Contrary to popular belief, prenuptial agreements are not just for the ultra-wealthy. Nor are they necessarily unromantic, or a sure sign that at least one person involved in the relationship is thinking about its eventual demise. They are actually a smart, clear-eyed way for two people to enter into what is not only a commitment in love but also a financial intertwining.
Increasingly, more couples approaching the altar are starting to understand the distinct purpose a prenup can serve, whether they are entering the union with significant savings (or debt) or have children from a prior relationship. The most recent Harris Poll on the topic “found that 15% of couples who had been married or were engaged in 2022 reported signing a prenup — up significantly from the 3% who had done so in 2010,” said Investopedia.
What does a prenup cover?
A prenuptial agreement is a “legally binding, written contract signed before marriage that outlines how assets, debts and property division will be handled in the event of divorce or death,” said Charles Schwab. A couple can tailor their prenup to their unique needs (and the state in which they live can also shape requirements), but in general, prenuptial agreements often include:
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- A list of each partner’s assets and debts and instructions for how those will be divided in the event of divorce
- Financial rights and responsibilities during the marriage, such as the management of household expenses and joint accounts, as well as taxes
- Provisions for any children from a previous relationship, which may include preserving certain assets for their inheritance
- Expectations for spousal support or alimony in the event of divorce
When is a prenup worth considering?
The major benefit of a prenup is that it gives you the right to decide how assets are divvied up if you and your spouse should ever part ways. Rather than “relying on your state’s laws, a prenup allows you to set clear terms for how you want to handle assets and debts in a divorce,” said Experian.
Entering the marriage with this sort of clarity can especially make sense if “you may be bringing significant savings to the partnership, anticipate getting a significant inheritance in the future or co-own a business that you want to protect,” said Fidelity. It can also be useful if you have children from a previous relationship or if you “foresee taking time from the workplace for childrearing or caregiving, and earning less as a result.”
Debt is also another worthwhile consideration. If “your spouse has major debt,” a prenup “can specify which debts remain separate, reducing the risk you’ll become responsible for your spouse’s major debts,” said Experian.
Finally, the agreement can go a long way toward ensuring financial alignment when entering a marriage, helping couples get on the same page about “their plans to handle everyday marital finances, such as contributing to a joint account or keeping retirement savings separate,” said NerdWallet.
What are the risks of not having a prenup?
Without a prenup, “decisions about how you divide the property and assets you own together, as well as those you brought into the marriage, will be made at an emotionally fraught time,” said Fidelity. And if you cannot reach an agreement, the court will make one for you. For couples living in a community property state, this may mean assets get divided 50/50. You could even end up responsible for your ex’s debts.
So, while a prenup conversation may not be the easiest to have amid the excitement of wedding planning — and the cost of creating one is not necessarily cheap — it could save you from emotional and financial strife down the road should your happily ever after end sooner than expected.
