Prenuptial Agreements, more commonly known as Prenups, have been heavily reported in the media and it is often a misconception that Prenuptial Agreements are designed to offer financial protection for wealthy individuals. And whilst it is true that Prenuptial Agreements do offer clarity on financial matters, this is not their only purpose.
Let’s start by looking at what a Prenuptial Agreement is.
A Prenuptial Agreement is defined as a legal contract entered into by two people before they are married. A Prenuptial Agreement is a document that specifies how property, debts and other assets will be divided in the event of a divorce and, on occasion, death.
Why is a Prenuptial Agreement Important?
A well-crafted Prenuptial Agreement prompts open discussion on important matters and in doing so, a prenup can foster communication and understanding between partners. A Prenuptial Agreement can create transparency and manage expectations that can be the foundation of a successful marriage rather than simply protecting parties in the case of a failed one.
A Prenuptial Agreement is important as it accounts for the changes that you cannot foresee. Equally, if a marriage is not successful a Prenuptial Agreement can lessen the difficulties that arise during divorce proceedings.
Who needs a Prenuptial Agreement?
Prenuptial Agreements can be justifiable in many circumstances, such as
- One or both parties has already been married.
A previous divorce can affect any future rights and obligations in accordance with a divorcee decree or judgment. Additionally, previous married parties may have suffered through extended divorce proceedings and as such may not be willing to enter a marriage without establishing an understanding of what their future holds.
- One or both parties have children.
A party may want to protect the financial interests of children from a previous marriage or relationship and a Prenuptial Agreement can ensure that assets remain separate to allow the party to create a living trust or will to provide for their children in the event of death.
- One party is wealthier.
Prenups are often considered when there is a disparity in wealth between the two parties. However, a Prenuptial Agreement can offer financial protection for a party should they amass wealth over the course of the marriage.
- One party has more debt.
Whilst debts incurred during a marriage are often allocated between spouses, this may be a disadvantage to the non-debtor spouse. A Prenuptial Agreement can offer protection against this.
A 2019 Love & Money survey from TD Bank found that 27% of millennials are keeping a financial secret from their partner: significant credit card debt and without a Prenuptial Agreement, creditors have ways of collecting premarital debts from later acquired joint assets.
- One or both parties own a business.
This agreement can allow a party that owns a business to have full discretion over how to manage their business now and in the future and if the business is owned with other people, their share of the business can be protected in the event of a divorce.
- One or both parties has an inheritance to protect.
A party to the marriage may be aware that they are to receive an inheritance and the easiest way to avoid any unintentional transmutation of inheritance is to maintain the inheritance in a separate account, in the name of the person who inherited.
A Prenuptial Agreement can, and often does, clarify if the inheritance of a party remains their non-marital property.
What can be included in a Prenuptial Agreement?
A prenup can:
- Clarify financial rights
- Protect inherited money/assets
- Avoid disagreements during divorce proceedings.
- Protection from debts
Typically the terms of a prenup cover:
- Protecting children’s inheritance or specific assets
- Protecting inherited money, assets or savings
- Giving you both a say in how assets will be split if you decide to divorce
- Allowing one partner to retain full control of business ownership
- Protecting you from your partner’s debt
What cannot be included in a Prenuptial Agreement?
Although they cover a wide range of assets, there are strict rules on what can and cannot be included.
Issues that cannot be included in a prenuptial agreement are:
- Child custody including visitation, religious upbringing and schooling
- Child support
- Personal matters
- Illegal or unfair matters
- Lifestyle matters
The above can be covered by other legal documentation.
What makes a valid Prenuptial Agreement?
This agreement should be signed prior to a wedding as early in advance as possible.
Furthermore, each party should disclose all income, assets and debts prior to entering into a prenuptial agreement.
A Prenuptial agreement should:
- Be in writing, signed and witnessed and provisions between the parties must be legally permissible.
- If either party has legal representation, each party must retain their own lawyer to ensure they receive independent legal advice.
- There cannot be any evidence of duress, coercion, or undue influence.
- A prenuptial agreement covers property which can be divided into:
- real property which is any interest in land or real estate
- personal property that covers everything else. E.g. Savings accounts, stocks and bonds, real estate, vehicles
What Happens If You Don’t Have A Prenuptial Agreement?
Without a prenup, state laws determine who owns the property that is acquired during marriage – known as either marital or community property. State laws can also extend to property that was acquired before marriage.
In the absence of a prenup stating otherwise, a spouse can have the right to:
- share in the management and control of any marital or community property, sometimes including the right to sell it or give it away.
- share ownership of property acquired during marriage, with the expectation that the property will be divided between the spouses in the event of a divorce or at death
- incur debts during marriage that the other spouse may have to pay for
A prenuptial agreement does not need to be filed but should be kept in a safe, secure place.
How much do Prenuptial Agreements cost?
This depends on the complexity of the estates of both parties. The costs of this agreement can range from $1,500 to $10,000, and upwards.
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