4 Things Everyone Should Know Before Signing a Prenuptial Agreement

By Gwynneth Anderson
May 13, 2011

Prenuptial agreements hold an uneasy place in our society. Discussing a prenuptial agreement somehow seems cold and cruel -- a surefire way to end the relationship.

On one hand, our emotions reject them, preferring a rosy vision of riding off into the glorious sunset with the one and only love of our life.

But on the other hand, divorce statistics pragmatically remind us that 50% of all first marriages, 67% of all second marriages and a whopping 74% of all third marriages end in divorce.

Prenuptial agreements certainly might not be a palatable conversation topic but as more people bring assets and children into the marriage mix, it becomes a necessary one.

Prenuptial Agreements: Just The Facts

A prenuptial agreement is a contract signed by a couple before their wedding detailing what their property rights and expectations would be upon divorce or death.

"A well-drafted pre-nup can even 'override' both Community Property law (when anything accumulated during the marriage is divided 50/50) and Equitable Distribution State law (when assets are divided according to what the courts deem fair)," says Jeffrey A. Landers, president and founder of Bedrock Divorce Advisors, LLC. For example, if a couple signs a properly written prenuptial agreement in North Carolina and then move to California where they later divorce, the courts will typically adhere to the asset division terms set forth in the North Carolina document.

Making Prenuptial Agreements Proper

There's more to a proper prenuptial agreement than a pair of signatures. Couples signing these agreements should each have their own attorney review the document and must fully disclose all assets prior to signing. Failure to do so can result in the agreement getting tossed out of court if the hidden assets are later discovered. The agreement must also be signed early enough before the wedding date to avoid a later claim of coercion, although specific time lines can vary between states.

There Are Limitations

Prenuptial agreements will often include a number of stipulations such as division of household maintenance costs or particular religious beliefs for children from a mixed faith marriage. There are also limitations. "Many men falsely believe a pre-nup will give them rights in custody and child support issues," says David T. Pisarra, a Santa Monica-based divorce attorney and founder of Men's Family Law.

Attorney Michele Sacks Lowenstein of Lowenstein Brown agrees and clarifies three additional points people should keep in mind about this document's limitation.

A Prenuptial Agreement Cannot:

  • Eliminate child support payments.

  • Provide for custody of unborn children, i.e., "if we ever have children, I want my mom to be awarded custody."

  • Do anything that will promote a divorce, i.e., "I can get a divorce if I catch you having an affair."

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Are Prenuptial Agreements for Everyone?

In general, anyone bringing a significant number of assets into the partnership (houses, retirement portfolios, business partnerships, future royalties), children from a prior marriage, or paying for a future spouse's advanced education, should consider signing a prenuptial agreement. 

Yet not everyone needs one. "First time married couples generally do not need a prenuptial agreement unless one of them comes to the table with a significant amount of assets," says Pisarra. "Otherwise, it's pretty much a waste of money to prepare one." Lowenstein agrees, saying that Gen Y couples are the demographic least likely to own enough to warrant one. "Their attitude is typically, 'We don't have anything anyway,'" she says.

However, the scenario changes dramatically when second marriages and children are involved. Not only can a prenuptial agreement establish asset divisions but it will also help with estate planning issues where the children's welfare and inheritance are concerned. "Setting aside money for college, trusts for minor-aged children, secondary education or even special education issues -- all of these can all be handled through a prenuptial agreement, "Pisarra says.

Retired, but still considering a trip down the aisle? Pisarra urges his older clients to take off the rose colored glasses and stop thinking that finally, this person is The One. Signing a pre-nup can help protect accumulated assets and any children the individuals might have had later in life. "Protecting specific provisions for grandchildren is another important reason baby boomers should consider a prenuptial agreement," adds Lowenstein.

Gay and lesbian partnerships can also benefit from signing a prenuptial agreement as these couples typically acquire assets at a greater rate than heterosexual couples. Ironically, it gives them more to fight over if there is a break up.

However, Lowenstein warns that dissolving gay or lesbian partnerships can get very complicated, very quickly since not every state recognizes registered domestic partnerships. While Texas would most likely recognize a well-written California prenuptial agreement for a heterosexual divorce, the state might not do the same for a divorcing gay or lesbian couple. Then there are the federal tax issues. Alimony is not tax free for same sex couples nor do they have the protection of federal law that says transactions related to husband and wife are not taxable.

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Everyone Is Talking But Few Are Doing It

While there's plenty of gossip about which celebrities have what in their prenuptial agreements, USA Today reports that only 3% of those with a spouse or fiancé actually have one of their own, proving that the topic remains a sensitive one. But for those willing to take the plunge, Lowenstein offers some final advice for making the process as comfortable as possible. 

  • Do not be afraid to discuss this subject.

  • Be willing to spend the money for an attorney's help.

  • Communication is the key. Get everyone into a conference room to talk it out.


Editor's Note: InvestingAnswers is not a legal source. If you're interested in learning more about prenuptial agreements (and/or how they're treated in your state), you should discuss it with a licensed attorney.