Prenups are Important Planning Tools for Many Couples

The word “prenup” often negatively affects discussions among couples. When a couple decides to get married, for some, the topic of a prenup can cause a strain in the relationship and even delay wedding plans. While some people see prenups as a predictor of trouble in a marriage, prenups are important planning tools for many couples.

Prenups often referred to under the law as premarital agreements, make it possible for soon-to-be spouses to agree on how they will split their assets if they divorce someday. A marriage is a legal relationship that must be entered into according to the laws of the state in which the marriage takes place. The termination of marriage must also follow the provisions of the law. Each state has laws surrounding divorce-related issues, such as the division of marital property, spousal support, child custody, and child support. In the absence of an agreement between the couple, these issues are decided according to the provisions of the law. Without a prenup, important issues concerning the financial aftermath of a marriage could be left up to the courts to decide. Couples can thus contract around what a state court would otherwise determine in terms of how they should divide their property.

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While it may be a difficult topic for some couples to deal with, here are three reasons why you and your spouse should consider a prenuptial agreement.

Protects Premarital Assets

Couples often sign a prenup when one spouse is wealthier than the other. But, it could also be the case that both spouses might have substantial income and assets at the time of marriage. This is especially true today when couples are waiting longer to get married and thus are more likely to have a high-paying job with benefits, own a house, or have received large assets from an inheritance. A prenup is a good way to organize a complex assortment of property and keep assets earned prior to the marriage separate from marital property.

Encourages Open Communication About Finances

One of the requirements of a prenuptial agreement is full financial disclosure by both parties. Signing a prenup forces the couple to disclose their financial situation and discuss in detail with each other, foreclosing possible surprises during the marriage. This means that if one spouse is coming to the marriage with large amounts of debt or has financial obligations from a previous marriage, such as child support or alimony payments, the responsibility for those liabilities can be addressed upfront.

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Can Be an Estate Planning Tool

Couples can use prenups as an estate planning tool, whereby they agree to waive what is called an “elective share.” When one spouse dies, the elective share is the portion of the deceased spouse’s property to which the surviving spouse is entitled. Every state has rules for determining a surviving spouse’s elective share. Sometimes, spouses agree to waive their right to the elective share, for example, if one spouse already has enough wealth or if the spouses plan to provide for each other through other means such as life insurance.

Every state has its own rules governing prenups. Generally, a prenup must meet the following criteria to be valid:

  • Both parties must voluntarily sign it
  • Both parties must have independent legal counsel before signing the prenup
  • Both parties must make full disclosure of their assets and liabilities
  • The prenup must be signed well ahead of the marriage as courts are suspicious of prenups signed within a couple of months or weeks before the marriage.
  • The prenup must be balanced and consider the interests of both spouses

If you are planning a marriage, think of a prenuptial agreement as an important financial planning tool for you and your future spouse.

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