Prenuptial Agreements: Everything You Need to Know
If you are thinking about popping the question or have already got engaged, one of the things that you should consider is getting a prenuptial agreement. Deciding whether this is a good idea or not depends largely on your personal situation. What may be right for someone else may not be right for you. To help you determine if a prenuptial agreement is right for you and your future spouse, you need to learn all about the benefits and disadvantages of having one in place before you tie the knot.
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Benefits of a Prenuptial Agreement
Many people view a prenuptial agreement as something that only the rich have in place before getting married, but there are many other reasons why you may benefit from this type of agreement. Some people are scared to have this kind conversation with their soon-to-be spouse before the wedding, but it can actually be very beneficial and help you avoid a divorce by making you talk about finances—one of the leading causes of divorces—before you reach the altar. Here are just a few of the benefits of prenuptial agreements:
- Being able to document each of your separate property in order to protect it – In a prenup, you have the ability to document your personal property that was obtained prior to the marriage. If you do end up getting a divorce, then you can protect this property by keeping it completely separate in the divorce proceedings. That means that no matter what, you will at least walk away with what you had before you got married.
- Support your estate plan and avoid further court involvement for property distribution – Depending on how your prenuptial agreement is written, you may be able to predetermine who gets what in a divorce to support your estate plan. This property distribution can take up a lot of time and effort, so if you know that there will be big items that will be fought over in a divorce, you may want to go ahead and put them down in your prenuptial agreement and determine where they will go.
- Determine jointly held property – Jointly owned property is property that is owned by two parties. In this case, it would be anything that is owned by the two individuals who are married, such as real estate. The laws that pertain to this vary by state and can be generally defined as community property states and non-community property states, so remember to check this with your state laws. There are only nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Typically, all money earned and items purchased during the marriage in community property states are community property. For states that have non-community property laws, generally property is divided fairly but not always equally because not everything acquired during a marriage is joint property. You can add something to your prenuptial agreement that states everything should be divided equally in this case. By outlining what you already own before the marriage, you will be able to determine what is community property and therefore will be able to determine what should be distributed to both parties.
- Detail any special arrangements – If you have any special agreements or arrangements between you and your soon-to-be spouse, you need to put those in writing. For example, if you want to put in a clause that says if more than one house is purchased during the course of a marriage then you each get one, you can definitely add it as long as you both agree on the terms.
- Avoiding conflict during a divorce – By having everything listed in a prenuptial agreement, the actual divorce proceedings can go smoother than one without a prenup. That is because many of the terms will already be decided upon, so there will not be too much to argue about. Of course, there will still be disagreements, but there will likely not be as many as compared to a case without a prenup.
- Reduce the cost of a divorce – Another benefit of having a prenuptial agreement is that a divorce will likely cost you less money. That is because you are less likely to have an extended court proceeding, which usually results in more billable hours for attorneys. This means that you can save money on a divorce because it should not last nearly as long as it would without a prenup in place.
- Put procedures and rules in place – With a prenuptial agreement, another option that you have is to create rules and procedures for any future issues that may occur during your marriage. For example, you may want to include a rule that states your investments will be in a specific type of investment vehicle or that you will invest a specific amount every year. As long as your future spouse agrees to it, then you can put it in the agreement and save yourself from the argument over it later.
- Assign debt – A prenuptial agreement is a good thing to have especially if there is debt before the marriage. You should outline any debts that exist before the marriage so that the responsibility falls on that person in case of a divorce. You should also detail who will pay for things like student loans if one person decides to go back to school, or the mortgage payment in case of a divorce and one person gets the home. Debt you should think about includes credit cards, mortgages, school loans, auto loans, and other loans you may take out.
Disadvantages to Having a Prenuptial Agreement
As you can see, a prenuptial agreement can help you both get on the same page when it comes to property, finances, and other responsibilities. It can be better to discuss things beforehand, but there are also some negative components to prenuptial agreements that you should be aware of before you start the conversation.
- It can take away some romance – Talking about a prenup and putting one in place is the least romantic part of planning a wedding. If you think that it will take away from your marriage or even cause a marriage separation or divorce later on, then it may not be the best option for you going forward.
- The timing may be off to discuss a prenuptial agreement – Although it is always best to put one in place before you get married, the timing may not be right to discuss it. There is a lot of bliss and happiness that surrounds weddings and marriages, and prenups, along with the things they include, may not even be on your radar, making it a less than ideal time to talk about it. You may not even have a reason to talk about an agreement depending on your situation. In either of these cases, the timing might not be right for you to discuss a prenuptial agreement or even put it into place. You do always have the option of creating an agreement after the marriage takes place; this would be called a postnuptial agreement. Before you create this, you will need to consult with a lawyer to ensure that you create an agreement that is enforceable.
- You may have local and state laws that detail all of the things you would put in a prenuptial agreement – Sometimes, a prenup is not even needed because the items you would talk about are already covered by laws in your area. There are some states that will detail how items are distributed in case of a divorce and they may be perfect for you. If this is the case, and you should always check with state laws before beginning the process, you may be going through the motions for no reason. Another reason to take a look at state laws is to determine if the laws are comprehensive. If there are laws in place but they do not detail everything or clarify everything you want putting in a prenuptial agreement, then you may still need one. Be sure to look at the laws thoroughly or discuss with a lawyer before you do anything.
- Prenuptial agreements cannot detail anything that has to do with child support or child custody – Even if you try to put child support or child custody in a prenup, the court will have final say in these matters. You will not be able to overrule that with any prenup because the court will decide these things based on what the child will need and what is in the best interest of a child. There are many different factors that come in to play, so the courts would never turn to the prenuptial agreement to help decide on them.
- During the court proceedings, the court can set aside items in the prenuptial agreement – If you put some things in the prenuptial agreement and the court decides that they are unfair or are not in the interest of justice in the case, they can set them aside and effectively rule any way they like. An example of this happening is, if you put a clause in the prenuptial agreement allowing a spouse to have a share of the other person's bank account and the other person did not contribute to it during the marriage or contributed considerably less, then they may throw that out. In court cases that have to do with prenups, alimony agreements and alimony waivers are the most commonly thrown out components.
- You cannot include personal preferences in prenuptial agreements – Even if you want to, you cannot put who does specific chores in the prenup and then use that as a reason to get divorced. The same thing is true for things such as where you will spend the holidays or where your children will go to school. Prenuptial agreements are designed to discuss things that are financially based and you cannot include things like this in there. Most judges will be uncomfortable with these things and will find them to be frivolous. This usually results in them setting these clauses aside, and they are not very enforceable.
Questions to Ask Yourself and Your Partner to Determine If a Prenuptial Agreement Is Right
Knowing how you can benefit from a prenuptial agreement and how you cannot is one thing, but knowing if you actually need one is another thing entirely. Before you have the discussion with your partner, you should determine if it is even worth your time. Here are a few questions you should ask yourself and your partner to help you determine if it is the right call:
- Do either of you have any substantial assets? If you have $50,000 or more in assets, such as in a retirement account or in stocks, then you may want to consider it. If you do not have that much, it may not be worth it.
- Do either of you own real estate? If either of you own real estate individually, then you may consider protecting that with a prenuptial agreement so it is not part of the divorce proceedings.
- Do you or your partner earn more than $100,000 in wages per year? If either of you make that amount or more on your own, then a prenuptial agreement is a good call. You will likely continue to earn more as each year goes on and you will want to detail something about it in the prenup.
- Do either of you plan on going back to school after the marriage? If so, then you want to make sure that you detail something about the student loans that are incurred. Add something about who will pay for them in case of a divorce.
- Do either of you own a business or part of a business? In this case, you want to keep the business separate from your marriage and you should ensure that your agreement states that. In case of a divorce, you do not want to lose your business or the profits from it because you did not include it in the prenup.
- Do either of you have other familial commitments to consider? If you have commitments from previous marriages that you must adhere to, it may be a good idea to include this information in the prenuptial agreement.
Now that you understand what is good and bad about having a prenuptial agreement in place, you can better determine if it is the right decision for you and your soon-to-be spouse. Remember, you should only evaluate whether or not it is a good idea to have an agreement based on your own personal financial situation. No one else should dictate whether or not you need to have a prenup. It is always a personal decision.
How To Create a Prenuptial Agreement