What is a prenup? The pros and cons of prenuptial agreements

If you’re one of the many Americans getting married in your 30s or later, one or both of you may be bringing your separate property into the union.

This includes things like homes, cars, investment accounts, collectibles, or even a business.

While it’s never the goal, if the marriage ends in separation, death, or divorce, you may want to protect your assets.

At one time, prenuptial agreements (premarital agreements) were reserved for the wealthy (although famously, Jeff Bezos and his now ex-wife MacKenzie didn’t have one).

However, this is no longer the case. A recent Harris poll reported that 15% of all newlyweds have their own prenuptial agreement.

A prenup can provide peace of mind and facilitate discussions and agreements about marital property.

In addition, it can protect wealth, sustain individual financial control, and balance the power dynamics in a relationship.

While deciding to draft a prenup agreement may involve difficult and emotional conversations and can be time-consuming, it is an important part of financial and estate planning for many. It provides financial certainty and clarity to each spouse.

It’s important to remember that a prenup isn’t inherently good or bad.

Some people even believe it can strengthen a marriage by solidifying that each partner values the other over their perceived wealth.

It’s all in how you approach it.

So, should you and your future spouse consider one?

To help answer that question, here are the pros and cons of drafting and signing a prenup, common issues that many couples face, and how to work with an attorney to prepare one if you decide it’s the right fit for your relationship.

What is a prenup?

A prenuptial agreement is a contract that dictates how assets and debts are divided in the event of a separation, death, or divorce. They can be particularly helpful for:

• High-net-worth individuals
• Spouses with significant debt
• Spouses entering into a second or third marriage with their separate property
• Owners of a business established before the marriage

Prenuptial agreements can also protect against potential inheritances, alimony payments, and assets set aside for children from prior relationships (child support and custody are not covered in a prenup agreement).

What can be included in a prenuptial agreement?

The short version: almost anything financially-based can be included in a prenuptial agreement, except for child-related issues such as custody or child support.

There is no standard template; each prenup is custom-tailored to each couple. In general, most prenuptial agreements can include:

• Pre-marital property
• Pre-marital debts
• Spousal support and waiving the right to alimony
• Financial responsibilities, such as household and other expenses
• Business ownership and earnings
• Disposition of property, such as primary and secondary homes
• Retirement accounts

Keep in mind that although all 50 states recognize prenups, some have state laws that may affect or limit agreements.

A prime example is the sunset provision law that some states have. This state law phases out or ends a prenup after a certain period of time or life event, such as the birth of a child.

In addition, a court may decide a prenup is invalid if it blatantly favors one partner’s interests over the other’s.

The pros and cons of a prenuptial agreement

A prenuptial agreement is a legal document that can have significant financial, legal, and emotional consequences. Therefore, couples should discuss a potential prenup and come to an agreement long before stepping into an attorney’s office.

The benefits of a prenuptial agreement

• Can divide assets according to each spouse’s preferences
• Can agree on the division of assets and liabilities in a calm setting
• Can protect one spouse from the other’s pre-marital debts
• Can define protection for pets, heirlooms, collections, and dependents
• Can compensate one spouse for the harmful actions of the other spouse (such as financial compensation if a spouse engages in drug use, infidelity, gambling, or other harmful behaviors)

The drawbacks of a prenuptial agreement

• May cause discomfort, hurt feelings, distress, or other negative emotions
• May cause familial friction
• Each spouse may have different desires about whether or why a prenuptial agreement is necessary or may have unequal commitments to the process

Remember that a prenuptial agreement is a safety net designed to not just protect assets, but to also provide peace of mind.

It does not inherently indicate that one spouse (or both) don’t “believe in the marriage” or expect it to fail. In fact, in some cases, couples feel it strengthens the marriage because it removes any ulterior financial motives.

A therapist can help couples work through their feelings about a prenup and find what marital agreements work practically and emotionally for both.

How to prepare a prenuptial agreement

A prenuptial agreement is a legally binding contract, so it is imperative to have an experienced attorney prepare yours. Contractually, each person must retain their own lawyer to advise them. It is considered a conflict of interest otherwise.

Two other things to remember: prenuptial agreements can be revised later, and couples can prepare a similar document (called a postnuptial agreement) even after marriage.

To be legally binding, a prenuptial agreement must meet these requirements:

• It must be written, not oral
• It must be entered into and signed voluntarily
• Both parties must fully disclose their assets before signing the agreement; hidden assets discovered later can render the prenuptial agreement invalid
• The premarital agreement must be fair to both sides; many states will not honor one that leaves almost everything to one spouse and little or nothing to the other
• Both parties must sign the written premarital agreement, and signatures must be witnessed and signed by a notary public

How much does a prenup cost?

The cost of a prenup can vary greatly, depending on certain factors like where you live and the complexity of your and your partner's financial situations.

According ContractsCounsel's marketplace data, a prenup costs an average of $690.00 in the US. However, if you live in a big city (or near one), you can expect to pay much more — as high as $10,000 in states like California and New York.

Other ways to protect your union (besides a prenuptial agreement)

A prenup may not always be necessary to protect each partner’s interests. Although they offer a different level of protection, an attorney or financial planner can discuss other options, such as:

• Keeping some or all pre-marital property as sole and separate assets rather than jointly owned
• Creating separate trusts
• Purchasing life insurance with children or other dependents as beneficiaries
• Preparing estate planning that leaves assets to someone besides the spouse (though in some states, a spouse may be entitled to half of the estate)

Even if a couple chooses to draw up and sign a prenuptial agreement, consulting an estate planning attorney makes sense to ensure no conflicts exist between the prenup and the estate plan.

Suppose the two documents treat certain assets differently. In that case, both documents should explicitly state which one takes precedence:

“In the event of divorce, this asset goes to Person A, but if I die that same asset goes to Person B.”

Prenuptial agreements can also have a sunset provision, where portions of it will no longer apply. For example, some couples draw up a prenup that ends after a certain period, such as 20 years. Others include a provision that the prenuptial agreement, or a portion of it, will end when certain milestones are met, such as they accumulate a certain amount of money or their children become adults.

Again, prenuptial agreements can include almost any provision apart from the exceptions noted above.

Final word

Like most things in life, the key is to communicate openly with each other and consult legal and financial advisors who can help determine if a prenuptial agreement makes sense for both of you and what it should say.

Just make sure you’re both honest and open throughout the process to set the stage for a long-lasting, happy, and healthy life together.