It is wedding season, which means it’s also “prenup season.” Often, the mere mention of a prenuptial agreement (prenup) makes people uncomfortable, as if these documents and the discussions they prompt constitute a wholly unromantic anticipation of ultimate failure – even before the couple shares their first dance.
In reality, prenups are necessary for anyone who already has children and/or has assets they want to preserve as their own separate property as of the date of their marriage, or expects to receive significant assets during the marriage from services already rendered (in part or in whole), from an investment previously made, or from a bequest, gift, or inheritance. High-net-worth individuals need to protect their financial interests before marriage. A carefully considered, well-crafted prenup is an insurance policy of sorts, should the marriage not work out as everyone hopes.
Here are two scenarios we see frequently in our practice that indicate the vital importance of a prenup:
1. When an individual has children from a prior marriage, to ensure that they are taken care of in the event of divorce or death during a subsequent marriage;
2. When an individual’s family has substantial wealth, to insure that separate funds used during the marriage to purchase a home, vacation property, fine art, or other valuable assets remain their separate property (unless there is a written intention to gift it to the marital estate/community property).
How does a prenup affect estate plans? A Last Will and Testament can be changed until a person is no longer competent to make decisions or he or she dies. Prenups are contracts in which parties oftentimes obligate themselves to die with a Last Will and Testament in place which makes provision for the surviving spouse. With such a prenup in place, a non-monied spouse never has to worry if he or she will be protected upon the death of the other spouse. It is commonplace to have a prenup with a provision which creates a trust paying income for life (and thus ensuring the surviving, less-monied spouse lives a comfortable lifestyle) while principal is preserved for and passes to the deceased spouse’s children or grandchildren upon the death of the surviving spouse. It is also commonplace to have a prenup which provides a life estate in the marital home or makes specific bequests of assets or a sum certain, or provides for life insurance benefits which protects a surviving spouse.
After more than 30 years of meeting clients when marriages have failed, I appreciate that a thoughtfully discussed, thorough, and well-executed prenuptial agreement can set the tone for a marriage that is a true partnership, and can ease negotiations if a divorce should become necessary.
What is the right time to discuss and sign a prenup? As early as possible before the wedding. Neither party should feel pressured to sign something on the eve of the wedding. Moreover, prenup discussions can bring out issues between couples that need to be addressed, perhaps even in pre-marital counseling. At its extreme, this process can make both parties reassess their readiness to marry each other. At their best, these discussions provide a forum that forces couples to work through the practical aspects of marriage: managing money, raising children, allocating responsibilities of income earners and caregivers, and possible religious differences.
While there are no one-size-fits-all agreements, here are five cautionary aspects essential to every prenup:
1. Each party should be separately represented by an experienced matrimonial/family law attorney or estate planning attorney. Lawyers who practice in the divorce realm, however, offer an added advantage: They understand the detritus of failed marriages, so they write prenups defensively.
2. The ultimate goal is to have a clear picture of what happens in death or divorce. If the agreement is too complicated or too vague, it won’t serve its purpose.
3. There must be full financial disclosure of assets and income of both parties.
4. A spouse who is successful in securing a prenup which is punitive also runs the risk of having that agreement successfully attacked in the future.
5. Be protective. Be fair. Don’t be greedy.
After more than 30 years of meeting clients when marriages have failed, I appreciate that a thoughtfully discussed, thorough, and well-executed prenuptial agreement can set the tone for a marriage that is a true partnership, and can ease negotiations if a divorce should become necessary. And as later-in-life marriages occur with increasing frequency, prenups can prevent not only divorce battles but estate battles as well, and preserve the inheritances of grown children. After all, it is the peaceful resolution of family matters that matters most.