In our last post, we began speaking about addressing debt in prenuptial agreements. As we noted, Arizona law provides specific guidelines for how community and separate debts are to be paid in the event of divorce, and it is important to be aware of these before hammering out a prenuptial agreement.
Prenuptial agreements, of course, can effectively trump state property division laws and this is why they are such a great tool for financial protection for the wealthy, or even the not so wealthy. When it comes to including debt in a prenuptial agreement, there are a variety of ways to proceed depending on the couple's circumstances and financial goals.
As we noted last time, married individuals are able to separately bind the community such that one party can be held liable for debt he or she wasn't even aware of. One of the ways to deal with this is to include a clause in the agreement that one or both parties are not liable for any debt taken on by the other party during the marriage.
One of the things to be aware of, though, is that prenuptial agreements only bind the married couple and do not affect creditors, who are able to pursue a party for unpaid debt even though the other married party took those payments on as part of a prenuptial agreement. That being said, a court is later able to enforce a prenuptial agreement as a contract even if one party is forced to pay a debt the other party took on by agreement.
It is important to work with an experienced attorney when working with the debt aspect of a prenuptial agreement. Doing so will not only ensure that the agreement is wisely negotiated according to one's interests, but also that it is properly executed so as to be effective in court.
Source: Arizona State Legislature, "Liability of community property and separate property for community property and for community separate debts," Accessed Nov. 20, 2014.
Huffington Post, "What Your Divorce Attorney Won't Tell You About Marital Debt," Mar. 2, 2014.