Marriage is a big step. Whether you're marrying your high school sweetheart or a celebrity, you or your intended may have circumstances that make a prenuptial agreement a good idea.
A Contract by Any Other Name
A prenuptial agreement is a contract entered into before marriage setting out what the couple plans for their separate and joint finances. It can also be called a premarital agreement or antenuptial agreement. They're very useful, but not very popular.
Couples in love don't want to think about an endgame other than "happily ever after." Prenups shouldn't be looked at only that way: During marriage they can also help shield the wife's assets from the husband's debts, and vice versa. This can be a big benefit during good times as well as bad.
What a Good Prenup Can Do
Some of the features and benefits of a prenup are:
- Protect separate property. Property you bring to a marriage remains yours. But if you sell that property during the marriage the proceeds may become marital property if you're not careful.
- Debt protection. The parties can agree to keep their debts separate: Debts created before marriage (law or medical school student loans, for example) as well as those afterwards (business debt guarantees, for example).
- Breakup/end of marriage. This is what everyone thinks of. A prenup can be a sort of preplanned property settlement agreement in case of divorce. Of course this goes for support too. It can also cover support for the surviving spouse if the husband or wife dies during marriage.
- Special situations. Sometimes one of the partners gives up a career or relocates as part of the marriage. A prenup can reflect this special situation and acknowledge a right of compensation for what can be a hard-to-value circumstance.
Prenups aren't all about the bad things that can happen or the selfishness of separate property and debts. Couples can agree up front to share and share alike. This can be done immediately from marriage or can be phased in over time. The sky's the limit when it comes to writing prenups to suit individual wishes.
So Why Don't More People Do Prenups?
There are three reasons. Most or at least many people don't feel they need them. They may feel their marriage isn't that complicated financially or otherwise to do them. Most people understandably don't want to think about these things while they're romantically so happy.
Not only do they feel the marriage will last, but may also feel it's bad karma or getting things off to a bad start by doing a prenup.
Finally, there's the cost. To have an enforceable agreement both parties should have lawyers. In theory one lawyer could draft the agreement. To enforce it when it's needed though the agreement has to prove fair at the time of breakup unless both parties were adequately represented when it was made. A simple agreement might cost $1,500 to negotiate and prepare, but some might cost much more.
Getting Down to It
Negotiating a prenup should be together. So you can shop for lawyers together. This is not a bad idea at all. If you find lawyers who have worked often and amicably with each other on prenups things can go very smoothly. This can also speed the process if the couple agrees to meet jointly with their respective attorneys to hammer out the details.
Even if a lawyer comes with a personal recommendation or solid reputation, it pays to ask questions about the specifics of the lawyer's practice. For example, what does the lawyer's basic prenup agreement look like?
A very long agreement could mean just a very thorough lawyer, but it could also be overkill in your circumstances. On the other hand if the lawyer doesn't have a template to start with this could be a sign of inexperience or perhaps inefficiency to be avoided.
What's in a Good Prenup?
Your prenup details your separate property and debts and any joint property and debts you've already acquired. It should also describes how you intend to treat your property going forward. This can be the most time consuming part of the process, especially for older or wealthier couples. On the other hand it's not a bad idea even for singles to have this information handy already (regardless of impending marriage).
Although the form and length of the agreement vary with the couple, the drafting one can be simple. The parties share information and desires with each other and their lawyers, who then draft the document.
What's left for the couple are review, change, and approval. Of course, it's possible there may be sticking points the couple must resolve. Hopefully this does not cause protracted, difficult negotiations but it does happen.
A positive way to view the process is as a trial run for the marriage. Every marriage encounters decisions requiring compromise or at least acceptance of your spouse's will. Outlasting a tricky prenuptial negotiation this could be a good sign for your prospects of a candid, healthy marital relationship. But, sincerely agreeing on every aspect of the prenup can also signal future marital bliss.
Doing Without a Prenuptial Agreement
A prenup's not for everyone. You can still get some protections a prenup offers by taking some simple steps to control your property and finances. It starts with taking stock. Inventory your finances when you get married. You can choose to keep this secret or share it with your spouse and acknowledge it in a simple statement.
Next, decide what you want to keep separate, and what you want to join. Keep your separate property separate. This means keeping it in your name, in a separate account in your name, or in your exclusive possession. This includes the cash or other proceeds if you sell any property.
Keep that in a separate account too. Whatever property or money you've agreed to share, go ahead and contribute that to joint ownership or retitle the accounts.
If going forward you wish to tap separate property to support the joint lifestyle, you may do so. Bear in mind that while this does not affect the balance of the separate property, if done repeatedly or systematically it can color that separate source as a marital asset.
Questions for Your Attorney
- Can a premarital agreement control how our separate incomes are treated?
- What happens to property one spouse receives as a gift or inheritance during marriage?
- Since a premarital agreement only binds the spouses, how can it shield one spouse from the other spouse's debts?