While most of us wouldn’t want to busy ourselves with the technicalities of financial planning during the blissful engagement period, as unromantic as it may seem, many engaged couples think it’s a smart thing to do. In addition to protecting assets in the event of a divorce or death, prenups can also help maintain marital harmony by clarifying financial topics that can otherwise become a source of conflict. Thinking of signing a prenuptial agreement? Here is a list of answers to some questions you might have.
Q: So … what’s a prenuptial agreement?
A: A prenuptial agreement, otherwise known as a “prenup” or “premarital agreement,” is just a fancy term for a written, legal agreement signed by two individuals before marriage covering the financial aspects of their union. It aims to protect each spouse’s individual financial assets in case of a death or breakup and/or to clarify each person’s rights and responsibilities toward their assets during the marriage itself.
Q: Why would I be a candidate for a prenuptial agreement?
A: Prenups are especially beneficial for individuals entering second or subsequent marriages, those engaged to someone bringing excessive debt into the relationship and individuals who have a lot of assets. But you don’t have to fit into one of those categories; you may choose a prenup if you think it’s just a good idea to clarify some of the financial obligations and responsibilities of each partner during the marriage, or in case of a death or breakup.
Q: OK, what are the benefits of a prenuptial agreement?
A: Here are a few of the reasons people sign prenups:
- Without a prenup, state law will dictate the direction of your assets when there is a death or divorce. Premarital agreements can help protect your assets from the state’s involvement.
- If you have children and grandchildren from a previous marriage, premarital agreements can protect their inheritance and allow your property, which might otherwise go to your spouse, to be passed on to your children.
- A prenup can protect a personal business, whose shares would otherwise be divided in the event of a divorce.
- The agreement can protect one spouse from taking on the debts of another.
- A prenup can limit the amount of alimony or support that one partner would be obligated to pay another in the event of a divorce.
- Prenups can also clarify the financial rights and responsibilities of each spouse during the marriage, thereby avoiding future conflict.
Q: So, are there any drawbacks to prenups?
A: Here are some potential disadvantages to be aware of:
- The spouse whose support is limited as a result of the premarital agreement is naturally at a disadvantage once the subject of divorce is on the table.
- While under the law, you would be entitled to a portion of the estate of even a deceased spouse, a premarital agreement can block that.
- One spouse can lose the rights to a share in a business, even if during the marriage he or she invested time and effort in it and contributed to its growth.
- Stepping into a marriage with a contract that sets forth the specifics of what will happen upon divorce might not be in the best interest of a healthy relationship.
- It is difficult—and perhaps even unrealistic—to envision exactly how financial issues should be handled in the distant future.
- The idealistic and romantic stage of engagement, in which death or divorce are far-flung possibilities, may not be conducive to making judgments that are in your best interest.
Q: If I want to pursue a prenup, what are the next steps?
A: You may want to follow some of these guidelines:
- Though it’s not strictly necessary, it’s advisable to write out a premarital agreement together with your future spouse. Before getting started, disclose your assets to each other.
- Topics that you may want to cover in the written agreement can include: any future business visions or plans for pursuing a higher education; provisions for the extended family; how property and finances as well as increases or decreases in income will be handled and managed during the marriage; a plan for dividing or distributing property—such as homes, a business, liquid property and other assets— in the event of a divorce or death; and whether and how much alimony or spousal support will be awarded.
- Once the document is written, it should be signed by both parties. It’s always a good idea to consult with a lawyer before the final paper is signed.
Q: What is not within the legal limits of a prenuptial agreement?
A: Wording that details illegal behavior or encourages divorce can invalidate what is written on the document. Child custody rights and the welfare of children are also beyond the limits of this agreement. Some states may also prohibit the waiver of alimony or support. A prenup is a legal document on financial matters; avoid tackling domestic issues such as who will take the kids to school, who will wash the dishes after dinner and who will feed the cat.
Q: I think I get it. Is there anything else I should do to I ensure that the prenup will stand up in court?
A: To ensure the prenup is legally binding, it should:
- Identify the two parties by their full, legal names. Assert that they are both entering into the agreement of their own accord.
- State that the parties, though not currently married, intend to marry. Record the day the document will go into effect.
- The document must contain truthful information and have reasonable stipulations.
- That’s it, you’re just about done!
A premarital agreement need not destroy your premarital bliss. In fact, securing your financial future can help clarify marital-related financial issues that might otherwise become thorny.
Wishing you a secure financial future and congratulations on your engagement!
Your Turn: Do you have experience with establishing a prenuptial agreement? What advice might you have for others who are considering one?