Does a Prenup Protect Future Assets?

A prenuptial agreement (“prenup”) has normally been used to declare property that one already owns prior to the marriage as separate property of the future spouse. What about future property then? Does a prenup protect future assets?

For example, you incurred debt for your business prior to the marriage (which is considered separate debt), but you are expecting your business to boom during the marriage and to receive a lot of income from it. Without a prenup, the business debt before the marriage is separate debt but the future business income is marital property. Can you use a prenup to protect future assets?

Yes, you can use a prenup to protect future assets, for as long as those assets are clearly defined and described.

Protecting future assets through a prenup

The heart of a prenup is a list of assets of future spouses. This list is an indication of whether such property is separate or marital property. But what about assets you expect to receive in the future?

If you like to protect future assets, you must describe the asset in particular detail. A general description will possibly be less effective in having it determined to be separate property. For example, if you’re expecting to receive trust assets in the future, you should describe the trust in detail, i.e., the name of the grantor, when it was established, when you expect to receive it, etc. If you would like to designate all future income from your business as separate, you should identify the business by its corporate name.

Other ways to protect future assets

Another strategy to protect future assets is by retaining a separate account for them. Keeping a separate account for the income from your business or money inherited from your family, and not commingling it in a joint account with your spouse, will show to the divorce court your intention to keep this property separate.

You can also file tax returns separately than jointly so you can maintain the distinction between your separate and marital property.

Other subjects that can be addressed in a prenup

Aside from property, other issues that can be addressed in the prenup are:

the amount of spousal support or alimony
child custody, child support, and visitation issues
establishing debt incurred prior to the marriage
establishing support for children of a prior marriage
protection of pension and retirement accounts
protection of business and intellectual properties

How New York treats separate versus marital property

New York is an equitable distribution state under Domestic Relations Law (DRL) §236 Part B. When a couple divorces, the court divides marital property in a manner the court deems fair, which is not always an equal split. Separate property, by contrast, is generally not subject to distribution. Separate property includes assets acquired before the marriage, gifts and inheritances received by one spouse during the marriage, compensation for personal injuries, and property described as separate in a written agreement. A prenup is, at its core, a written agreement that allows future spouses to define what counts as separate property, including future assets, so the equitable distribution analysis becomes simpler and far more predictable.

Without a prenup, future earnings from labor during the marriage, appreciation of certain separate assets attributable to a spouse's efforts, and income earned by a business operated during the marriage can be reclassified as marital property. A well-drafted prenup can carve out those categories in advance and avoid the lengthy litigation often required to trace assets back to a separate source.

Categories of future assets a prenup can address

A prenup can address an array of future assets so long as the language is specific and consistent with New York public policy. Common categories include:

Future business income, profits, distributions, and capital appreciation of an identified company
Equity grants, stock options, and restricted stock units expected to vest during the marriage
Real estate purchased with funds traceable to identified separate accounts
Anticipated inheritances from a named relative or trust
Future contributions to and growth in retirement accounts, including 401(k)s, IRAs, and pensions
Royalties, residual payments, and intellectual property income generated from works created before the marriage
Professional licenses, partnership interests, and goodwill associated with a closely held practice
Cryptocurrency wallets and digital assets held in named accounts

Active versus passive appreciation

One of the trickiest aspects of equitable distribution involves appreciation of separate property during the marriage. Passive appreciation, such as the natural rise in value of a stock account, generally remains separate. Active appreciation, where the spouse's effort or marital funds contributed to the increase, can be deemed marital. A prenup can specify how appreciation of a particular asset, including future appreciation, will be treated regardless of how it occurs. This is particularly useful for business owners and professionals whose ongoing work directly affects the value of their separate property.

Drafting language that holds up in court

For a prenup to protect future assets effectively, the document must be drafted with care. New York courts will enforce prenups under DRL §236 Part B(3) when the agreement is in writing, subscribed by the parties, and acknowledged with the formalities required for recording a deed. Beyond those statutory requirements, the agreement must be free of fraud, duress, overreaching, and unconscionability. Courts have set aside prenups where a party was rushed into signing, lacked independent counsel, or signed without meaningful financial disclosure.

Financial disclosure

Each future spouse should provide a complete schedule of assets, debts, income, and reasonably anticipated future interests. Disclosure is especially important when one party is wealthier or has more complex holdings. Attaching disclosure schedules to the prenup creates a clear record that both parties understood the financial picture before signing.

Independent counsel

While not strictly required, having each party represented by separate, independent counsel strengthens the prenup. A spouse who later tries to challenge the agreement will have a harder time arguing they did not understand the terms when the record shows their own attorney reviewed and explained the document.

Timing

Prenups signed days before the wedding are vulnerable to claims of duress. Starting the conversation months in advance, and signing well before the ceremony, helps insulate the agreement from later attack.

Common mistakes that undermine protection of future assets

Using vague descriptions such as "any business I may own" instead of naming specific entities and identifying them by EIN, state of formation, or other unique markers
Failing to update the prenup with a postnuptial agreement when major new assets, such as a new business venture, arise after the wedding
Commingling separate funds with marital accounts after the marriage, which can convert separate property into marital property despite what the prenup says
Omitting a choice-of-law provision designating New York law, which creates uncertainty if the couple moves
Skipping financial disclosure or signing in the final days before the wedding
Including provisions that purport to waive child support or predetermine custody, which a court will refuse to enforce because those issues are governed by the best interests of the child

Documents to gather before drafting

Recent tax returns and W-2s or 1099s
Statements for all bank, brokerage, and retirement accounts
Business formation documents, operating agreements, and shareholder agreements
Recent business valuations or accountant-prepared financial statements
Real property deeds, mortgage statements, and appraisals
Trust instruments under which you are a beneficiary
Documentation of debts, including student loans, credit cards, and personal guarantees
Records of digital assets, such as wallet addresses and exchange statements

Frequently asked questions

Can a prenup protect a business I will start after the wedding?

Yes, but the language should anticipate the new venture. The agreement can state that any business formed by a particular spouse during the marriage, along with its income and appreciation, will be that spouse's separate property. Even with such language, careful bookkeeping during the marriage helps preserve the separate character of the business.

What happens to a joint home purchased during the marriage?

If you and your spouse jointly purchase a marital residence during the marriage using commingled funds, the home is typically marital property even if the down payment came from separate sources. The prenup can address contributions and reimbursement, but a home titled jointly is generally treated as a marital asset upon divorce.

Does a prenup waive spousal maintenance?

A prenup can include a maintenance provision, but DRL §236 Part B(3) requires that such provisions be fair and reasonable at signing and not unconscionable at the time of judgment. Courts will refuse to enforce a maintenance waiver that would leave a spouse a public charge.

Can we change the prenup later?

Yes. Spouses can sign a postnuptial agreement at any time during the marriage to revise or add to the terms. Postnups must meet the same formal requirements as prenups, including acknowledgment.

When to involve a New York family law attorney

Anyone considering marriage who owns a business, holds significant retirement savings, has children from a prior relationship, expects an inheritance, or has substantial debt should speak with a New York family law attorney before the wedding. The cost of a properly drafted prenup is modest compared with the legal fees, business disruption, and tax consequences that can arise from a contested equitable distribution case. An attorney can also coordinate with estate planning, ensuring the prenup, will, trusts, and beneficiary designations work together.

If you are engaged to be married and have debt or property, you should discuss with your future spouse these financial issues and consider discussing your options with a prenup lawyer. When you have significant debt or property or children from a previous marriage, a prenup lawyer can help you draft a prenup agreement that will prevent a contested divorce, saving you legal expenses in the future. Should you need a prenup lawyer, we at the Law Offices of Albert Goodwin are here for you. We have offices in New York City, Brooklyn, NY and Queens, NY. You can call us at 212-233-1233 or send us an email at [email protected].