Do I Need a Prenuptial Agreement (Prenup)?
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When hearing the mention of the word prenup, most people express serious reservations about getting one.
Common arguments against them include:
“A prenup is for people who can’t, or won't commit.”
“It’s like rooting against your marriage.”
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While it's true not everyone needs a prenup, there are essential benefits– financial and otherwise–to signing a prenup before marriage.
A prenup, or a prenuptial agreement, created and signed by a couple before their wedding, describes what will occur with their finances should the marriage end in divorce or death.
Read on for a better understanding of what a prenuptial agreement is, what prenups do, and who they benefit, to determine if one is right for you.
What's a Prenup and what does it do?
A prenup, or a prenuptial agreement, is an agreement a couple creates, before saying their I do's – detailing what their money situation would look like in the event the marriage ends.
- Disclosure of Assets, Debts, and Obligations
- May include disclosure of other sensitive information such as prior marriages or criminal records
- May include plans for children or careers
- Division of Property in the Event of Divorce or Death
- Generally focuses on assets and debts but may also include lifestyle clauses, goodwill clauses, and even social media provisions
In the agreement, the couple describes whatever property they own separately before the marriage, as well as any debts.
It's important to note this isn’t just about dollars and cents in savings, investments, and retirement accounts.
This also includes homes and any other real estate an individual might already own, as well as family businesses and other assets.
Prenups can also be helpful if the couple has children from other marriages or relationships.
A prenup can outline how to pass down property to the children in the event of the partner’s death.
However, prenups cannot determine anything about the custodial arrangements of any children or other personal preferences.
While a prenup cannot assign custody of children, it can outline things such as:
- Who gets the family pet
- What happens in the case of a cheating spouse
- What either party cannot divulge, discuss, or display about the other, through specific clauses
It's also recommended to include your financial plans as a couple in your prenuptial agreement, such as:
- Financial mission statement
- Savings and investment strategies
- Financial independence goals
- Retirement plans
Who Does a Prenup Benefit?
Prenuptial agreements are beneficial to many couples. Especially if you're entering the union with a considerable amount of assets or debts. But they are not just for the rich and wealthy.
Without a prenup, a married couple has to follow the law for married property rights. This impacts two significant aspects of your financial life:
- Property. Any property you acquire during the marriage is considered shared property. That means your spouse can expect to split the property in the event of a divorce. The property will be divided differently depending on where you live: either 50/50 in a community property state or equitably in an equitable distribution state.
- Debt. Any debt your spouse acquires during your marriage may also become your debt.
For many years, it was commonly held that prenups were only for marriages when one party significantly out-earned the other party and was bringing considerably more assets to the union.
Now, prenups are becoming more commonplace.
As they become more common, people realize most partnerships can benefit from a prenuptial agreement because it helps each partner take a financial inventory.
Consequently, they can give a couple a clearer picture of where they stand financially in the present and what they hope to achieve together as a couple.
Prenups are also on the rise with younger generations.
Experts speculate this is because millennials have more student loan debt than previous generations. Additionally, they are marrying later in general, which means more of them have acquired assets before tying the knot.
Are There Any Exceptions to Prenups?
While a prenup is an agreement, it's essential to note the legal system does not always look favorably on prenups.
In a change from the past, prenups are now valid throughout the United States.
However, if a judge determines the language in a prenup is frivolous, unfair, or fails to meet the requirements for your specific state, they will likely disregard it during divorce proceedings.
How to Get a Prenup
Though you and your partner can talk through many aspects of a prenup yourself, you will both want to work with separate lawyers at the beginning and throughout the prenup process.
When drafting the agreement, you and your partner will disclose your current finances. Some couples also prefer to work with a forensic accountant to help with this aspect.
Unlike lawyers where each party should hire his or her own to avoid a conflict of interest, one accountant should suffice to help gather a complete financial picture.
Then, you and your partner will define what your individual property and debts are. And finally, what will become marital property and marital liability.
Your lawyers will help you provide thorough descriptions of each debt and asset. They will also help you understand state laws and property rights.
Another benefit of working with legal professionals is that they'll have a sense of how courts in your state typically respond to prenups and will know what language to include and avoid.
Your prenuptial agreement may also detail how to split the marital residence in the event of a divorce. Or how you would like to approach spousal support.
Some couples also use prenups to specify the management of finances and how they will allocate any property throughout a marriage.
You can also determine the time length of a prenuptial agreement and how elements may phase in or out depending on the duration of the marriage.
Finally, once the agreement is complete, you will want to ensure both parties find the terms satisfactory and that you both still wish to move forward with the contract.
If that's the case, then the next step is to sign and date the document. Some states also require you have witnesses during the signing process. After signing, you will take the agreement to a public notary for notarization.
Once the prenuptial agreement is fully executed, you'll want to ensure each party keeps a separate copy. Storing a third copy in a shared location or with an outside party is also recommended.
I've already said I do, is it too late for me?
If you're already married, and you realize a prenup would have benefitted you and your spouse, don’t fret.
Postnups, or postnuptial agreements, can fulfill a similar role. Essentially, it is an agreement between a married couple regarding how their assets should be divided if their marriage ends.
Postnups can also indicate whether spousal support is appropriate. If the couple does agree to spousal support, the postnup may include the amount one spouse will pay the other.
A postnuptial agreement can be put in place to protect a stay-at-home parent (SAHP) by ensuring they have adequate financial resources in the event of a divorce.
By putting their career on hold to raise children, SAHP’s may sacrifice social security, retirement benefits, and future earning potential. This can put them at a huge financial disadvantage if a marriage ends.
The postnup agreement should include how to split assets, but also the loss of wages and benefits of the stay-at-home parent. The agreement must be fair or it will likely be thrown out by a judge during legal proceedings.
Prenups Over Postnups
It is worth noting that prenups have advantages over postnups.
One advantage of a prenup is, if the two parties cannot get on the same page financially, they can part ways without having to dissolve a marriage.
A postnup is the result of the end of a marriage, which was not just a romantic gesture but also comes with a fiduciary duty as well.
As previously discussed, some judges are still skeptical of prenups.
They tend to look even harder at postnuptial agreements because they may feel that since the couple was already married, one partner thought he or she had no choice but to agree to the document.
Still, a postnup can be beneficial. If you didn’t think you needed a prenup or chose not to create one, a postnup is still an option.
Your comfort level talking about marriage and money may have changed. Or the choice to have a parent stay home to raise children may prompt you to revisit this type of agreement.
To make the process smoother, you also want to make sure both parties have adequate time to review and understand the agreement.
This is best done by having both spouses work with separate lawyers. In doing so, it's more likely the postnuptial agreement holds up in court if there is ever a need.
Additional Reading: What Happens If I Die Without Creating A Will?
Final Thoughts on Creating a Prenup
During a romantic engagement, no one likes to think their marriage might end.
However, with nearly half of all unions in the United States ending in separation, it's worth considering what the financial consequences of a divorce would be.
In addition to determining how to divide assets and debts during a divorce, prenuptial agreements can help couples be more financially transparent before tying the knot.
Don't DIY it. Prenups drawn up without attorneys representing each side have less chance of holding up in court. If you feel a prenup is necessary, then this isn't the time to be cheap and forego hiring adequate legal counsel.
In an ideal world, a prenuptial agreement isn’t just a matter of protecting your assets; it’s the starting point in marriage for getting two partners working on the same page – building their lives and financial house together.
Next: Are There Financial Benefits to Marriage?
Article written by Penny