Got Prenup?

The idea of a ‘prenup’ conjures all sorts of images in people’s minds. For some, it seems like the hallmark of an unstable union – a couple with a lack of trust or longevity, keeping their assets separate in the midst of a ‘quickie’ marriage. Others think first of greed… others still might just see prenuptial agreements as another ‘P’ word associated with celebrities, like paparazzi or Paleo Diets.

We talk quite a bit about the emotions of financial planning, and a financial contract entered into before marriage is a perfect example of how the two intertwine. The very mention of a prenup can cause feelings of anger and distrust… it’s a loaded term with a bad rap. The truth is, however, that while a prenuptial agreement can be a sign of trouble ahead, it doesn’t need to be.

Taken at face value, a prenuptial agreement commonly refers to provisions for division of property and spousal support in the event of divorce or breakup of marriage. Sometimes, a prenup includes provisions for forfeiture of assets on certain conditions, as well. From a practical standpoint, a prenuptial agreement is similar to any other financial planning document, in that it prepares for the future and creates a ‘plan B’ in the event it’s ever needed. In short, a prenup is all about protection.

Because of this focus on protecting assets, couples with equal earning potential and equal assets don’t necessarily need a prenuptial agreement in place; it’s a construct most frequently used by people of high-net worth, or when there’s a notable disparity between one spouse’s income and the other’s. Assets one partner might inherit later in life can also come into play, as can children from a previous union.

If this sounds like you, there are some key steps to considering taking when contemplating a prenuptial agreement, and the first is to retain an attorney. Your own attorney.

Many couples share attorneys, or choose to work through one spouse’s lawyer when creating a prenuptial agreement. Because the whole point of a prenup is to protect individual assets, though, it may make sense that each party be represented by their own counsel – one who is well-versed in family law.

The same may be applicable goes for a financial planner, whose primary job will be to help you identify what you ultimately want out of the agreement. Are you looking to preserve a family home in your name? Avoid taking on your partner’s debt? Protect a burgeoning business? All of these questions may come into play, and the higher the net-worth of the individual, the more important it is to ensure the language of your prenuptial agreement addresses any and all scenarios.

It’s also important to remember that your pre-marital assets prior to marriage aren’t subject to division after marriage – if you’re worth $1 million before walking down the aisle, you’re still worth that million after the fact. But even this rule has its exceptions: in the case of separate funds used to purchase a residence that later becomes the martial home, for instance, or a retirement account that grows during the marriage. Both an attorney and a financial planner will help navigate your financial picture and put an agreement together that should be in everyone’s best interests, and help ensure that the resulting contract is mindful of existing assets as well as future growth thereof.

Another reason to have good counsel on your side is the amount of prenuptial agreements that go on to be contested at the time of a divorce. Any undisclosed or undervalued assets, evidence of coercion of one spouse to sign the agreement, improperly filed paperwork, or signature without legal representation can lead to a prenuptial agreement being voided. Lopsided or unrealistic provisions can negate the agreement as well; did your spouse gain weight? Change their hair color? Get a new tattoo? Chances are, these kinds of demands won’t hold water in court.

If the stigma of instability or greed persists, or if prenups are still something you equate with celebrity, consider this: prenuptial agreements are increasingly common among high net-worth couples. A recent survey of the American Academy of Matrimonial Lawyers found that 73 percent of its members reported an increase in prenups since 2006. Fifty-two percent reported more women requesting prenups, and 36 percent said pensions and retirement benefits are more commonly cited than ever before. And while the emotions involved with making the decision to create a prenuptial agreement are very real, so is another truth: No one wants to be married for their money.