prenup

Prenuptial Agreements: An Overview for Engaged Couples

Getting married is an exciting time, but with the romance comes some less glamorous practical considerations. One of those is whether or not to get a prenuptial agreement—or “prenup” for short. Prenups outline what happens to assets and debts if a marriage ends, so they’re not exactly the most romantic topic of conversation. But they can give both spouses peace of mind going into the marriage. Here’s an overview of everything you need to know about prenups.

What Exactly Is a Prenup?

A prenuptial agreement is a legally binding contract that outlines who gets what in case a married couple gets divorced. It lays out division of assets (like houses, retirement accounts, investments, businesses, cars, etc.) and debts. It can also specify details like spousal support payments (aka alimony).

Prenups allow couples to decide on financial matters privately instead of leaving it up to state law. That means you can customize things however you want rather than being bound by formulas that may not fit your situation. For example, in some states assets get split 50/50 while in others it’s based on each spouse’s contributions. A prenup lets you sidestep predefined formulas.

Who Needs a Prenup?

While anyone can benefit from a prenup, they tend to be most useful in certain situations like:

• One or both partners have substantial assets, property, investments or business interests
• There is a big disparity in incomes or net worth between partners
• One or both people have debts they’ll bring into the marriage
• Someone stands to inherit substantial money or property
• Someone has children from a previous relationship they want to provide for
• One or both partners own a business they want to define rights over
• The couple wants to specify details like where they’ll live or how household expenses get divided

However, even couples without a lot of assets can benefit from the peace of mind a prenup provides. It allows you to settle tricky financial matters upfront so you can focus on married life without those worries.

What Gets Covered in a Prenup?

Prenups can cover pretty much any assets you want them to. Typical things include:

• Real estate – Primary home, investment properties, vacation homes, etc.
• Retirement accounts – 401(k)s, IRAs, pensions, etc.
• Investment accounts – Brokerage accounts, trusts, college savings accounts, etc.
• Businesses – Sole proprietorships, partnerships, corporations, etc.
• Personal property – Cars, jewelry, art, collectibles, etc.
• Life insurance – Policies with cash value, payout beneficiaries, etc.
• Debts – Mortgages, student loans, credit cards, etc.
• Inheritances – Current and future inheritances from parents or other relatives

Prenups also often specify:

• How household expenses get divided
• Where the couple will live
• Spousal support if one person sacrifices their career for the family
• What happens with pets in case of divorce

Additionally, prenups lay out procedures for how assets get divided if needed (selling property, appraisals, etc.). The goal is to cover all the bases so there’s less to argue over later.

What About Changes During Marriage?

Prenups often specify what happens if a couple’s financial situation changes during marriage in ways no one could predict beforehand. For example if one spouse:

• Inherits a large sum
• Receives a gift of property or money
• Wins the lottery
• Launches a successful business

Without a prenup, such windfalls would typically be considered marital property up for division in a divorce. But a thoughtfully crafted prenup allows you to specify who keeps specific assets no matter what.

Can Prenups Protect Assets I Had Before Marriage?

Yes, prenups allow you to designate separate property you owned before marriage. Things like:

• A home or other real estate
• Retirement accounts
• Investment accounts
• Life insurance policies
• Businesses
• Cars, jewelry, art, etc.
• Cash savings

Without a prenup, such assets typically get divided between spouses in a divorce. But a prenup allows you to protect assets you had beforehand so they stay yours.

Can Prenups Include Sunset Provisions?

Yes, prenups often include “sunset provisions” where certain terms expire after a period of time. Common examples include:

• Alimony – Waiving the right to spousal support, but only for the first 5 or 10 years of marriage. After that point normal state laws apply.
• Separate property – Assets stay separate for the first few years, then become marital property. This incentivizes building wealth together.
• Inheritances/gifts – These stay separate property only for the first few years, then get pooled together.

Such provisions balance individual interests with the overall partnership of marriage. The prenup protects assets early on while allowing normal marital property laws to take effect down the road.

What Can’t Prenups Do?

While prenups are powerful tools, there are certain things they can’t dictate by law, like:

• Details about raising kids (custody, visitation, etc.)
• Limits on child support
• How marital property gets divided if you have kids (child’s interests come first)
• Anything illegal

Additionally, courts won’t enforce terms that are blatantly one-sided or unfair to one spouse. The agreement has to benefit both people.

When Should You Get a Prenup?

Ideally you want your prenup sorted out at least a month or two before the wedding. That timeline allows you to negotiate terms without last-minute pressure. It also lets you avoid any appearance that one person is being forced into signing.

Many couples start the prenup process 6-12 months before marriage. This gives lots of time to find an attorney and negotiate compromises. It also shows the prenup isn’t an afterthought.

That said, it’s legally possible to sign a solid prenup even right before the wedding. Just know last-minute prenups weaken the appearance that both parties entered into it willingly and without duress.

Should Each Person Have Their Own Attorney?

Yes, it’s highly recommended for each spouse to have their own lawyer when drafting a prenup. That way attorneys can advocate for each person’s individual interests during negotiations. It also prevents any perceived pressure or conflict of interest.

Having separate counsel promotes fairness and ensures both parties understand terms from a legal perspective. Judges scrutinize prenups much less when each person had independent representation.

Some couples try to save money by sharing one attorney to draft the agreement. But this can spell trouble if that attorney didn’t explain both people’s rights and options. Shared counsel also weakens a prenup’s enforceability.

How Much Does a Prenup Cost?

Prenup costs vary wildly depending on where you live and the complexity of your assets. Typical ranges are:

• $1,500-$3,000 – For a basic prenup without too many assets to disclose.
• $3,000-$7,500 – For a moderately complex prenup with several assets/debts.
• $7,500-$15,000+ – For a very extensive prenup with lots of real estate, business interests, etc.

Costs also shoot up if you live in a community property state like California or Texas. The lawyers there need to take extra care in drafting agreements that stand up to scrutiny.

The price also goes up if you have complex asset ownership structures like trusts or off-shore holdings. But overall most couples end up investing $3,000-$5,000 for a solid prenup including attorney fees.

How Are Prenups Enforced if Challenged?

To stand up in court, prenups must meet certain conditions like:

• Full financial disclosure from both parties
• Adequate time to review terms before signing
• No evidence of force, fraud or duress
• Fair and reasonable terms

Additionally, the challenging party typically needs to prove significant hardship under the prenup’s terms.

Factors determining if a prenup gets upheld include:

• If both parties had legal counsel
• How long before the wedding it was signed
• If any major life changes have occurred
• Overall fairness at the time of signing and divorce

In the end courts have discretion, but most legally sound prenups withstand challenges. Talk to an attorney about crafting an enforceable agreement.

Are Prenups Only For the Wealthy?

No, prenups can benefit couples across the economic spectrum. Middle-class couples are increasingly using them to protect assets like:

• A home with sizable home equity
• Retirement accounts
• Cars, jewelry or other personal property
• A profitable small business

Without a prenup, all such assets typically get divided 50/50 under state divorce laws. But a thoughtfully crafted prenup gives middle-class couples more control.

The Bottom Line

Prenups allow couples to privately agree on financial matters in case of divorce. They aren’t just for the rich and famous. Even everyday middle-class couples can benefit from the clarity a prenup provides. Prenups foster open communication about finances leading up to marriage—a worthy conversation no matter your net worth.