Yes, love is one of the most important factors of marriage. Prenuptial agreements, known more commonly as “prenups,” might not be the most romantic piece of the wedding planning puzzle, but they play a crucial role in protecting the interests of both parties. Here the key advantages of making a prenuptial agreement.
There are some valid situations where a prenup is warranted, such as:
One or Both Parties Have Already Been Married
Parties who were previously married, in particular, and had to endure a long and painful divorce, may be unwilling to marry again without knowing what their financial future has in store. They understand the problems that can arise in divorce and are not interested in going through the same scenarios again.
This is particularly true if a person feels their ex blindsided them or got a better deal in a previous divorce. And a prior divorce can impact any future rights and responsibilities under the terms of a divorce decree or judgment.
One or Both Parties Have Children
Sometimes a party may want to protect the financial interests of children from a prior marriage. It can make it so that assets are the separate property of each party, for instance, and it can allow the party to create a living trust or will to take care of his or her children in case of death.
A premarital agreement may also spare a dispute over a will if a parent dies. For instance, in some States you must leave something to your spouse regardless of what you say in your will. A prenuptial agreement can enable a couple to override this law.
One Party Is Wealthier
Prenuptial agreements are usually entered into when there is a significant difference in wealth between the pair.
Someone who marries for money might be significantly better off, and, in the absence of a prenup, that can create rights to spousal support or property down the line. No one marries for money if they have a prenup k, some say, or it means the parties are not marrying for money.
Usually, the person who stands to earn more money or has more property will request an agreement, but a prenup can help both parties. I have in the past represented clients whose wealthier fiancées insisted on a premarital agreement. But during the marriage term my clients are the wealthier party and the agreement protects them as well.
One Party Has More Debt
Generally, premarital debts would be paid by whoever incurred them. On the flip side, debt accumulated throughout the marriage is too often assigned to both spouses, putting the non-debtor spouse at an unfair disadvantage.
However, if one party tends to spend money readily and the other party does not want to be liable for debts that were accumulated during the marriage, then a premarital agreement can help to ensure that this situation does not occur.
The prenup can stipulate matters such that no premarital debts of one spouse may be paid from the joint community property of the marriage, or that during the marriage, debts one spouse incurred generating a business may not be paid from joint funds. Creditors can take premarital debts out from jointly acquired assets if there’s no prenup.
You Own a Business or Both Own Businesses
If you have a business before you get married, a prenuptial makes sense, because divorce can break up a family business. In addition, if you own a business with others, their portion of the business may also be affected by your divorce.
An agreement made before the marriage could give that party absolute power in managing their business today and for times ahead. When one spouse has created a business prior to marriage, that spouse may wish to prevent the other spouse from gaining an interest in the business during marriage.
The forensic accounting challenges come in when a business appreciates in value during the marriage and one spouse is seeking that business appreciation. A prenup can put a dollar amount on what that interest is, or it might allow the owning spouse to keep the business outright regardless of what contributions were made during the marriage.
Business valuation costs and litigation over business matters can be expensive and time consuming. A prenup will save you both money and time.
One Or Both Parties Want To Keep Their Personal Life Private
Prenuptial agreements protect the right to privacy. “The parties may agree neither shall, without the prior written consent of the other party, disclose, intentionally publish or furnish information or documentation to any other individual or entity,” writes Roxas.
Prenups often include confidentiality clauses to ban, for instance, social media leaks and tell-all books. “The parties can also agree to have any disputes resolved through arbitration, and therefore bypass the public record,” Lindsey adds.
One Or Both Parties Have An Inheritance To Protect
The importance of preserving generational wealth and an upcoming inheritance are two reasons why someone needs a premarital agreement.
If a spouse inherits money, that will be the spouse’s non-marital property, unless the spouse does something to transmute it into marital — such as depositing the funds into a jointly titled account or purchasing a piece of real estate in both names.
The only sure way to avoid any involuntary transformation of inheritance is to keep the inheritance in a separate account and solely in the name of the inheritor. The prenuptial agreement can, and often does, clarify whether a party’s inheritance remains part of that party’s non-marital property.
One Member of A Couple Plans To Be A Stay-At-Home Parent
When one spouse intends to be a stay-at-home parent and sacrifice his or her earning potential as a plan, a prenuptial agreement can ensure this spouse is treated fairly in the event of divorce. One spouse is staying home or limiting their career to raise a child, and this makes them less competitive to the marketplace should the marriage dissolve later.
Whichever identity it is, couples will usually decide to repay for that, if possible, by giving him/her enough income stream or property to both assure the homemaker a good lifestyle and/or income, after the child-rearing time is over about if the marriage is cut off through divorce.
If the stay-at-home parent is able to negotiate terms a premarital agreement can protect them—be it annually or at the party’s discretion such as an anniversary gift or contribution towards an IRA along with a life insurance policy, or a mandatory monthly monetary contribution from their spouse into a joint account.
