A prenuptial agreement is a legal agreement made by a couple before they enter into marriage to control the financial aspects of their marriage in the event of divorce or death. In order to be legally binding each person must obtain separate legal counsel and provide a full and complete disclosure of all assets, including any expectancy of inheritance.
What aspects of a marriage does a prenuptial agreement control?
Prenuptial agreements govern the financial provisions of a relationship and division of assets if the couple divorce and in the event of the death of a spouse. Many agreements contain provisions that quantify the maximum dollar amount to be paid to a divorcing spouse. This helps protect individual assets and interests in the family assets. The agreement generally has more generous provisions in the event of a death of a spouse, and frequently both the divorce and death benefit under a prenuptial agreement will vary depending on the length of the marriage. The agreement does not control child custody or child support obligations.
Who should have a prenuptial agreement?
A prenuptial agreement is often used by younger couples where there is family wealth that needs to be protected, including a closely held family business or real estate. Older couples often use prenuptial agreements when they have children from earlier marriages and accumulated wealth they want to protect for themselves and their respective children.
Working together to develop a prenuptial agreement is fraught with emotional considerations. It is often difficult to separate the concepts of love and money. Ideally, a prenuptial agreement will help a couple make positive financial decisions for the management of their financial life on a going-forward basis as a couple. This can be one of the most valuable aspects of thinking through finances before marriage.
What is a relationship contract?
Some prenuptial agreements go a step further and include provisions related to the couple’s relationship. For example, a couple may decide to require a certain number of date nights or amount of time alone with each other. A relationship contract can also include an infidelity clause or drug, smoking or alcohol use clauses, with rewards or penalties for certain behaviors.
What if you are married and don’t have a prenuptial agreement?
A postnuptial agreement, in states that allow one, is entered into after marriage and contains similar provisions to a prenuptial agreement.
Parents whose children choose not to enter into a prenuptial agreement can help protect family wealth through their estate plan documents by ensuring that their property remains in a specially drafted dynasty trust for the benefit of children and future grandchildren, or other family members, rather than passing outright to children.