Prenup is a word that many people who are engaged are uneasy to hear about and discuss with their partners. This is due to many reasons, but the most common is because they feel offended that their partner is considering the possibility of a failing marriage down the road. The truth is that while it may be an initial reaction to cringe at the thought, it can protect you financially in the long run.
Photo Credit: Daniel Oines
What is a prenup?
Prenups, short for prenuptial agreement, is a contract that is agreed to and signed by both people in a relationship before they get married. Prenups can cover a wide array of items such as what property will go to who in the case of a separation, what will be considered “marital property”, and how that property will be divided to inheritance and alimony. It basically decides who gets what in the event of a divorce.
Some couples choose to get a prenup because in the event of a divorce without a prenup, state law may determine who receives which of the marital property (such as money, homes, cars, etc).
Is A Prenup for You?
A prenup is a good idea if you:
- Have large assets such as a home, any large investments, stock or stock options, or a retirement fund that has the potential to make you wealthier than your partner.
- Own a business or are a part of a business.
- Have children, grandchildren, or people who depend on you financially (or will, like elderly parents).
- Are expecting a large sum of money in the future like a settlement or inheritance.
- Have pets
Even if you’re not currently wealthy, a prenup can help you in the future like in the even you stop working to raise a family. Should you divorce during that period, a prenup can outline how much financial support you’ll receive from your spouse, making looking for a job and taking care of your kids easier.
Another scenario is if you and your fiancé get married young. If you’re making more of an income while they are finishing school, and you’re making the loan payments for their education to allow them to focus on school, then in the event of a divorce, they would get a free education if you don’t have a prenup.
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Executing a Prenup:
- Prepare the document and ensure it is in writing.
- Division of assets and all other items should be distributed evenly (no single party is left with exponentially more than the other)
- All assets or liabilities (ie: personal debt) must be disclosed by both parties.
- Must be agreed to by both parties voluntarily and should be done in front of a witness to ensure validity.
Costs of a Prenup:
Each party should have an attorney who will charge by the hour to draft the prenup. Depending on the state you live in, the costs will vary. If everything is fairly clear and finances are straightforward, it can cost anywhere from $1,000-$2,500.
Already Married?:
If you’re already married, it’s too late to get a prenup. There is a new option called a postnuptial agreement that protects the inheritance of the children that you and your partner have had together. In the case that you get divorced or pass away, the postnup can have a clause that your ex or spouse must get a prenup for their next marriage that specifies that your money or assets go to your children and not the new spouse.
Photo Credit: Tim Pierce
Note: This is simply for explanatory purposes and is not intended as legal or investment advice. We encourage you to consult a professional for advice specific to your case.
