Many people still perceive a stigma or even a curse surrounding a prenuptial agreement, or “prenup.” The general view has been that those who resort to a prenup will have a poor marriage as they are really just planning for divorce before they even say “I do.” However, this conception misunderstands the different roles of a prenuptial agreement.
Every future spouse brings a history to the marriage, some of which may remain private even after the marriage. In some circumstances that has no real effect – it is not vetting for a top government job. But in other circumstances, it can have a devastating impact. How?
To answer that question, let’s first look at what we have to reveal in any prenuptial agreement.
Each spouse must make a full and fair disclosure of their financial status. Typically, each spouse prepares a balance sheet that lists assets and values, liabilities and values, and provides certain documentation like the last three years of tax returns and bank statements. Also, each spouse will have run a credit check. In this way, both spouses have the ability to make an informed decision about any financial arrangements in the prenuptial agreement.
Generally, the purpose of a prenuptial agreement is to clarify how assets and liabilities will be maintained during the marriage and how they will be distributed in the event of a divorce. That first part about use during the marriage throws quite a few people, as they think a prenup really comes down to rules about divorce. However, the use of property during the marriage may have a more lasting impact.
Some spouses may come into the marriage with lots of assets and accounts and want to keep them separate for reasons that have nothing to do with trying to cheat the new spouse and everything to do with efficiency, tax advantages, or protecting trusts or inheritances. On the other hand, some spouses may want to pull the wool over a new spouse and assure that in the event of a divorce that spouse gets as close to nothing as possible.
The best way to protect a spouse in the disclosure process is to have access to independent counsel. Talking to a lawyer about what the other spouse disclosed and seeks in a property distribution in the event of a divorce (or just during the marriage) can give insight to the unaware or unsuspecting spouse of something not right. A skilled attorney can tell a spouse if a proposed agreement looks unconscionable – a legal term for gross unfairness. That same attorney can explain to the spouse what the law would normally allow in terms of distribution of marital property and what property is considered marital.
After all of these disclosures and consulting an attorney, it will most likely be the case that the spouses proceed with the marriage and the agreement, with some changes in terms.
But for some couples, this may rightfully be the end of the road.
If a spouse learns that the other spouse wants to keep control of all that spouse’s funds in a manner that makes the spouse uncomfortable, this may lead to serious discussions and even pre-marital counseling. It is possible as well a spouse learns about a wealth disparity previously unknown and is not happy about how that nondisclosure was handled. The point is simple: it is better not to get married at all than to get married unaware of key facts that will likely bring a marriage to an abrupt end.
If a spouse wants to see that each spouse walks away with what they earned during the marriage and no more, some couples may be fine with that, and others furious. Again, it is better to learn this before getting married.
So, as you can see, a premarital agreement process has an educational component that could save a couple a great deal of heartache and expense.
On the other side, for couples that will not be shocked by disclosures and agree to terms in the event of a divorce, they will feel much more comfortable about the rules of the road during marriage as they know what will happen should someone end the marriage. They each will have the comfort of fairness assured by a well-drafted prenup. Hopefully, they never have to use it, but if they do, they will have minimized conflict and expense in the event of a divorce.
Prenups have great benefits and few drawbacks. They may not be for everyone, particularly people with few assets coming into the marriage. However, having discussions about handling funds as a couple and fairness in the event of a divorce may well be worth the experience alone.
If you have questions about prenuptial agreements, contact us – we can help.