If you possess any type of wealth and are considering marriage, you need to know all you can about prenuptial agreements and how they can save you a fortune down the road if your marriage doesn't last.
What is a Prenup?
A prenuptial agreement (aka "prenup") is a legally binding contract between a couple before they get married. Prenuptial contracts are common when one or more wealthy people get married. However, even modest income couples create them to protect their own interests before entering into the union.
A typical prenup lists each person's assets and liabilities as they enter the marriage and stipulates how much each person gets if the marriage is later dissolved or ends in divorce.
Types of Prenuptial Agreements
The most common type of prenuptial agreement is one that is drawn up before the marriage takes place. Then, both parties review the details and decide to sign based on their own investment into the marriage.
If a couple gets married and then decides to draft a prenup, it is called a "postnuptial," "postmarital," or "marital" agreement. The purpose is the same, and nothing is different except that the couple is already married.
The most effective prenup agreement is an all-inclusive contract that addresses issues that apply to both parties. These types of agreements may include things like:
Clearly defined property and financial assets.
Property and children from a prior union.
How property will be distributed after death.
Investments and how they are handled.
Retirement benefits and ownership.
Joint finances and bank accounts.
The separation of the marriage and any businesses.
Credit card and other debt management.
Loans and outstanding mortgages.
Provision for meditation as an alternative to divorce.
However, the laws regarding what a prenup can and cannot include, vary by state.
Benefits of a Prenuptial Agreement
There are many reasons couples decide to enter into prenuptial contracts. Protecting their own wealth is just one of the benefits. Some additional benefits of prenups include:
Protecting one's assets so they can pass them down to children from a previous marriage or relationship.
Clarify the financial rights and responsibilities after divorce.
Avoid a lengthy legal battle if the marriage ends.
Protect one spouse from another spouse's debts.
Avoid court interaction in your divorce proceedings.
Clearly define jointly held property and new property acquired during the marriage.
Cut down on divorce costs.
Detail special arrangements for children and other family members or friends who factor into the marriage dissolution plan.
What Happens if You Don't Have a Prenup?
Couples whose marriage ends in divorce often find out that it was a grave mistake not to have a prenup in place. When there is no prenuptial contract, the courts get involved, and they often determine who owns what property and how much of the total goes to each party.
During the marriage, anything the couple purchases together is considered marital property. A prenup dictates how ownership is determined in the event that the couple gets divorced.
What Does a Prenup Do?
Although some people complain that signing a prenup robs the wedding of romance, it is a powerful tool to protect ownership and financial interests long after the happy couple weds. The contract details what personal assets and debts each person brings to the marriage, what will be considered marital property, and what is solely owned and will remain that way even after divorce.
Depending on where the couple resides, the prenuptial agreement could help to navigate strict divorce laws by agreeing ahead of time on how much each person walks away with.
Each state has its own laws regarding divorce. For example, nine states are community property states, and many others are non-community property states. Therefore, a prenuptial agreement can determine precisely what is the joint-owned property and what is not, not leaving anything to chance or the courts.
What is Not Allowed with a Prenuptial Agreement?
One thing that a prenup does not do is affect child custody or child support in any way. These things must be determined through a divorce and the courts.
Another thing that you cannot do with a prenuptial agreement is specify preferences or "rules" for being married. A prenuptial agreement applies only to personal ownership of property and financial assets.
If the court decides that some things in a prenuptial agreement go beyond what is allowed, the judge may set aside those items and focus only on what is permitted.
How Much Does a Prenup Cost?
Depending on the law firm used, the average cost of a prenuptial agreement is $2,000 - $6,000 per person. Although you can draft your own prenup in some states (like California), it could be thrown out of court unless you have a legal background and know what you are doing.
Someone who wants to protect their assets after getting married must weigh the initial cost with that of losing a lot more down the road.
Are Prenuptial Agreement Public Record?
The question of whether or not a prenuptial agreement is a public record is that it depends on the situation. Many couples choose to keep it private because it details personal information about their assets and liabilities.
However, there are situations where it makes more sense to make the prenup public record to protect one spouse from the other's debts incurred during the marriage. Unless the prenup is filed publicly, the potential creditor looking to collect a debt will not know that they cannot legally go after one spouse, and they may equally harass them both.
The specific divorce laws in each state may help a couple determine whether or not to make their prenup public or keep it private. Marriage and divorce records, however, are most often public records by nature.
Regardless of whether or not the couple chooses to make it public or private, the agreement should be stored somewhere safe (like a safe deposit box) with other important documents.