Published 05 November 2018, The Daily Tribune
In 2010, a famous personality admitted that she regretted not having a prenuptial agreement with her now ex-husband. Three years later, she was still paying in the millions for the financial settlement with him. She is not alone. Many Filipinos would not have considered signing a prenuptial agreement. But, with annulment/nullity and legal separation rates on the rise, we take a closer look at why we may need ‘prenups’, how do we make a one and how much would it cost. (For ease of reference only, I hereafter refer to annulment and nullity of marriage and legal separation as “divorce”.)
Who Needs Prenups
Prenups are often used to protect the wealthy from a financially disastrous marriage or an expensive ‘divorce’. The wealthier, the more essential the prenup gets. But, it’s not always just the wealthy who need prenups. Different individuals may have specific reasons for wanting or needing a prenup.
- Ensuring that family wealth remains within the bloodline.
As discussed in my previous article, in the absence of a prenuptial agreement, the default property regime between spouses is the absolute community of property (or the conjugal partnership of gains, if married prior to August 3, 1988). Simply put – once married, what is yours or mine is now ours.
Among various clients I’ve had, wealthy families generally want to provide for safeguards to ensure that the wealth remains within their relatives by blood – that is, their children, their grandchildren and their grandchildren’s children. Imagine a situation where a son/daughter, to whom family assets have been entrusted in name, marries. If the son/daughter were to have an untimely death (without a prenuptial agreement in place), the wealthy family may suddenly find themselves in a situation where its wealth is now substantially – if not completely – transferred to the unrelated surviving husband/wife.
- Providing financial security for either spouse in the event of a ‘divorce’ or separation.
On the other hand, the reverse could as well be true.
Imagine a situation where a spouse marries into a wealthy family. The wealthy husband/wife works solely for the family business, and yet has no assets or shares of stock in his/her name, such being controlled by the family. Nevertheless, the husband/wife puts his entire life into his family’s business. Meanwhile, the spouse also helps the husband/wife and takes care of the family, relying solely on the wealthy husband/wife’s share in the family business.
A prenuptial agreement could provide for the financial security of the less wealthy spouse, in the event of a ‘divorce’. In such case, the less wealthy spouse would be entitled to financial security from the wealthier spouse, with the usual conditions being that the divorce is not due to infidelity and the like, that the couple be married for a certain number of years, and/or that the marriage produce children.
- Protecting children from a prior or other relationship.The Family Code of the Philippines protects legitimate children from a previous marriage by excluding all properties (including fruits thereof) of such spouse from the absolute community of property in the subsequent marriage. Note that this applies only if the children are legitimate. But what about illegitimate children from a prior – or even other existing – relationship? Under Article 895 of the Civil Code of the Philippines, legitimate children would inherit twice as much as illegitimate children.
In this situation, a prenuptial agreement could benefit not only the spouses, but the legitimate and illegitimate children as well. A properly crafted prenup could enable the concerned spouse to provide equally for his/her children, right from the start of a subsequent marriage.
- Protecting oneself from existing and future debts of a spouse.
What about debts of your spouse-to-be? And, what of contingent debts – those that he/she guaranteed or secured on behalf of his family business and the like? If one knows or notices that your spouse-to-be tends to gamble, be a spend-thrift or take unnecessary risks with money, take a listen.
In the case of Pana v. Heirs of Jose Juanite, Sr. and Jose Juanite, Jr. (G.R. No. 164201, December 10, 2012), the Supreme Court decided that “payment of personal debts contracted by either spouse before the marriage, that of fines and indemnities imposed upon them, as well as the support of illegitimate children of either spouse, may be enforced against the partnership assets”, albeit subject to calculation upon liquidation of the partnership (i.e. upon divorce) – this, regardless of whether or not such debts redounded to the benefit of your family. In a not-so-unlikely scenario, you may even find yourself paying for the bills from your spouse’s indiscretion!
In such case, a prenuptial agreement could surely protect the innocent spouse from unwarranted exposure of having to pay for personal debts or expenses of the other spouse.
To be continued.
For comments and questions, please send email to email@example.com