As people marry later in life and remarriage has become more common, prenuptial agreements have become increasingly important. Typically, couples today already have jobs, income, assets and debt before marriage. They may have children already or expect to have them. Many assume they will have a two-income marriage which means both will contribute to the household finances during marriage. Although it may feel awkward thinking about a marriage failing at a time when it’s all going well, a prenuptial agreement is actually beneficial before and during marriage and regardless of what happens in the marriage.
- Encourages financial discussions. Money-related issues cause many marriages to fail. To avoid this, couples should fully understand each other’s current financial situation as well as their future expectations, if any. Is one party a saver and another one a spender? Does one spouse expect to be a stay-at-home parent or go back to school? If there is a big income disparity, how will they pay for personal and household expenses or make significant purchases? What income, assets and debts will be “separate” as opposed to “joint?” Having a prenuptial agreement ensures the couple has these discussions before marriage. If handled properly and with respect for each other, doing so should significantly minimize future problems during marriage as well as address what happens in the unfortunate event of separation and/or divorce.
- Compels full disclosure. A prenuptial agreement is only enforceable to the extent the parties disclose all money, property and debt they have. Sometimes, couples may be inclined to hide income or debt because of distrust, embarrassment or other reason. For the good of the marriage as well as in the case of divorce, the parties must be honest with each other about their finances.
- Enables proper estate planning. A prenuptial agreement allows the parties to establish how they will leave their assets in the event of death. This is especially beneficial if there are children from a prior marriage and the parent wants to protect their inheritance. At the same time, the surviving spouse can be assured that his/her needs will be met if his/her spouse passes away.
- Plans for separation or divorce. No one wants a marriage to fail, but many do. It is important to consider, in advance, how you want to divide your assets when everyone is rational and emotions aren’t ratcheted up. In addition, a prenuptial agreement can set out rights to spousal support during and after the marriage. Again, these issues are particularly important if there is a big income disparity or one parent stops working to raise children. Through a well drafted and considered prenuptial agreement, spouses can effectively establish their own standards in the event of a divorce, instead of allowing the law and the courts to dictate what they can or cannot do with their assets.
A prenuptial (or postnuptial) agreement can be an effective tool to solve asset division and spousal support issues. The best time to discuss these concerns is while you have a strong, connected relationship so you both are willing to communicate and share your views.
Like any contract, these agreements should be carefully negotiated and vetted by an attorney for each party to ensure they are fair and address the needs of each spouse. If you are considering a prenuptial agreement, please contact us to find out how we can help.