed of, typically on divorce (or legal separation) or death. This of course is useful for estate planning purposes if you have children from another marriage. It can also cut costs on arguing and litigating in a divorce as the disposition of certain assets will already be decided.

4. The modification or elimination of spousal support.

• Spousal maintenance is one of the most litigated issues in a divorce, in part because there is no formula used and so it can be a difficult issue to settle. An advanced technique for prenuptial agreements is to pre-determine certain levels of spousal maintenance beforehand. A prenup can also remove spousal support as an issue and possibility altogether. This can save thousands and thousands of dollars in attorney fees in the event of a divorce.

5. The making of a will, trust or other arrangement to carry out the provisions of the agreement.

• A prenup can and often does provide for the prospective spouses to cooperate with each other in any estate planning documents to give effect to the terms agreed upon in the prenup itself.

6. The ownership rights in and disposition of the death benefit from a life insurance policy.

• Another estate planning tool, a prenuptial agreement can allow for the prospective spouses to agree on and secure life insurance policies. The spouses can determine ahead of time who will own those policies and how the death benefits will be disbursed. Of note, the insurance company will likely follow the insurance contract, not the prenup. Therefore, it will be imperative to make sure the insurance contract mirrors the terms of the prenuptial agreement.

7. The choice of law governing the construction of the agreement.

• Almost always, Arizona law will be selected in a prenup to govern an Arizona Prenuptial Agreement. However, this provision can be important because it ensures predictability in the event you and your spouse move to a different state.

8. Any other matter, including their personal rights and obligations, not in violation of public policy or a statute imposing a criminal penalty.

• This provision is broader, but certainly has its limits. Hollywood often exaggerates prenups by including sex acts or other individual obligations. Such things really have no place in a prenup and would likely be viewed as a violation of public policy. However, there are other issues, such as how to file taxes (joint or separate), how household expenses will be shared, setting up a joint bank account and funding, etc.

Of note, a prenuptial agreement cannot limit or restrict child support in any way.

How can a prenup directly benefit you?

Next in this Prenuptial Agreement Arizona Guide, I want to cover in more specific detail, exactly how you can benefit from getting a prenup.

Identifying separate property

Let’s start with the easy one. If nothing else, a prenuptial agreement should identify separate property and debt of both prospective spouses.

Now, even though Arizona is a community property state, under Arizona law, all the property and debt owned before marriage would be separate anyways. You do NOT need a prenuptial agreement to “secure” your pre-marital property and/or debt as your separate property/debt.

So why is identifying separate property and debt in a prenuptial agreement useful? Well, let’s say you do you end up getting divorced, but it is after 15 years of marriage. Fifteen years is a really long time. After that amount of time, there is a good chance you will remember things differently and it can be hard to go back and remember all of your separate property (assuming it still exists). Adding to this problem is the fact that when you are getting divorced, it will be your burden to prove what is your separate property. By the way, the burden of proof for separate property is clear and convincing evidence (basically the highest evidentiary standard in civil cases).

For example, maybe you have an old and valuable gun that has been passed down and is your separate property. Guess what could happen in a divorce? I’ve seen people make up stories and say that the gun was purchased during the marriage, or was a gift to both spouses. By having a prenuptial agreement that clearly identifies your separate property, you will be able to easily identify what is yours. In turn, you will save yourself a lot of time and potentially a lot of attorney fees in a divorce.

In addition, by specifically identifying separate debts, you can prevent creditors from trying to go after your assets to satisfy your spouse’s separate debts. Now, this would be the case normally. But again, having a formal document (the prenup) identifying that certain debts are not yours, but your spouse’s debts, you can avoid potential litigation and/or creditor attacks. Again, saving you a lot of time and money.

Similar to the divorce scenario, identifying your separate assets is good for estate planning. Let’s say you have a child from another relationship. You certainly want to provide for both your spouse and your child. Let’s say you have a special item that you want to make sure goes to your child while still providing other things for your spouse. Having a prenuptial agreement identifying that item as your separate property, in conjunction with a good will, can avoid problems in probate and ensure that the item goes to your child. Otherwise, someone could claim that the item is really community property and should go to someone else or be sold and split.

As you can see, even something as simple as having a contract identifying what both of you are bringing into the marriage can be incredibly useful.

Defining property acquired during the marriage and future labor

A prenuptial agreement can also modify or otherwise circumvent Arizona’s community property laws. Without a prenup, a married couple would accumulate community property during the marriage, with exception to anything that was a gift or inheritance. Additionally, even if you have separate property, a community interest can arise in separate property if “community” efforts, labor, or money are used to enhance that property. A prenuptial agreement can avoid either of these scenarios, which can be even more financially beneficial than anything discussed in the prior section.

There are a variety of reasons why you might want to avoid accumulating community property and instead have your income be yours, and your spouse’s be his/her own. Perhaps the main reason is protecting against possible liabilities. If your spouse has a lot of pre-marital debt, or potential liabilities that could turn into law suits, and you are the larger income earner, it might be beneficial to avoid accumulating community property. Those debts would belong to your spouse anyways, but without a prenup all earnings during the marriage would be community property. As a result, your spouse’s creditors could come after half of your income to satisfy those separate debts. A prenuptial agreement can protect against this by making all of your income your separate property, which cannot be used to satisfy a debt that is not yours.

Further eliminating community property and interests, such as labor and efforts, can be a huge benefit to business owners. If you own a business before marriage, then that business is your separate property. However, without a prenup, all of your labors and efforts to continue working on that business during marriage are community efforts, which will create a community interest or lien in your business. Upon divorce, a complicated business valuation will need to be completed to determine the value of the business at the time of marriage, the current value of the business, and how much of the business’s increase in value was due to community efforts (i.e., your efforts during the marriage). This requires an expert witness (often two as the divorcing parties are contesting values) resulting in literally tens of thousands of dollars being spent to fight over any increase in business value.

In contrast, if a business owner gets a prenup, and that prenup

1. indicates that future efforts and labor during the marriage will not create such a community interest and/or lien,
2. that the business owner will keep the business and all increases in value as his separate property,

THEN the above scenario is completely avoided and the tens of thousands of dollars in legal and witness fees can be saved.

Similar to identification of property expressed above, this same benefit can apply to estate planning, thereby avoiding a lot of litigation and fees (and grief) in probate should a business owner spouse want to pass his/her separate business on to a child from another relationship, or someone else like a partner, etc.

By defining how property and labor of the spouses acquired during the marriage will be characterized, a prenuptial agreement can become a financial planning, money-saving tool for the future, regardless if the spouses get divorced or not.

Pre-determining levels of spousal support

While a prenuptial agreement is not necessarily a plan for divorce, it can certainly help as a divorce planning tool.

Spousal maintenance is a highly litigated issue in divorce cases because the awards can vary wildly, there is no formula to ensure a realistic range, and everyone thinks the judge is going to see it their way. Because of the sensitive nature of spousal support, and the many statutory factors that the court has to consider when evaluating spousal support claims (around 13, per ARS 25-319B), the litigation costs to fight over spousal support are at least in the thousands of dollars.

With a prenuptial agreement, the prospective spouses can be quite creative and fair. Similar to how a divorce settlement works out, a pre-determined spousal support provision in a prenuptial agreement can be even more fair than any judgment from the court. At the very least, a provision in a prenup can be something that both spouses can live with, even if not ideal. Conversely, many find that a judgment from a court (that is rammed down) to be arbitrary and capricious.

A prenup can include any fair and reasonable calculation or graduated amount of spousal support, or even no support at all. Circumstances can change over the years of marriage and it isn’t always guaranteed who may be needing to seek support from whom. Even a no support provision is fair as it cuts both ways. Although a prenup doesn’t need to have a spousal support provision at all, you can certainly negotiate for one, which in the end will cut down way more on fees on the back end, making the investment in a prenup well worth it.

I will point out that even in cases where the prenuptial agreement says that neither spouse will pay spousal support to the other, a court can still grant a limited amount of spousal support per ARS 25-202(D). That statute allows for spousal to be awarded if one spouse is in need of government assistance because of their inability to support themselves.

Conclusion and taking action

In the end, a prenuptial agreement can be a great financial planning tool for the marriage depending on your financial circumstances, a money-saving tool in the event of a divorce, a god-send for business owners, and a way for blended families to balance support obligations and avoid future lawyer fees.

Even the cost of a “high-end” prenuptial agreement that can run around a couple thousand dollars pales in comparison to the savings should life take an unexpected turn. In every divorce that I’ve worked on that included a prenup, the client saved in my estimation at least $10,000 or significantly more. In the last two that I worked on, one of which was a prenup that I had drafted years prior, one saved hundreds of thousands and the other saved a few million.

If you think a prenuptial agreement will be right for you, and would like to learn more or get started, contact me now to get a free consult set up. Time is of the essence as the closer to the date of marriage a prenup is executed, the greater chance it can be challenged. The main ways a prenup is challenged is due to unconsionability and/or duress. The closer it is executed to the date of marriage, the more credible a duress argument becomes. So, don’t delay and take action now to protect your property and future property, and potentially save a lot of money.

To learn more about my firm’s pricing for prenuptial agreements, you can click here.

If you would like a free sample prenuptial agreement that you can review, you can click here to get my free basic prenup.

I hope you enjoyed this Prenuptial Agreement Arizona Guide. If you have additional questions about prenups, feel free to email me.