Prenuptial Agreements Bring Financial Transparency to Marriages

Prenuptial Agreements Bring Financial Transparency to Marriages

In generations past, prenuptial agreements, or prenups, were often viewed as arrangements reserved for very wealthy couples or for a spouse who was perhaps mistrustful of the intentions of their intended. Today, those notions have been dispelled. Forward-looking couples understand that having plans for their finances — before, during and after marriage — makes good sense. In fact, a recent Harris Poll found that 42% of U.S. adults support the use of prenups, and that 39% of engaged, married or previously married 18- to 34-year-olds, and 24% of engaged, married or previously married 35- to 44-year-olds, have signed prenups.

What is a prenuptial agreement

A prenup is an agreement that gives a couple planning to get married the opportunity to set forth in a legally binding document how they would like their physical and financial assets to be managed at the time their marriage ends as the result of divorce or death.

This type of agreement is typically drafted by an in-state family law attorney, often in collaboration with the other party’s attorney. For a prenup to be enforceable by a court, each party must have retained the services of separate counsel; this assures the court that both parties’ interests have been fairly represented. Each party must fully disclose all their assets, accounts, income sources and debt, and negotiate the terms of the prenup in good faith, seeking equitable terms to help prevent future disagreements. The agreement must be signed by both parties prior to the official marriage ceremony. Some states also require notarization for a prenup to be legally binding.

Benefits of having a prenup

The overarching goal of a prenuptial agreement is to ensure a clear understanding between spouses of what will happen to their individual and joint assets in the event their marriage ends. Depending on your specific circumstances, a prenuptial agreement may also serve to:

Empower you as a couple to determine how your assets would be treated. Every state has its own laws about the distribution of assets upon death or divorce in the absence of a legal document addressing these matters. A prenup enables you to make these decisions according to your wishes rather than leaving them to a set of standards that may not take your personal circumstances and preferences into account.

Provide peace of mind. In the event of the marriage’s dissolution, whether due to divorce or death, potentially difficult finance-related decisions will have been made and recorded, so there isn’t a need for negotiation or decision-making at this stressful moment in time. For example, making decisions about spousal support may not be ideal amid a contentious divorce. Working out those details ahead of time, while cooler heads prevail, may help ensure an arrangement that’s fair to both parties.

Protect generational wealth. If one or both families have accumulated property or wealth intended to be handed down through generations, those assets can be protected by the prenup to ensure they stay in the family. 

Open the door to meaningful conversations about your finances. Setting clear expectations around your individual and joint finances can be vital to building a strong marriage. As you discuss the issues related to your prenup, the natural progression may be to build out a financial plan together and commit to regular check-ins that help you stay on track toward your short-, medium- and long-term goals.

What may — and may not — be included in a prenup

Everyone’s financial circumstances are different, and so each prenuptial agreement is unique. Still, the law does provide guidelines around what may be included, as well as what may not. These lists may help you determine what your prenup should look like.

Provisions addressing the following matters may be included:

• Ensuring that premarital assets (those acquired prior to marriage), as well as assets inherited or gifted from one’s family before or during the marriage, stay with the individual who owns them in the event of divorce
• Specifying how marital assets (physical and financial assets, including property, accrued during marriage) would be divided in a divorce
• Setting expectations for spousal support after divorce
• Stipulating who would pay the legal costs of divorce
• Determining how premarital and marital loans, credit card debt and other liabilities would be divided in a divorce Specifying how life insurance beneficiaries may change in the event of divorce
• Laying out the plan for any business(es) owned by one or both of the parties
• Setting forth conditions under which the prenup may be terminated

Provisions addressing the following matters may not be included:

• Predetermining child support, visitation rights and other issues related to child custody
• Setting forth rules related to domestic matters, such as who will be responsible for certain chores, how children will be reared, with which relatives holidays will be spent, etc.
• Providing financial incentives that encourage divorce

Special concerns for business owners

If you or your future spouse is an owner or a partner in a business, it is important to establish what portion of the business should be considered marital property (if any) and how the assets of the business should be distributed in a divorce. The prenup should specify the value of the business as of the marriage date (this premarital value is not subject to distribution); whether the nonowner spouse would share in company profits or losses from the date of marriage; the percentage of the business they would be entitled to in divorce; and how the business would be valued at the time of divorce.

If you are interested in pursuing a prenuptial agreement with your future spouse, enlist the counsel of your attorney or wealth advisor. They can help you get on track toward a mutually agreeable plan before you say, “I do.”

This article is for general information purposes only and is not intended to provide legal, tax, accounting or financial advice. Any reliance on the information herein is solely and exclusively at your own risk and you are urged to do your own independent research. To the extent information herein references an outside resource or Internet site, Dollar Bank is not responsible for information, products or services obtained from outside sources and Dollar Bank will not be liable for any damages that may result from your access to outside resources. As always, please consult your own counsel, accountant or other advisor regarding your specific situation.