You are probably reading this with your hand covering the title, because prenups are totally that kind of subject. “Prenup” falls into the 2nd circle of dirty words, something that splashes its way across US Magazine which you can’t utter in polite company. However, I’m convinced that prenups, or premarital agreements as they are more correctly called, are much maligned and actually a document every couple should have.
The truth is everyone already has a prenup; their state’s divorce laws. But they haven’t read it and often the terms are ambiguous. Wouldn’t you read any contract you were signing carefully? This one counts, even if no one is putting a copy on your desk before you say “I do.”
Contrary to popular belief, prenups are NOT just for people with millions of dollars or a major inheritance coming down the line. I’m going to give you a few examples of things that could happen to you without a prenup:
The Enslaved High Income Earner: You are the higher income earner for the family, and the year before you plan to retire or switch to a lower paying but more rewarding field, your spouse divorces you. The court awards your spouse alimony (that’s what you have to pay for a certain amount of time post-marriage) payments based on what your income has been in your cushy job the past few years. Say goodbye to retirement or that warm, fuzzy new job you’ve been eyeing – the only job that you are qualified for that will allow you to pay that kind of bill is the job you have now.
Oh, and if you are let go from your job some time later? Good luck, you will probably still be required to make that level of payment despite not having a job, unless you file for and receive an amendment of the amount, which is not totally in your control. Do that or face jail time.
The Studious Master’s or Professional Degree Candidate: You get a master’s degree in X subject during the marriage but then decide that the field is not for you and go back to square one. In the meantime, you get divorced. The courts may in fact ascribe value to that degree and require you to pay your spouse some amount of money relative to the value of that degree going forward. Don’t want to be working in field X? Then you better find a way to come up with the money elsewhere. No soul-nurturing, low-paying non-profit work for you. Go earn some cold hard cash.
The Hard-Working Stay-At-Home Mom: You’re a stay at home mom and you both made the deliberate decision that you would sacrifice your career to raise the kids. Now you’re getting divorced. Did you expect to get half the assets? Unless you live in a community property state like California, Arizona, Washington, or Wyoming, then you are mistaken. You are probably entitled to what’s called ‘equitable distribution’ which means the court will look at numerous factors before splitting the marital assets.
These are just a few ways honest people can get screwed in a divorce settlement. And we haven’t even gotten to the costs yet! Several sources say that for a typical couple earning $60k a year with a house and at least one child, the average divorce will cost over $50k. That’s almost a year’s pay! Better to discuss things when everyone is in a positive mindset, well before it might be needed.
My husband and I have a prenup, and it was, believe it or not, an incredibly constructive process for us to discuss our values and how we viewed partnership. While people often assume a prenup is put in place to protect large chunks of assets from the other partner, my chief concern and the catalyst for wanting a prenup was actually my fear of becoming Exhibit A above: the enslaved high income earner. My concerns were about how a divorce might tie my hands when it came to pursuing FIRE. So what follows is a breakdown of what a prenup can offer and how to go about getting one, from my own personal experience with prenups.
Disclaimer: I am not a lawyer. This represents over 60 hours of research I put in over the course of my own process of signing a premarital agreement as well as the advice of my family law attorney; you should verify ideas with your own attorney at the appropriate time.
9 Things a Prenup Can Cover, And How Your “Default” State Divorce Law Compares
Photo courtesy of Legalzoom and BusinessInsider
1) Separate Assets Before Marriage: This is the one most folks are familiar with. A prenup can help you and your spouse keep separate ownership of all the assets you owned before the marriage occurred. Keep in mind, you can always choose to merge assets at any date in the future if you choose, but this reserves the option for you.
2) How Marital Property Will Be Divided: Are you and your spouse on the same page about how much you each would get in the event of a divorce, especially if one of you is sacrificing for the other’s career? In some states call community property states, everything would get divided right down the middle, and the couple would have no say.
In most others, the rule is what’s called equitable distribution. This is a fancy way of saying that upon divorce the court will weigh a host of factors including whether a spouse stayed home to take care of kids, how long one spouse was unemployed, whether either spouse is disabled or ill and unable to hold down a job, etc. and then they will make a decision for you. So if you and your spouse believe everything should be split 50-50 but you live in an equitable distribution state, you may not actually see a 50-50 outcome if your spouse later changes their mind and asks the court to pass a judgment. In a prenup, you can create your own division of assets and memorialize them at the time you are both in partnership mode.
3) Treatment of Debt: A prenup can outline who is responsible for debts incurred both before and during the marriage. Believe it or not, States differ widely on this point. Some states like community property states for the most part outline that debts incurred during the marriage – whether signed by both parties or not – are the joint responsibility of both parties. Some states decree that whoever has their name on the debt is responsible.
4) Inheritances: In most states, inheritances that name a single person are that person’s separate property. Is this what you expect going into the marriage?
5) Alimony: If your divorce case goes to court, there are all sorts of factors the court will take into account to award alimony. They may determine an amount that you have to pay, and if circumstances change, you will have to petition and may be denied any change to the original amount. A prenup can outline the length, amount, treatment if a partner remarries or cohabitates with a partner, and many other items. You can create a schedule that works for you and avoids many of the cases I used as examples in the Introduction.
6) Divorce Proceedings – Would you expect your partner to agree to arbitration before pushing the case into the court? Who would pay the attorney fees for each party (this can often become a problem if for example one parties was a homemaker and then the negotiations hit a snag – the party might hesitate or feel like the richer partner might simply drag things on and outspend the on the fees until they give up even if they would have been in the “right”/had the court agree with them in the long run.
7) Factors Related to Estate Rights/Death: Many states have some sort of right (elective right is what it’s called in my state) where regardless of what you put in your will, the spouse is entitled to at least X% of your assets. You can tweak this to both your liking.
8) Plans For Children Outside the Marriage: Perhaps you or your spouse wants to make sure certain assets go to your children from a previous marriage upon your death. A prenup is an appropriate venue to discuss Separate Assets that you can bequeath at your discretion.
9) Governing State: Perhaps you’ve done a lot of research on what your state’s laws looks like and feel comfortable with them. But then you and your spouse move to a different state, one in which all the rules are completely different. You are able to designate the state which will govern your divorce so if you happen to move during your marriage (as many of us will do), you can take comfort in having pre-selected which state will govern your proceedings.
What a Prenup May Not Be Able To Cover
Equally important, here are a few things commonly considered that a prenup may or may not be able to cover:
Infidelity – My particular lawyer stated that courts typically frown upon including provisions for penalties in the case one spouse is unfaithful, but having seen significant press about this in celebrity premarital agreements, I’d ask your own counsel if this is important to you.
Child Support and Child Custody – This is the big one. The state considers the welfare of a child under its purview, so nothing you write on this subject is going to stand.
Division of Chores – This, I am told, does not belong in the document as may be viewed by the court as frivolous, cheapening the ‘seriousness’ with which a court views the document.
Your Prenup Can Be Short
This is my argument for why everyone should have a prenup. Say you don’t care about having separate assets from before the marriage, separate debts, or any of that nonsense. But you feel strongly that everything should be split 50-50 in your partnership. You can at least memorialize that piece. Or if you live in community property state whose policies you agree, your entire prenup can be sentence stating that the governing state in case of divorce will be ___ – your current community property state.
Your prenup can be as short as a single paragraph. It can discuss just the elements you have a strong opinion about. Surely you have strong views about something related to your marriage, whether it be that you guys are 50-50 partners or that you are distinctly not. You should memorialize the pieces you do feel strongly about, and you can stay silent on the rest.
The Shockingly Simple Requirements For a Prenup
The actual requirements for a legitimate premarital agreement are shocking minimal.
- You need an agreement in writing
- It needs to be signed by both parties.
That’s it. Period, end of story.
Now, there are several other considerations that may be well worth doing in order to improve the process and also strengthen the likelihood that your agreement stands up against any challenges in a court of law in the future. Here are a few of the best practices:
- Legal Representation – A good attorney who has experience with premarital agreements and divorce cases will be able to help you memorialize your thoughts in a way that leaves no ambiguity upon interpretation in the future. Best practice is to have each party retain their own attorney, so that neither party can claim in the future that they did not properly understand what they were signing. This is one of the most common ways in which prenuptial agreements are challenged upon divorce.
- Attorney Fees – This is to maintain true autonomy – the attorney serves the person who pays them.
- Timing – This agreement should be signed well before the wedding, usually a month or more in advance of the wedding though preferably before the invitations are sent. This is so that no party can claim that they were coerced or forced to sign the agreement under duress from the fear of public embarrassment due to a called off wedding. This is a common challenge to prenuptial agreements upon divorce.
- Witnesses – The signing of the agreement should be witnessed by a third party, preferably a notary.
- Item Selection – You should stick to items we will discuss later that typically make themselves present in a prenuptial agreement. Including superfluous items such as who is expected to do the laundry each week may cause a court evaluating the prenuptial agreement to view your agreement as not entirely “serious”
- Financial Exhibits – You should include an exhibit with a full disclosure of each partner’s assets and liabilities so each partner knows what they are “signing away” if you are keeping property before the marriage separate property, or even if they’re marrying into it and will receive half (more relevant if they’re inheriting half your “debt”)
What If I’m Already Married?
If you have already married the love of your life, you can still put an agreement in place by drafting a post-nuptial agreement.
I know the subject of prenups is complex and weighted with a whole host of social commentary. Hopefully this has helped you get a clearer initial picture of what a prenup can do for you.
I personally found the prenup drafting process extremely constructive for myself and my partner, as it helped us confront very hard issues and practice negotiating through them to a path that fit for us both. I believe it also forced us to think more deeply about the non lovey-dovey aspects of marriage, which made the lovey-dovey aspects richer. Besides, there are only so many hours you can fill at the dinner table talking about linen choices and color schemes for the wedding. How about some good, heavy talk about alimony obligations?
Whatever you and your partner decide on the issue of prenups, the fact that you’ve put real thought into it can only strengthen your future together. Up next week, an article about how to hire a lawyer or where to find a template for your prenup needs.
Readers, what are your thoughts/experiences with prenups or postnups?