Prenups Clarify "Yours, Mine, and Ours"
For most of us, the term "prenuptial agreement" brings to mind the Donalds and Ivanas of the world--the ultrarich and famous who seemingly enter into a marriage already planning for divorce.
Unfortunately, that perception prevents many people from even considering a prenuptial agreement when they could benefit from having one. But that's begun to change. A late-2003 survey by the American Academy of Matrimonial Lawyers (AAML), Chicago, found that 80% of its members saw growing use of prenuptial agreements, and a third of those said use was growing significantly.
Simply stated, a prenuptial agreement, or prenup for short, is a written, legal contract between two people planning to marry. "A prenup sets parameters for the future in terms of how to distribute assets," explains Barbara Handschu, a New York City and Buffalo, N.Y., attorney and AAML's president. The asset distribution might occur due to divorce or a spouse's death.
Partners also can use a prenup to spell out how they'll handle financial matters while married. Whatever the purpose, "It's important that there is no extreme duress or pressure on somebody to sign a prenup," Handschu says. In other words, a prenup is a topic to bring up before you mail out 300 wedding invitations.
Handschu advises couples to discuss a prenup early on, even before they set a wedding date, if possible. "The couple is saying, 'We each have financial issues we want to deal with. We're going to disclose all our assets and liabilities. And we're going to talk about our future.' That would be the ideal," she says.
Marriage is as much a financial relationship as it is a romantic one.
Is a prenup right for you?
Today, people who are remarrying make up a sizable portion of those writing prenups, says Pacific Grove, Calif. attorney Katherine Stoner, co-author of "Prenuptial Agreements: How to Write a Fair & Lasting Contract." "Or they're people in their late 30s and 40s marrying for the first time," she adds, "who already have acquired some assets and may or may not have other people they want to remember in their wills. A prenup can be part of their estate planning."
The objectives of prenuptial agreements are as varied as the circumstances of the people entering into them. Take, for instance, two people each getting married for the first time. She owns a business, and he's a teacher who also owns two apartment buildings. If her business runs into debt troubles after they marry, state law would allow creditors to go after marital assets to satisfy her business debts. A prenup could allow him to maintain separate ownership of his rental properties, thus protecting them from her business' creditors.
People who are remarrying make up a sizable portion of those writing prenups.
Or consider a couple about to remarry, each for the second time. She inherited her grandmother's farm, which has been in her family for generations. She wants to keep it so, and when she dies she intends to leave the farm to her two adult children from her first marriage. But state law may allow her new husband to make surviving spouse claims to some share of the farm. In a prenuptial agreement, he could waive such claims, thus assuring the farm will go to her children.
Couldn't she guarantee the same result without a prenup, simply by designating in her will that her children are to inherit the farm? Not necessarily. Her surviving spouse still might claim surviving spouse rights to the farm, thus complicating settlement of her estate--unless he specifically waived his rights to the farm in a prenup.
On the other hand, a prenuptial agreement alone can't transfer property when you die. "You can have a prenup," Stoner emphasizes, "but if you don't take the next step of having an estate plan, you're going to thwart your own wishes. You should have both a prenup and a will. They go hand in hand."
Legal advice crucial
These examples illustrate only some of the reasons why spouses-to-be may want a prenuptial agreement. Prenups can be useful to keep property separate rather than joint, to handle a family business, to create special arrangements for retirement benefits, to draw up an agreement if one of you is putting the other through college, to designate who will pay which bills after marriage, and much more.
Courts often view with suspicion any prenup drawn up without legal consultation.
But a prenup can't do certain things. For instance, it can't restrict rights to child support, custody, or visitation. In some states, spouses can't waive their rights to alimony through a prenup. Also, personal agreements--such as laying out rules about who will do various household chores--don't belong in a prenup and even may cause a judge to question the seriousness of the whole agreement.
Not all couples need prenups. If you get divorced or one of you dies, your state's marital laws may divide or transfer your property exactly as you'd want it done anyway. Then it's pointless to spend time and money on a prenup.
Still, deciphering what your state's laws will allow can be difficult. That's where expert legal advice is critical. State marital laws vary enormously. Talk to an attorney who knows the intricacies of your state's laws. He or she can fashion a prenup that's legally enforceable and accomplishes what you want.
In fact, courts often view with suspicion any prenup drawn up without legal consultation. To a judge, that's a red flag indicating one party may be trying to take advantage of the other. That's also why each party needs a separate attorney. One attorney can't represent both parties' best interests at the same time.
A prenuptial agreement alone can't transfer property when you die.
But where's the romance?
Before either of you sees an attorney, talk to each other. Professional obligations require lawyers to represent their clients' best interests. A lawyer can become overzealous, however, and end up creating an adversarial situation. "One party's attorney may draft a very one-sided document," Stoner says. "Sure, you can change it, but that raises the temperature for everyone."
It's better if you and your future spouse talk this through first, just the two of you, and reach clarity on what you want. Then you can specify to your attorneys what you want the prenup to do, and they can take it from there.
Attorneys? Documents? Legalities? You may be left wondering what happened to the romance of getting married. In reality, marriage is as much a financial relationship as it is a romantic one.
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