A prenuptial agreement, otherwise known as a “prenup,” is a written contract that couples may enter before marriage that states their rights and responsibilities regarding their assets and liabilities and what would happen in the case of a divorce. Simply put, a prenup is a chance for a couple to make their own set of rules for a potential divorce while they are still communicating well as opposed to being forced to either try to separate everything with their spouse under the hostile confines of a looming divorce or letting the courts decide what they think is equitable.
Often, even if a couple starts on the same page with how they want the divorce to go, their perspectives and abilities to communicate effectively deteriorate as they continue down the road to divorce; once communication deteriorates, parties begin to disagree on more, which leads to the attorneys having to spend more time negotiating back and forth. As a result, the value of the assets the parties are fighting over can be outweighed by the amount spent on the attorney’s fees. By entering into a well-written prenuptial agreement, you can set clear boundaries on marital and separate property topics. Traditionally, marital property consists of anything acquired during the marriage by either party. This includes everything from property to cash, to investments. Separate property includes investments, property, cash acquired before the marriage, and gifts and inheritances given to one spouse during the marriage and not commingled. Often it comes as an alarming surprise to clients when they find out that everything in their pension plan or retirement accounts from the time of marriage is subject to division, or that a house they had bought previous to the marriage but substantially improved during the marriage, is something that the other spouse may have a stake in when it comes time to divorce. By consulting with an attorney to draft a prenup, you can create a contractual agreement that keeps property that would otherwise be considered marital property as separate in the ways you see fit.
While a prenup can seem like a daunting topic to bring up during a new engagement, it can act as a pathway to a very honest conversation regarding each other’s finances. Typically, a debt that occurred before the marriage stays with the party that acquired it; however, in the absence of a prenup with provisions saying otherwise, debt that either party acquires during the marriage is shared because the court sees a married couple as one economic unit. By having these provisions laid out in a prenup, you are potentially saving your future self from countless hours in the courtroom or with attorneys that can be both emotionally and financially draining. Prenuptial agreements can also be a crucial tool to protect your wealth if you are in a better financial position than your partner. If you don’t take steps to protect your assets, you risk losing a significant portion of them in the divorce. In addition, if the divorce doesn’t occur until significantly later in the marriage, you take on the additional risk of not having enough time to gain them back before retirement.
If you are in a situation where you are already married and just coming to terms with the fact that you wished you had entered a prenuptial agreement before the marriage, it is not too late. After you are married, you can enter what is called a postnuptial agreement. This acts practically the same way as a prenup; similarly, both spouses have to agree to enter it after the marriage has already occurred. In either situation, it is best to be proactive and get one of these agreements into place as soon as possible to ensure you are protected.