We all have heard the statistics, that nearly 50% of marriages end in divorce, that divorce rates are rising. We all have that friend of a friend who had a mortifying experience in divorce court. What can we do to make divorce less terrifying? Enter the prenuptial agreement - the prenup - a way to define and pre-establish some of the financial outcomes before the marriage even happens. This is not a one-size-fits-all solution, however, and you should seek out competent advice when entering into such an agreement. Here are some questions to answer to determine whether you need to consider a prenup.
Am I contemplating marriage?
If you answered “No” to this question, read no further (unless you are looking for conversational topics that guarantee no second date). Anyone planning on getting married should consider whether a prenup is appropriate in their particular relationship. Marriage creates property rights in spouses, and a prenup gives you an opportunity to define what those rights look like. This can be an even bigger deal in community property states, like California, Washington, Oregon, and Idaho. While not necessary in every instance, there are some instances where a prenup should be given extra consideration.
Am I bringing property into the marriage?
This is one primary purpose of a prenup – you and your spouse can designate certain items of property as “separate”. By agreeing to treat this property as separate, you and your future spouse are agreeing that this property will not be subject to the normal property division that happens in a divorce. Generally, at divorce, the court makes a
determination of what property is separate and what is marital. Separate property, including any appreciation in value, remains the separate property of a particular spouse. Marital property, on the other hand, tends to be divided equally between the spouses.
You should also consider whether you will be receiving significant property at some time in the future, such as an inheritance from a parent or some benefit from a trust. While those assets are often considered separate property under the law, using those funds to create or maintain a lifestyle during the marriage can change that separate property into marital property. By using a prenup, you can clarify and agree with your spouse as to how that property will be treated, even in the event of enjoying that property during the marriage.
Do I have children from a prior relationship?
Protection of assets for the benefit of your children (particularly when those children are older) is another important function of a prenuptial agreement. We have all heard horror stories about family relationships that fall apart following the passing of a parent. Having a prenup as part of a comprehensive estate plan ensures that each parent can pass property on to their respective children. It can help adult children have more peace of mind when parents are remarrying. The prenup designates which property belongs to each spouse prior to the marriage. A prenup does not prevent the married couple from purchasing property together, but it should explain how those joint assets are to be handled in the event of either parent’s passing.
These are a few considerations when determining whether a prenup would benefit you. Find good counsel to help you address these and other questions as you are contemplating taking the big plunge.