Is a Prenup Right for Me?
As a couple is happily planning their big day, neither of them wants to think that their marriage could end in divorce. While some may view prenups as a sign that you are giving up on the marriage before you even say your “I dos,” for many others, it is viewed as an essential insurance policy just in case the marriage does not work out. It may not be an easy topic of conversation, but talking with your spouse-to-be about both of your expectations for the marriage and how finances will be dealt with can save both of you bigger headaches and financial burdens down the road. Or maybe just the fact that you are having frank and open discussions might keep you from having marital problems in the first place!
Prenuptial agreements have become more important in recent years as couples are getting married later in life or may be on to their second or third marriages. Whether or not a prenup is ultimately right for you, having some knowledge beforehand about the law and discussing your options with your spouse-to-be is never a bad thing. All too often clients are shocked to learn how the law deals with the economics of a divorce. Having a prenuptial agreement essentially allows the couple to rewrite some of the rules of divorce into what they consider fair and reasonable for them.
For example, let’s say one of the spouses is coming into the marriage with a 401(k) worth $100,000. The law in Pennsylvania and many states provide that the $100,000 in the 401(k) as of the date of marriage would be the spouse’s separate property. This means that in the event of a divorce, that spouse would be allowed to keep the $100,000 that was already in their 401(k) as of the date of marriage. Now suppose that couple were married for ten years before they divorced. And over that ten-year period, the spouse did not contribute anything further to the 401(k), but the market did reasonably well and that $100,000 is now worth $180,000. That law says that the $80,000 increase in value is a marital asset and would be divided in the event of a divorce. The spouse with the 401(k) will probably not be happy to share that $80,000 with their ex, as many believe they should not have to share an asset if it was acquired before the marriage, and the value only went up because of the market and not through any efforts by the other spouse.
If that spouse had a prenup, they would have been afforded the opportunity to change the divorce law as to what constitutes a marital asset. A common provision in many prenups is that if an asset or account was owned before the marriage and then increases in value during the marriage, that increase remains the separate property of the owner. So with a prenup, the spouse in the above example would have been able to keep the entirety of the $180,000 in their 401(k) instead of having to divide the additional $80,000 with their ex.
In addition to those coming into the marriage with significant assets like retirement accounts and real estate, here are a few common scenarios where one might also want a prenuptial agreement:
- A spouse who has children from a prior relationship and wants to ensure they are protected in the event of death;
- A spouse who owns a business, especially a family business, and wants to ensure the business is protected;
- A spouse who is the beneficiary of a trust or will be inheriting a significant amount of money or assets.
If your big day is already set or you are thinking of getting engaged, consulting with an experienced family law attorney about the prospects of a prenuptial agreement could be the added protection you need for your future.