I am routinely asked by engaged individuals about the pros and cons of requesting their future spouse to enter into a prenuptial agreement or “pre nup”.
A prenuptial agreement is simply a contract entered into prior to marriage; a prenuptial agreement commonly includes provisions for the division of property and spousal support in the event of a divorce.
Do you need a prenuptial agreement
In the past, the “richer” spouse was almost exclusively the party who was most interested in learning about the protections involved in a prenuptial agreement.
Recently, however, both spouses – and in some cases the presently “poorer” spouse – have sought our counsel as to whether a prenuptial agreement is advantageous in their particular case.
In our experience, prenuptial agreements can be very beneficial as they clearly define the terms of the marriage and avoid future confusion as to what happens in the event of a divorce.
The prenup can also set spousal support at a certain dollar figure or percentage of income regardless of the actual amount of money earned by the spouse.
More specifically, prenups should be strongly considered in situations where:
- The spouse(s) come into the relationship with significant assets or earning capacity. If one or both spouses owns/maintains a thriving business, lucrative investments, an inheritance or trust, has received significant assets via a prior divorce, or is making a significant yearly income (i.e. surgeon, lawyer, accountant or investment banker), a prenup can properly protect their assets in the event of a divorce by defining which assets are considered marital and which assets are considered non-marital (i.e. business, house, brokerage account, 401k, IRA, etc.). The defined non-marital assets would be protected in the event of a divorce, unless later “blended”, titled, or gifted converting the asset into a marital asset.
- The spouse(s) parents want to ensure that their assets pass on their children and not their children’s spouses. This is usually the most common reason that a spouse/spouses request a prenup as their parents want to ensure their assets pass to their heirs and not the son-in-law or daughter-in-law.
- The spouses are entering in a second marriage and/or both have already acquired significant assets (such as separate residences, IRA, etc.). More and more, baby boomers who are on their second or third marriage have sought out our counsel to prepare a prenuptial agreement.
- One spouse is about to enter into a significant amount of money (i.e. the spouse is about to become a fellowship trained orthopedic surgeon, sell a business, or become the beneficiary of an inheritance).
- Spouse(s) have children from prior marriages and want to ensure they are financially protected. A prenup can define how children from previous marriages are financially protected in the event of a divorce.
- If one spouse is heavily in debt – the prenup can limit responsibility to the other spouse.
In many prenups, the agreement outlines spousal support, such as alimony, in the event of divorce.
In some prenups, the parties agree to no spousal support in the event of divorce. Occasionally, a prenup will include a clause limiting spousal support in the event of adultery.
Of course, a prenuptial agreement cannot reduce or eliminate child support or temporary spousal support, however.
One rule of caution, a prenuptial agreement can create burdens if financial circumstances change. An individual with $10,000,000.00 in real estate who agrees in their prenup to pay their future spouse $500,000.00 per year in alimony may have a problem in the event the real estate decreases in value to $1,000,000.00 (i.e. real estate bubble of 2008).
An experienced family attorney should be able to account for all contingencies in a properly prepared prenup, however.
The bottom line, before entering into marriage – the most significant contract you will enter in your life – it is worth spending an hour or so discussing the pros/cons of a prenuptial agreement with an experienced family law attorney at Lyons, Snyder & Collin.
You should especially consider entering into a prenuptial agreement if you fit in to any one of the categories listed above.