Prenups Protect Against Creditors

prenups protect against creditors

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Stigma of Prenups

There are a lot of misconceptions surrounding prenuptial agreements.

It doesn’t make divorce more likely.  And, it doesn’t just protect against your spouse.

Prenups Can Protect Against Creditors

A prenup doesn’t just protect you against your spouse. It can, in some instances, protect against creditors.

Community Property States

In community property states, all debts acquired during marriage is presumed community debt.  This means that if your spouse has a debt, creditors may collect that debt against your community property.

This also means that in a divorce, you will be held responsible for half the community debt, even if your name is not on that credit card.  You are responsible even if you didn’t know about the card during marriage!

Yes, the law can be extremely unfair!

Separate Debt with Prenup

A prenup allows you to separate your debt from the debts of your spouse by “waiving” the application of community property.

Designation of separate debts will limit the creditors from collecting from the separate debtor.  There will be no community debt.

Creditors Won’t Be Able to Collect From Your Separate Property

In addition, with a prenuptial agreement, you can designate what is separate property.

Designating funds or property as separate will limit creditors to collecting only from the designated owner.

One exception is that a debtor cannot designate income as the other party’s to escape paying debts.

Indemnification

There are cases holding prenups don’t bind creditors. However, if you have a valid prenup, you can seek indemnification from your spouse. One way to avoid this hassle is to not have joint accounts during the marriage.

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