If you’re thinking about making a commitment, chances are getting a prenup has been on your mind. You might be wondering what exactly it is, if you really need one and how you would go about getting it.
Here’s a little Prenup 101 to get you started!
What is a prenuptial agreement?
A prenuptial or premarital agreement is a negotiated agreement reached between two parties in advance of marriage. The agreement typically deals with the ownership of assets in the event the marriage ends in divorce. Some prenuptial agreements will also cover alimony and child support. There is a great overview from a legal perspective here.
Do I really need a premarital agreement?
About half of marriages end in divorce in the United States so it may be prudent to consider signing one. Following are some considerations to help guide your decision making.
Timing is everything
Many newly engaged couples believe the entire concept of prenuptial agreements is unromantic or even disgusting because the party proposing the agreement may be planning for the marriage to fail. If you plan on asking for a prenuptial agreement in your future marriage we suggest you start the conversation early so expectations are not shattered weeks in advance of the big day.
Many jurisdictions even require a party be given a certain amount of time to review and negotiate the terms of a prenuptial before the marriage date. If the adequate time is not provided the agreement can be rendered unenforceable.
Protect yourself.
Prenuptial agreements should be negotiated with the assistance of licensed and independent legal counsel. “Independent” is a key word. We have seen many prenuptial agreements drafted for couples by one attorney. Usually the drafting attorney is working for the person with the money. So how could the other party hope to get fair and complete representation from this lawyer if they are already working for their soon to be spouse? Unfortunately, they usually do not.
Bottom line: Don’t use your fiancé’s attorney.
Protect your future.
Prenuptial agreements are all about money. One or both parties have it or the expectation of having it and want the money protected in the event of divorce. They are not only for celebrities or the wealthy. Say you started a business before you were married, and the business is just starting to gain traction. If the business grows to a value of millions of dollars during your marriage, the value may be considered part of your marital estate and you will have to pay your spouse to keep it in a divorce.
You may wish to have the business carved out as your separate property through the use of a prenuptial agreement. If the business does not take off as expected you would still have the peace of mind to know it is yours. If it does take off, you and your new spouse probably enjoyed the fruits of this success during your marriage through the income it was able to pay you.
Be prepared.
Prenuptial agreements require diligence and full disclosure. One of the many problems we see with prenuptial agreements is a complete lack or poor effort at disclosure of financial information. A good prenuptial agreement will include exhibits attached showing the assets, debts, income and expenses of both parties. You may not be able to prove assets not disclosed in the financials of the prenuptial agreement are governed by the provisions.
Take for example a brokerage account. You sign a prenuptial agreement saying all assets owned at the time of marriage are considered the separate property of the owner. What if the brokerage account was with Lehman Brothers who subsequently goes bankrupt and their records are no longer available. Your account balance will not have disappeared with the bankruptcy but your ability to prove it existed at the time of your marriage may have. If you cannot prove it existed at the time of marriage you may not get it awarded as your separate property in divorce.
Start with full disclosure, be diligent about keeping records and consider updating or amending your prenuptial agreement as circumstances change and assets move around.
This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.
Lou Falvo is a Certified Divorce Financial Analyst® and CIMA® (Certified Investment Management Analyst) who assists clients by evaluating the tax and financial aspects of divorce. Lou is dedicated to reducing the burden of each client by thoroughly examining the financial elements of the client’s divorce, with a keen focus on what is in his or her best interests. Contact Lou to find out how he can assist you with your divorce proceedings at lfalvo@crossroadsdivorce.com or (585) 542-2382.