By Phil West, WCI Contributor
A prenuptial agreement, better known as a prenup, is a way to turn a long, messy, and expensive divorce into a shorter, cheaper, and less messy divorce should a marriage end. And even if you stay happily married and don’t “need” to activate the prenup, it’s a good way to get the conversation going about you and your future spouse’s finances—if you hadn’t already done that.
What Does a Prenup Do?
Before understanding what a prenup does and how a prenup works, it’s helpful to review a little bit about how finances work in marriage. Nine states operate with community property laws, meaning that regardless of which person in the marriage gains an asset or takes on a debt, both parties incur responsibility. As Experian notes, “Even though your spouse bought something or earned a bonus, or you took out a loan in your name, you are both equally responsible.” But then, it goes on to provide an important caveat that we’ll get back to in a moment: “That is, unless a prenuptial agreement states otherwise.”
In community property states, assets gained prior to the marriage—such as an inheritance left to a child after a parent’s death—are considered separate property and stay with the person who attained the asset prior to the marriage. But that can be complicated by co-mingling separate and community property—for instance, if someone used part of an inheritance to put a down payment on a house in both spouses’ names.
Even if you’re not in a community property state, there are complications inherent in state divorce laws that can cloud divorce proceedings. This is especially true in what family lawyers like to call high-net-worth divorces, which is certainly a position where many white coat investors could find themselves. (Certainly, a fair number of family lawyers like to try high-net-worth divorces as well!)
While an “average” divorce can cost between $15,000-$20,000, it can also cost much more if there’s a lot of conflict between the parties, especially if lawyers give in to their warring clients’ baser instincts. Every time a lawyer files a motion or creates another delay, it increases the cost of a divorce.
When done right, a prenup eliminates many of the questions that can entangle a divorce. It can spell out what happens to which assets and debts in case of a divorce, and it can also establish guidelines around alimony or spousal support. If one party has more wealth than the other, a prenup can protect against what the wealthier party might deem an unfair distribution of assets in a divorce, but it’s also helpful for anybody bringing any valuable assets with them into a marriage.
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How to Get a Prenup
Many family lawyers offer prenup services, and it can cost around $2,500 to get one. If you want to protect an asset worth a cool $1 million or more, that’s a very reasonable insurance policy to protect that.
However, there are some things to keep in mind before getting one.
First, check your state laws and make sure you’re adhering to them as you’re creating the prenuptial agreement. If your state forbids coercion and there’s any perception you’re coercing your future spouse into a prenup, the agreement could be thrown out by the courts even though it’s a document signed by both parties.
While you could leave it to one lawyer to create an agreement that's satisfying to you and your future spouse, it might be better to have a lawyer represent each person and have the lawyers and their clients come together on the prenup. If the wealthier spouse finds the lawyer that oversees the prenup process, that could make a claim of coercion—however unlikely that might be seen at the time of the signing—more credible down the line.
And, of course, there’s the matter of how to broach the subject with your future spouse. Emphasizing that it’s to reduce conflict in the unlikely event that you do get divorced, rather than a prediction that you will, is the move here. As we hinted in the intro, making it part of setting a financial course for you and your future spouse—rather than the one thing you’re setting out to do—can make it more healthy, forward-looking, and sensible.
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Can You Get a Prenup After Marriage?
We’ll make this sound like a riddle at first and then quickly explain: You can and you can’t get a prenup after marriage. The “can” part of this is you can sign an agreement with your spouse agreeing to asset distribution and other matters to supersede what might be otherwise left up to a divorce court to determine. The “can’t” part of this is that it can’t be called a prenup because it comes after and not before your marriage—aka your nuptials. So, the “prenup after marriage” is actually called a postnuptial agreement—a postnup for short.
“Postnuptial agreements have become common in recent years, and they are honored and enforceable in most US states. Most postnups are mostly about money and protecting assets in the case of a divorce, and postnups may be written when a couple is in crisis or concerned about the state of their union.”
If you grow increasingly concerned about children from a previous marriage or you amass considerable wealth during the marriage from a job or you want to protect a business partnership you entered into after the marriage that doesn’t involve your spouse, a postnup might be a good idea.
Even though postnups are binding in most states, you want to check beforehand if your state is one of the exceptions—and if it is, check with an experienced family lawyer about what legal options you do have to protect assets and avoid all that comes with divorce.
Prenups (and postnups) are a form of asset protection that will help you keep the assets you think are worth holding onto if your marriage ends. But if we're counting the best ways to protect your assets, your best move is actually to make sure that your marriage lasts your entire lifetime. Make it your highest priority and spend plenty of time together. Date night may very well be your best asset protection move. Hopefully, that will ensure you never have to actually use the prenup you signed before you said “I do.”
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