Prenuptial Agreements: Who Needs Them?

While not the most romantic way to begin a marriage, a prenuptial agreement can provide a pragmatic way of ensuring that your separate assets are protected if the marriage should come to an unanticipated end and that goals you may have set prior to marriage are not frustrated.  The following circumstances are particularly conducive to prenuptial agreements:

1.       One or both spouses own a business or a professional practice – medical, dental and such.  Failure to have a prenuptial agreement can result in impediments to the sale of such businesses or practices or other complications arising from a divorce.

2.       One or both spouses have a lot of assets.  Whether liquid assets (money) or non-liquid (real estate), a premarital agreement as to how property will be treated upon the advent of a divorce can save a lot of costs in the divorce, can preserve pre-established goals for the property or assets, and can often serve to dissuade unnecessary litigation over the distribution of the assets.  Of course what constitutes “a lot” will vary from individual to individual.

3.       One spouse has a disproportionate share of the assets.  A prenuptial agreement can be even more important where one spouse has significantly greater assets than the other spouse.  I have heard the ratio of 2:1 and 3:1 as benchmarks.  This is probably the category of individuals that most of us think about when we envision the need for an agreement.

4.       One or both spouses have a lot of debt.  We commonly think of the prenuptial agreement as a way of designating property as “separate” in order to protect it from the other spouse in the event of a divorce.  It is every bit as important to protect yourself from being saddled with debt that the other spouse brought into the marriage in the event the marriage ends prematurely.

5.       One or both spouses have children (or even grandchildren) from previous marriages.  Often prenuptial agreements are entered into in these circumstances to protect assets intended for use in providing an education, bestowing gifts, or otherwise providing for children who the new spouse may not have the same commitment to. 

Of course not everyone in these categories will want a prenuptial agreement and every set of circumstance comes with its own landscape, as unique as the personalities and histories of the individuals themselves.  In our next post we will talk about the pros and cons of premarital agreements.

Prenuptial Agreements: Preparation for Failure?

I was sitting in my office one night last week working on a client’s prenuptial agreement.  We had put together a draft and had provided it to the other side to review.  They had, in turn, responded with objections and proposals that would improve the future wife’s position in the event of a divorce.  I found myself wondering (as I often do when I’m sitting in my office too late at night), “what would my mom and dad have thought of the concept of a prenuptial agreement?” Negotiating the terms of the “potential” divorce before they were even married?

Not to over simplify the matter, but prenuptial agreements are contracts between a prospective husband and wife that are intended to dictate how assets and debts will be addressed in the event of a divorce.  They may cover other issues as well – whether spousal support will be pursued, whether attorney fees and costs for the divorce will be paid by one party or shared, how the interim period of the divorce will be handled, whether one party will retain the marital home, even custody related issues (though these are subject to much stricter review by the court).  In essence, they are intended to take the decision-making role from the judge and place it in the hands of the parties to the . . . divorce.  And more and more people are entering into such agreements before they are married.  So the question is: “if you marry for love, is a prenuptial agreement appropriate?” 

Over the next couple weeks I’m going to be posting several blogs explaining why the answer is often “yes.”  I understand this may fly in the face of some strongly held beliefs regarding marriage, but the fact is, everyone’s material circumstances are different.  What works for one person or couple may be completely outside of consideration for another.  As a simple example, while one couple may bring millions of dollars in assets with lots of other business interests to a second or third marriage, the next couple at the chapel may bring nothing but their enduring commitment to one another and a toothbrush.  Different circumstances, different needs.

Tune in for the next post when I discuss some of the factual circumstances that might be more appropriate for entering into a prenuptial agreement.