The thought of a prenup has crossed your mind. However, like many people, you may have abandoned the idea because of what you’ve read or seen in the media. For example, you may believe that prenups exist to protect the “richer” spouse from losing their money and assets after a divorce. The truth is that prenuptial agreements do clarify financial matters; however, they are equally powerful in helping you and your spouse build trust and open lines of communication right from the start of your marriage. Let’s take a closer look.
What is a prenup?
A prenuptial agreement, commonly referred to as a prenup, is a written contract you and your spouse enter into before getting legally married. It details exactly what happens to finances and assets during your marriage and, of course, in the event of divorce.
Plus, it gives you both an opportunity to understand fully what legal rights you each acquire and give up after you get married. If you and your spouse choose not to get a prenup, the laws of California will control your marriage anyway, and they may not be the right fit for your marriage. Thus, a prenup is a once in a lifetime opportunity for you and your spouse to actively work together to create the laws that will control your marriage. Otherwise, in the case of divorce, your state’s marriage laws will govern the division of your assets and debts, as well as how spousal support will be handled.
BEFORE getting married, what questions about MONEY should you ask your partner?
Use this guide to discuss budgets, assets, debts, goals, joints bank accounts and more.Get your free prenup planner
Truth 1: Prenups aren’t sexy, but they can be romantic.
A carefully crafted prenuptial agreement can cement your relationship by creating intimacy and building trust between partners! By prompting you to have important discussions and insure that your finances are handled during and after marriage the way you each intend, prenups foster communication and empathy.
One of the biggest myths that gets in the way of planning for a successful marriage, is the idea that prenups imply a lack of trust, or a lack of confidence in the longevity of the relationship. So, couples often avoid the crucial conversations about finances while they’re dating, falling in love, or newly engaged.
The reality is that a prenup is just as valuable in creating transparency and setting expectations for a successful marriage, than in protecting you in case of a failed one. Money and assets are a common central issue when conflicts arise after a marriage. A prenup accounts for the changes you cannot foresee or anticipate. It facilitates important discussions and ensures your finances are handled the way you intend, during and after marriage. A prenup doesn’t mean you don’t trust your partner. It means you’re invested in long term success.
Truth 2: Prenups can be used to set roles and expectations of each spouse during the marriage.
Typically, a prenup is used to settle financial matters should a marriage end in divorce. However, a prenup can also spell out financial roles and responsibilities during a marriage as well.
For example, a prenuptial agreement can establish the understanding that there will be a joint bank account used by both partners to spend on joint expenses, savings, and investments, while each party may want to hold some of their respective income for themselves to spend as they wish. By doing so, not only will there be less conflict in regard to how and why one spouse is spending their money, but each party will have the financial autonomy during the marriage to spend some of their own money as they wish, while the mutual goals of marriage are being achieved through the joint account.
Additionally, the prenup can also help partners come to an understanding about each of their roles and responsibilities during the marriage. If one spouse wants to be responsible for all of the utility bills while the other spouse is responsible for paying the mortgage, this agreement can be set forth in the prenup as well.
Truth 3: Prenups are not just for the wealthy.
The desire to have a successful marriage doesn’t have anything to do with how much money you have in the bank (or in assets.) Having frank, detailed and honest discussions regarding how you’ll handle joint and solo finances will ensure that there won’t be any surprises once you’re hitched.
Besides, you’re optimistic and prudent. This means you will be investing and growing in both your marriage and your money. As your income increases or financial situation otherwise evolves, a prenuptial agreement will clearly detail how this new influx of cash will be allotted. There is no need to feel resentful or confused about new money when you’ve already taken a deep dive into it up front.
If things don’t work out, prenups lessen the pain of divorce. In divorce settlements, assets and debts are both divided. If either of you have debt from school or plan to incur educational debt while married, the prenuptial clarifies who is responsible for the repayment of these debts. Although it can be uncomfortable to talk about these issues before getting married, it’s vital to think through all scenarios now—when you’re in love and reasonable, rather than when you are contentious.
Lastly, it’s important to have a prenup, even if it is your family (not you) who owns substantial real estate holdings or a business. If you plan to work on these properties or business(es) throughout your marriage, the “community” (i.e. shared and owned property between you and your spouse) may gain an interest in them. A prenup can protect these assets and separate them from the community, but still allocate compensation in lieu of the asset separation.
Truth 4: Prenups can protect both spouses.
Modern prenuptials, by definition, must protect both spouses. Unfair and one-sided prenups may not hold up in court. For the prenup to be enforceable, the agreement must:
- be fair
- have both parties sign voluntarily with the presence of their lawyers
- not be completely one-sided as of the date it’s signed
- have complete honesty from both parties about their assets and debts
For instance, your partner may insist that if they are going to stay home and raise the children, that your prenuptial agreement includes provisions to compensate them for this interruption in their career through spousal support.
If you need your agreement to be enforced by the court, you’ll be grateful it’s sensible from the get-go. By providing a reasonable support structure for your spouse in the premarital agreement (even if it’s less than the law might have provided) your agreement defines the support’s limits, terms, amount and duration in the event of a divorce. When you leave it up to a court, you have little to no control over any of the terms.
Truth 5: Prenups are crafted to fit your exact needs.
You can include as many or as few issues as you want. Maybe you’re just concerned about your premarital property, inheritance or spousal support. Your prenup can cover only what you want it to cover.
For example, if you’re solely worried about protecting your pre-marital property, you can limit your premarital agreement to that issue alone. If you’re only concerned about the disposition of your separate property assets in the event of your death, you can limit your premarital agreement to that issue. You’ll still need a Will and/or a Trust, but your prenup can waive other statutory rights for your spouse on your death.
You have the facts. Now what?
Now that you know exactly what prenups are and what they aren’t, it’s time to talk to your partner. Share this information with them and download this helpful guide to start discovering more about each other’s wants and needs for the future. Reach out to us if you have any questions or need help with any of the topics we covered. You have an amazing opportunity to start off with a strong foundation to your marriage—one based on trust, communication, honesty, clarity and, of course, love.