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 effectively communicate 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 that the parties are fighting over can be outweighed by the amount spent on the attorney’s fees to do so. By entering into a well-written prenuptial agreement you can set clear boundaries on topics such as what constitutes marital property versus separate property. Traditionally, marital property consists of anything acquired during the course of the marriage by either party. This includes everything from property, to cash, to investments. Separate property includes investments, property, and cash acquired before the marriage and gifts and inheritances that were given to one spouse during the course of 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 property in the ways that 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 has occurred before the marriage stays with the party that acquired it; however, in the absence of a prenup that has provisions saying otherwise, debt that is acquired by either party 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 the steps to protect your assets you risk losing a significant portion of them in the divorce. In addition to this, if the divorce doesn’t take place until significantly later in the marriage you take on the additional risk of not having a sufficient amount of 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 does; similarly, both spouses have to agree to enter it after the marriage has already taken place. In either situation, it is best to be proactive and get one of these agreements into place as soon as possible to assure that you are protected.