More and more couples are getting prenuptial agreements before they marry. A prenup may not be for everyone, as it has particular advantages and disadvantages, as highlighted in this recent article in U.S. News.
The biggest advantage of a prenuptial agreement is that it allows parties with significant assets coming into the marriage to protect those assets. For example, if one party owns real estate or a large investment account, a prenup can allocate those assets as separate property, including all of the increases in the value of these assets during the marriage. Also, if one party currently receives stipends from a family trust or stands to inherit a large sum, the prenup can safeguard those funds as well. In essence, a prenup can wall off a set of assets coming into the marriage as the property of just one party.
A closely related advantage is the ability to keep debt with the party who brought it to the marriage. If, for instance, one party has large credit card debt or student loan debt, a prenup can assure that none of the debt will be the responsibility of the other party and that no marital funds will go to pay off that debt.
Another big advantage of the prenup: it can prevent an expensive and conflict-driven divorce, should the marriage fail. The parties can work out all of the details in advance with regard to the division of property, spousal support, and any other issues they wish to address.
But this last advantage is also a disadvantage, in that it requires the parties to lock themselves in time. If both parties come into the marriage with relatively equal incomes and agree to keep their investments separate, but in ten years one spouse has become much more successful and has a much more substantial portfolio, the separate property component seems unfair to the less successful spouse. Parties concerned about drastic change can write protections into the prenup to account for any unexpected inequity.
The most cited disadvantage of a prenup is that it sours the romance of the marriage – instead of feeling in love the parties start negotiating a contract and focusing on money. Some just do not want to think of divorce right before getting married. And while all of these points can be valid, it does not mean that the romance goes away – it all depends on the parties and how it is presented and pursued. Being practical is not necessarily romantic but it is smart, considering what one party may stand to lose financially. Insurance is not romantic, but we need it – and a prenup is a form of insurance.
Finally, a prenup can seem to favor one party – usually the one with the greater wealth coming into the marriage. But how a couple perceives that inequity varies, and how a court will interpret that inequity will also vary too. A marriage that lasts 20 years will carry more weight trying to break an unfair prenup than one that lasted only one year.
Prenuptial agreements have advantages and disadvantages and couples should explore them well in advance of marriage.
If you have questions about prenuptial agreements, contact us – we can help.