Including a Sunset Clause in Your Prenuptial Agreement

Prenuptial Agreements Are Gaining Popularity

More couples are now entering into prenuptial agreements than ever. One reason for this is that millennials—those between the ages of 18 and 34—are getting married at older ages. They have accumulated assets that each party to the marriage wants to protect from loss if they happen to divorce in the future.

These couples are on the right track, according to The American Psychological Association (APA), which reports that in the U.S., between 40 and 50 percent of first marriages end in divorce. The divorce rate for subsequent marriages is even higher—possibly as high as 60 percent.

In a large percentage of second marriages, at least one of the parties has children from a previous marriage. Prenups are often used for second and subsequent marriages so that one or both parties can protect their personal assets for their own children’s inheritance.

Some feel that there is a stigma to one party suggesting to the other that they have a prenuptial agreement. On the other hand, if the couple puts in writing what the plans are in the untoward event of their divorce, it can be an impetus to staying together.

The honest discussions couples have about their individual assets, plans for their future, and contingencies should their marriage not work out often make marriages stronger. When plans are made at a time when the parties each feel loving toward each other, and terms are clear as to what will happen in the event of a divorce, the divorce process is less hostile.

As noted in the example of Robert Peterson and Laurie Sykes-Peterson, a prenuptial agreement is a contract and its terms and clauses are interpreted according to contract law principles. The agreement is enforceable the same as for any other contract. The sunset clause nullified the prenup if they were still married on their seventh anniversary, which they were.

A difficult concept is that the prenup was put together properly and the appropriate language used. It was a valid and enforceable legal agreement, and this was precisely why the prenup expired and its terms no longer applied.

Sunset Clause Defined

A sunset clause can be used in any type of contract. It establishes, within the contract itself, a time at which the contract will no longer be valid. When one type of sunset clause is included in a prenup, it uses language that says the prenup will be invalid after the couple has been married for a certain number of years. This was exactly the type of clause included in Robert and Laurie’s prenuptial agreement. A sunset clause can also have language that terminates the agreement upon the occurrence of a certain event. Another type of sunset clause can be added that phases out the prenup over a period of time.

A Sunset Clause That Invalidates a Prenup after a Number of Years or on the Occurrence of a Specific Event

As in Robert and Laurie’s case, when there is language in a prenup that says it expires if the parties are still married on a certain date, the prenup is no longer valid. Often, couples choose landmarks at which time the prenup will expire, such as after 10, 15, 20, or 25 years of marriage and so forth.

Sunset clauses are found more often when one party is wealthier than the other. That party may want to “try out” the marriage to be sure the new spouse has not married him or her just for financial security. On the other hand, for the less wealthy party, it may provide consolation that after a certain period of time, when they are both comfortable in the marriage, the prenup will expire.

In a subsequent divorce after the expiration of the prenup, property will be divided according to state laws. Some states consider all property community property and divide it between the parties. Other states divide property under the principle of equitable distribution.

Another example of this type of agreement was in the news a number of years ago involving the high-profile divorce of General Electric CEO Jack Welch and his second wife, Jane. They had been married for 13 years when Jane filed for divorce in Connecticut. As the case of Robert Peterson and Laurie Sykes-Peterson pointed out, Connecticut divides marital property on an equitable distribution basis. This means all property is considered marital property and it is divided according to what the court determines is fair.

As it turned out, Jane and Jack Welch had executed a legal premarital agreement. It had a sunset clause providing for the expiration of the agreement on the couple’s tenth wedding anniversary, three years prior to Jane's divorce petition. Jack’s property had an estimated value of $900 million. Speculation at the time was that since the prenup by its own terms was no longer valid, Jane was going to walk away from the marriage with a windfall from her much wealthier husband.

Court proceedings were initially public. The news reported that both Welches had a bit of 'dirty laundry' they wanted to hide. Neither one of them wanted court hearings open to the public that might reveal their individual extra-marital affairs. Instead of engaging in a “you did this” followed by “but you did it worse” free for all, they settled the case privately between the two of them. By all accounts, the sunset clause in the properly prepared, legally valid premarital agreement, invalidating itself after 10 years, worked to the advantage of Jane.

The sunset clause may also provide for the expiration of the agreement upon the happening of an event. Often, the birth of a child is an event included in a sunset clause that then invalidates the prenup.

Sunset Clauses that Phase Out the Prenup over Time

The theory behind a sunset clause is that as time passes and the marriage is still doing well, the wealthier party begins sharing more of his or her assets with the less wealthy party. Examples of this type of clause include the following:

• The clause says that the less wealthy spouse will receive a lump sum of money—the amount of which is included in the prenup—for every year the marriage lasts until finally the prenup expires and there is a 50-50 split. Examples may be that on the fifth anniversary, the less wealthy spouse receives 20 percent of the assets; at 10 years, 40 percent, and so forth.
• The clause provides that the less wealthy spouse receives a specific amount of money for every year the marriage lasts. For example, the agreement may say that for every year they are married, the less wealthy partner will receive $50,000. If they divorce after five years, that party would be awarded $250,000. It generally adds a provision that if the marriage lasts for a certain number of years, the prenup expires.
• The clause states that the prenup will expire after a certain period of time, but even when it expires, certain property of the spouses will remain their separate property.

There are many factors to think about and decisions to make before deciding to include a sunset clause in your prenup. Both you and your intended spouse must both be fully aware of what it means and what you each are agreeing to.

Factors to Consider When Choosing to Have a Sunset Clause

As seen in the examples of Laurie Sykes-Peterson and Robert Peterson and Jane and Jack Welch, you need to consider a lot of factors before deciding to have a sunset clause in your prenup. One view is that the less wealthy party is more likely to sign a prenup if there is a non-conditional sunset clause with a date certain upon which the prenup expires. The wealthier party feels more secure in thinking it is a way to try out the marriage to be sure it works.

Consider the following questions when thinking about a sunset clause:

• What happens if you have a child? Will you want to change the agreement? Although it is the law in all 50 states that prenups cannot legally resolve issues of child custody and child support, it may be that when the less wealthy party becomes a mother or father, the wealthier spouse will want to give that person a greater settlement than what is provided for in the phased-out sunset clause.
• If there is a divorce, will it matter which of you chooses to end the marriage? Is that something you want to include in a sunset clause? Perhaps you will want to include language that says the prenup is null and void if adultery of the wealthier spouse is the reason for the divorce.
• Do you want to include specific dates or landmarks at which time the prenup is renegotiated? For example, renegotiation after 5 years, 10 years, or more? Or renegotiation after the birth of your first child?

Although you can include language that will require renegotiation at certain times or when certain landmarks are reached, remember that you can always renegotiate the terms of a contract at any time. This includes the ability to change all the terms of your prenup, the terms of your sunset clause, or both.

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