Prenuptial Agreements, a Powerful Tool for Asset Protection

(The News Journal) - Recognizing that the management of finances is an essential part of a healthy marriage, more couples have opted for marriage with prenuptial agreements, according to several resources consulted by The News Journal.

Although there is no data in Puerto Rico on the number of marriages by agreements, statistics from the Demographic Registry show an increase in those whose celebrant has been a notary. Although getting married before a notary does not mean that they are getting married under capitulations, it should be noted that notaries are in charge of preparing them.

According to statistics from the Demographic Registry, in the majority of marriages the celebrant is a minister, with a notary in second place. In 2023, of 11,780 marriages celebrated, 3,490 were celebrated by notaries.

A prenup is a contract between two people who have decided to get married, which allows them to agree on financial arrangements that can protect the assets of each of the future spouses.

According to a Harris Poll survey, in 2023, 50% of U.S. adults said they supported the use of these prenuptial agreements; an 8% increase from the previous year. However, approximately only one in five married couples have a prenuptial agreement.

In the case of Puerto Rico, "marriage contracts have increased. More than anything in young people, due to the change of mentality that exists around marriage. But, anyway, I think that not all young people are 100% oriented on the subject and many, out of ignorance, do not do it," said Natalie Cotto, a notary attorney.

She explained that the first step to get married under capitulations is to define the economic regime to be agreed upon in the marriage.

"That doesn't mean it's automatically going to be for a separation of property. People usually when they hear the term prenup what they think is 'what's mine is mine and what's yours is yours.' But, the marriage capitulations allow them to make a mixed pact, depending on the case," Cotto explained.

If not married under the marital property agreement, the community of property provides that, upon joining in marriage, couples form a common pool of assets and financial responsibilities. This amounts to placing all assets (including earned income) and liabilities (such as debts) acquired during the marriage into a shared fund. In the event of divorce, the assets and liabilities accumulated in this fund are divided equally between the parties.

The notary explained that after the Civil Code of 2020 came into force, the capitulations can be done after marriage, and as a result of this she has seen the case of couples who, at first, did not intend to do it, but changed their mind, especially if they are going to do some banking procedure.

"Sometimes, one of the parties wants to buy a house and they do not qualify together, so they decide to make the capitulations to be able to buy a property in the name of one of them, because the other one has the credit affected. This type of situations are the ones that usually happen and force people to make the capitulations. Or the most classic one, one of the parties has a child out of wedlock and is in an alimony proceeding and does not want them to be part of the spouse's income," the notary explained.

Changing the mentality

The same opinion was expressed by Cynthia Rijo, president-elect of the College of Certified Public Accountants (CCPA), who explained that people now see prenups as a financial planning tool.

"Now, the law allows people who are married with capitulations to donate assets to each other and to sell assets to each other. There can be more tax and financial planning, which is contemplated in the marriage contracts. One of the things also when it comes to marriage, is that there are professionals or there are people who are in a business prone to lawsuits. In that particular, if something happens, you don't necessarily sue both of you, just like if one goes bankrupt, it doesn't affect the entire capital of the marriage, but you can ride it out. So it is a very powerful tool for planning and for asset protection," Rijo explained.

According to data from HelloPrenup, a portal dedicated to prenuptial agreements, 65% of those who use the platform say they want to protect themselves against their partner's debts.

"As long as people are oriented about the benefits, I don't see why not contemplate marriage capitulations," Rijo opined.

Reclassification trends

On the other hand, the professor and financial advisor, José Medina, said that the trend towards the increase in the prenups is also due to the people who remarry.

"By that nature, in the recommendations that are made in legal counseling, such as the one I do, is that it is recommended that people remarried in second or third marriages execute a process of capitulations, by the nature of what the Civil Code implies of building a community property partnership. Coming from a second or third relationship, with the implications that that can have in the specific case of the death of the spouses.... And that is the part of the orientation that is more related to inheritance scenarios," he said.

Although marriages by capitulation continue to rise, statistics from the Demographic Registry show that the marriage rate continues to decline. In 2023, 11,780 marriages were celebrated on the island, some 864 fewer than in 2022, a year in which the number of marriages had also decreased compared to 2021, by some 923 cases.

However, the trend seems to be similar in the case of divorces. 2023 closed with 6,151 divorces, compared to 6,962 in 2022, a figure that in turn is lower than that recorded in 2021, when there were some 7,938 divorces.

By Stephanie L. López
March 27, 2024


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