What Should I Consider in Deciding Whether I Want a Prenuptial Agreement

This month I’ll begin a two-part series on the subject of prenuptial agreements. This first post will explain why they might be a good idea and in what circumstances. Next month I’ll share some tips on how to bring up this possibly sensitive subject with your spouse-to-be.

In the last 20 years there’s been a 500% increase in the number of prenups in the United States, according to Kelli Grant of CNBC (Grant’s source is Arlene Dubin, a Manhattan matrimonial lawyer. You can read her post here.) The reasons for the increase are not limited to wealth, which historically was and continues to be a driver.

There are a number of considerations when deciding whether or not to have a Prenuptial Agreement, some of the considerations a briefly described below.

First- What is a Prenuptial Agreement? You may think you know, but do you really?

It is an agreement entered into by a couple before they get married, that if properly drafted and executed, and if you marry, will be an enforceable contract upon the occurrence of separation or divorce, or death. A prenuptial agreement allows a couple to identify their assets and liabilities that exist upon entering a marriage for which the couple makes their own rules as to how they want their assets (both those that accumulated prior to the marriage and those accumulated during the marriage) to be divided upon divorce and death. A prenuptial agreement can also detail the couple’s intentions about financial responsibilities during the marriage, as well address their respective obligations (if any) for support of one another upon the occurrence of a separation or divorce.

For some couples, a prenuptial agreement can be viewed as a tool for financial planning and estate planning for themselves and their family, including children from a prior relationship. When I refer to financial planning, this means that that the couple can use a prenuptial agreement to make very clear what each of their financial expectations and financial obligations are to be during the marriage, for retirement planning, and upon death. For example, the couple may want to make clear how they expect their monthly bills to be paid for their home or any other property they have. A couple may want to acknowledge that a spouse-to-be has a child support obligation another and how that will be paid during the marriage, and if they subsequently separate or divorce, how if at all (regardless of what the law provides) such support payments will be considered in the separation. A prenuptial agreement can also be used for estate planning purposes for example, the couple can set forth their expectations for retirement planning and how they each wish for their assets to be distributed upon the death of either of them.

Children from Prior Relationships/Blended Families: A prenuptial agreement is needed if you want to be sure that upon your death, some portion of your estate will go to those children rather than your surviving spouse, and this can be set forth in detail in a prenuptial agreement. We will also work with you to be sure that you have the necessary Will (maybe a Trust) in place to that will be needed in conjunction with the prenuptial agreement upon your death to protect the interests of your children.

Business Interests: If you work for a start-up business, or have any business interests, including in which you hold stock or stock options, those may be harder to value if not publicly traded. A prenup can prescribe what valuation method will be used in event of divorce. As described in our post of March 22, 2016, the method used to value business interests can be a huge issue in divorce and very costly.

People marry older than before. If you marry soon after high school or college, chances are the assets you bring to the marriage are not substantial; indeed, what you bring may be mostly educational or other debt. However, the age at which people marry is rising (women 29 years and men 31, on average in 2013) and as a result, according to Dubin, by the time people marry, they do have some assets. Geoffrey Williams, in a 2013 Huffington Post article you can read here, says the primary goal of most prenups is keeping separate property separate. (Please see prior blog posts which explain the difference between separate property and marital property.)

Substantial debt. As indicated above, educational debt is huge, more than credit cards and car loans, according to Grant. Identifying liabilities can be as important as identifying assets if you want the debt your spouse brings to the marriage to be his or her responsibility in divorce.

Reproductive rights. Nearly half a million embryos were in storage in 2015, Grant writes. A prenup can clarify who has rights to embryos, an issue that couples may wish to anticipate, even though you both hope it never becomes an issue.

Social media. You’ve read, or at least read about, revenge porn. In this day of social media, information about you that you might want to keep private can be published widely, to your detriment. A prenup can spell out confidentiality in divorce, protecting not just personal privacy, but business interests and reputation, Grant says.

Anticipated Inheritance: If either spouse-to-be anticipates an inheritance that they want to protect 100% if the couple was ever to separate or divorce, or upon death if you want to be able to direct your assets in a way that may be different from what the law provides, then you should consider a prenuptial agreement.

So who needs a prenup? Williams quotes Anton Abramowitz, then president of the American Academy of Matrimonial Lawyers, saying that spouses with marital estates valued under $200,000 probably don’t need one. I don’t necessarily agree with that opinion. If you have assets you want to protect, if you have children you want to protect, if you want to write your own rules as a couple, rather than be bound by New York State Law as to the disposition of assets and credits upon a separation or divorce or upon death, than you should consider a prenuptial agreement. There’s much more to a prenuptial agreement than just the couple’s earnings and current estate value. Williams also identifies people who are marrying with children from a previous marriage as good prenup candidates.

It’s not something we enjoy thinking about, but 40-50% of marriages end in divorce, according to the American Psychological Association. Your chances of staying married until death are therefore 50-60%. The odds are almost equal. So why take a chance? What do you and your intended want to say now about your needs and wants if you decide to split? Dealing with these questions up front can limit the questions that have to be answered later, and can limit the costs incurred upon separation and the length of the divorce process.

This may go without saying, but I am going to say it anyway. The number of same-sex marriages are on the rise, and same-sex couples will have the same considerations as to whether a prenuptial agreement may be right for them.

If you’re a logical candidate for a prenup, read next month’s post, where I’ll share some tips on how to raise the subject if you think it may be difficult.