Engaged couples rarely relish the idea of planning for a marriage breakdown—or the death of either partner. But especially for couples in which one or both of the partners is coming into the marriage with substantial assets and/or debts, a prenuptial agreement can help smooth out everyone’s expectations about what would happen in the case of divorce. (Here's how to prepare your financial divorce paperwork and the guide to estate planning during divorce.)
It goes without saying that you shouldn’t marry someone unless you trust him or her completely. No one gets married expecting to get divorced or be widowed in the future—but the reality is that many couples separate. All couples should make it a practice to talk openly and honestly about finances on a regular basis, and writing and signing a prenuptial agreement is an extension of full financial disclosure.
What is a Prenuptial Agreement?
A prenuptial agreement is a legal contract two people sign before getting married that establishes how assets and debts will be divided in case of divorce or the death of one of the partners. The specific laws regarding prenuptial agreements varies by state—some clauses, for example, are unenforceable if they are unfair to one party or provide a substantial financial motivation for one party to file for divorce.
A prenuptial agreement is the only way to protect assets in case of divorce. When it comes to the death of one of the partners, a prenuptial agreement doesn’t take the place of a will—but couples who want to ensure that, for example, their children from a prior marriage inherit all of their assets in case of their death will often include that in both a prenuptial agreement and a comprehensive will.
Who Needs a Prenuptial Agreement?
Prenups are never a bad idea, but there are some situations that warrant them more than others.
- Disparate assets. If you and your future spouse have vastly different assets before getting married, a prenuptial agreement is a good idea to determine how those assets would be distributed in the case of a divorce or death.
- Debts. If one or both partners have substantial debt, a prenuptial agreement can limit the other spouse’s responsibility for the debts in the case of divorce or death.
- Disparate incomes. Prenuptial agreements are often used to set a minimum or maximum amount of alimony in cases where the two spouses have vastly different incomes—but even a professional prenuptial agreement could be tossed out by a judge if he or she considers it unfair.
- Second marriages. Prenuptial agreements can dictate who is responsible for supporting children from a previous marriage and how assets should be divided after death… but again, they do not replace a will.
- Business ownership. If one of the spouses owns a business, a prenup is absolutely necessary and provides concrete protection to both spouses. The non-business-owner spouse is protected from being held liable for business debts while the business assets are protected in case of death or divorce. Business owners should always sign a prenup before getting married.
How Do We Get a Prenup?
Every state’s law is different, but you can either get a template agreement or hire an attorney to write up a prenuptial agreement. The key, of course, is it has to be signed before you get married—if you missed that opportunity, you might be able to sign a ‘postnuptial’ agreement, but there are often more restrictions on what can be covered if the agreement isn’t signed before marriage.