Why do we need to make prenuptial agreements?
Why do we need to make prenuptial agreements?
And what kind of prenuptial agreement can we make? Since January 1, 2018, hasn't it been legally stipulated that anything you own before marriage remains yours, and that this also applies to anything you inherit or receive as a gift during the marriage?
Before the law changed on January 1, 2018, the main reason for entering into a prenuptial agreement was to keep assets you owned before tying the knot private. Since then, this reason has become less important. Marriages entered into on or after this date no longer automatically result in a full, but rather a limited, community of property. Nevertheless, there are still plenty of reasons to enter into a prenuptial agreement. Several types of prenuptial agreements are possible.
Reasons for making prenuptial agreements
1. Company
For example, if a spouse starts a business during the marriage using money or assets that are not their own, that business falls under the community of property. The business is financed with joint or borrowed capital. Upon divorce, the business will have to be divided. If the business goes bankrupt, not only the business itself but also the remaining assets of the community of property are included in the bankruptcy. A prenuptial agreement can prevent this.
2. Private assets to one's own children and not to stepchildren
If the intention is that a spouse's personal property will ultimately go exclusively to his or her own children and not to the other spouse's children, it is advisable to draw up a prenuptial agreement in combination with good wills.
3. Other ratio than 50-50
Married partners are automatically entitled to 50% of the joint property. A prenuptial agreement can regulate this ratio differently. An example of a situation where this can be important is when the partners bought a house together before marriage with a 40%-60% share. A prenuptial agreement prevents the ratio from automatically becoming 50%-50%.
4. Tax reasons
In addition, prenuptial agreements can be useful for tax reasons, for example, to avoid inheritance tax on life insurance policies.
Paula and Leo are married. A life insurance policy is taken out on Leo's life. If Leo dies, Paula will receive a payout from the life insurance policy. Only if Paula pays the premiums for this life insurance policy from her own assets or income, and not from joint assets or income, is the payout upon Leo's death exempt from inheritance tax. Therefore, Paula and Leo should stipulate in a prenuptial agreement that the life insurance premiums are not paid from joint assets or income, but from Paula's personal assets or income. A prenuptial agreement can ensure this is possible.
Different types of prenuptial agreements
The main types of prenuptial agreements are the so-called cold exclusion clause, a periodic settlement clause, and a final settlement clause. The type of prenuptial agreement depends on the circumstances and future plans. A combination of these types is also possible.
Cold exclusion
The cold exclusion usually means that everything—regardless of whether you had it before marriage or acquired it "during the marriage"—remains private. Spouses have no rights to each other's income and assets. This type of prenuptial agreement can leave that spouse out in the cold, especially in the event of a divorce, especially if one spouse earns significantly less, for example, due to changing family circumstances. Hence the name "cold exclusion."
Periodic settlement clause
A solution to these unpleasant consequences is the periodic netting clause (also known as the "Amsterdam netting clause"). This is a provision in the prenuptial agreement that stipulates that any remaining income from a spouse after household expenses are paid is shared annually with the other spouse. In other words, one spouse "nets" a portion of their income with the other. This allows income differences to be evened out during the marriage. A periodic netting clause is also useful if one spouse wants to transfer profits from their business to the other, without the other spouse being affected by the business's bankruptcy.
You can tailor a periodic settlement clause to your personal situation. For example, you can arrange for income from assets, such as investment returns, not to be shared.
A disadvantage of this type of prenuptial agreement is that it requires some form of administration, which in practice is usually not done. Furthermore, despite the periodic settlement clause, significant differences in assets can still arise due to, for example, increases in value not caused by income. Finally, the annual distribution of a portion of the surplus to the other spouse can be overlooked for various reasons.
Final settlement clause
To address the problems of a periodic settlement clause, we also have a "final settlement clause," which may or may not be combined with the periodic settlement clause. Essentially, a final settlement clause stipulates that, at the end of the marriage, it is treated as if there were a community of property, by adding the spouses' assets together and dividing their value (technically, "offsetting").
A final settlement clause can also be tailored to the personal situation: you can settle with regard to the entire assets of both spouses or with regard to certain assets, and settlement does not only have to take place at the end of the marriage by death, but can also take place in the event of divorce.
Tip
Prenuptial agreements are drawn up and amended by notarial deed; a visit to the notary is therefore essential. It is advisable to draw up prenuptial agreements before the marriage ceremony.
There are many variations and additions to the three main types of prenuptial agreements. Drafting them requires a tailored approach, thorough preparation, and a thorough understanding of the many legal and tax pitfalls. Consult a civil-law notary for advice.
Come by or call us. The consultation is free. To schedule an in-office consultation or a video call, please call +31 (0)10 44 53 777. We look forward to seeing you.
This article is taken from 'Met Recht Geregeld' (www.metrechtgeregeld.nl), a product of FBN Juristen.
And what kind of prenuptial agreement can we make? Since January 1, 2018, hasn't it been legally stipulated that anything you own before marriage remains yours, and that this also applies to anything you inherit or receive as a gift during the marriage?
Before the law changed on January 1, 2018, the main reason for entering into a prenuptial agreement was to keep assets you owned before tying the knot private. Since then, this reason has become less important. Marriages entered into on or after this date no longer automatically result in a full, but rather a limited, community of property. Nevertheless, there are still plenty of reasons to enter into a prenuptial agreement. Several types of prenuptial agreements are possible.
Reasons for making prenuptial agreements
1. Company
For example, if a spouse starts a business during the marriage using money or assets that are not their own, that business falls under the community of property. The business is financed with joint or borrowed capital. Upon divorce, the business will have to be divided. If the business goes bankrupt, not only the business itself but also the remaining assets of the community of property are included in the bankruptcy. A prenuptial agreement can prevent this.
2. Private assets to one's own children and not to stepchildren
If the intention is that a spouse's personal property will ultimately go exclusively to his or her own children and not to the other spouse's children, it is advisable to draw up a prenuptial agreement in combination with good wills.
3. Other ratio than 50-50
Married partners are automatically entitled to 50% of the joint property. A prenuptial agreement can regulate this ratio differently. An example of a situation where this can be important is when the partners bought a house together before marriage with a 40%-60% share. A prenuptial agreement prevents the ratio from automatically becoming 50%-50%.
4. Tax reasons
In addition, prenuptial agreements can be useful for tax reasons, for example, to avoid inheritance tax on life insurance policies.
Paula and Leo are married. A life insurance policy is taken out on Leo's life. If Leo dies, Paula will receive a payout from the life insurance policy. Only if Paula pays the premiums for this life insurance policy from her own assets or income, and not from joint assets or income, is the payout upon Leo's death exempt from inheritance tax. Therefore, Paula and Leo should stipulate in a prenuptial agreement that the life insurance premiums are not paid from joint assets or income, but from Paula's personal assets or income. A prenuptial agreement can ensure this is possible.
Different types of prenuptial agreements
The main types of prenuptial agreements are the so-called cold exclusion clause, a periodic settlement clause, and a final settlement clause. The type of prenuptial agreement depends on the circumstances and future plans. A combination of these types is also possible.
Cold exclusion
The cold exclusion usually means that everything—regardless of whether you had it before marriage or acquired it "during the marriage"—remains private. Spouses have no rights to each other's income and assets. This type of prenuptial agreement can leave that spouse out in the cold, especially in the event of a divorce, especially if one spouse earns significantly less, for example, due to changing family circumstances. Hence the name "cold exclusion."
Periodic settlement clause
A solution to these unpleasant consequences is the periodic netting clause (also known as the "Amsterdam netting clause"). This is a provision in the prenuptial agreement that stipulates that any remaining income from a spouse after household expenses are paid is shared annually with the other spouse. In other words, one spouse "nets" a portion of their income with the other. This allows income differences to be evened out during the marriage. A periodic netting clause is also useful if one spouse wants to transfer profits from their business to the other, without the other spouse being affected by the business's bankruptcy.
You can tailor a periodic settlement clause to your personal situation. For example, you can arrange for income from assets, such as investment returns, not to be shared.
A disadvantage of this type of prenuptial agreement is that it requires some form of administration, which in practice is usually not done. Furthermore, despite the periodic settlement clause, significant differences in assets can still arise due to, for example, increases in value not caused by income. Finally, the annual distribution of a portion of the surplus to the other spouse can be overlooked for various reasons.
Final settlement clause
To address the problems of a periodic settlement clause, we also have a "final settlement clause," which may or may not be combined with the periodic settlement clause. Essentially, a final settlement clause stipulates that, at the end of the marriage, it is treated as if there were a community of property, by adding the spouses' assets together and dividing their value (technically, "offsetting").
A final settlement clause can also be tailored to the personal situation: you can settle with regard to the entire assets of both spouses or with regard to certain assets, and settlement does not only have to take place at the end of the marriage by death, but can also take place in the event of divorce.
Tip
Prenuptial agreements are drawn up and amended by notarial deed; a visit to the notary is therefore essential. It is advisable to draw up prenuptial agreements before the marriage ceremony.
There are many variations and additions to the three main types of prenuptial agreements. Drafting them requires a tailored approach, thorough preparation, and a thorough understanding of the many legal and tax pitfalls. Consult a civil-law notary for advice.
Come by or call us. The consultation is free. To schedule an in-office consultation or a video call, please call +31 (0)10 44 53 777. We look forward to seeing you.
This article is taken from 'Met Recht Geregeld' (www.metrechtgeregeld.nl), a product of FBN Juristen.
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