How Prenuptial Agreements Work

Are you about to get married? Maybe you had a simple wedding in mind that has now grown into a huge wedding as if it had a life of its own! However, the financial side of a marriage often needs even more careful planning as it can become complicated.

Growing commitment and love are hallmarks of the period of time before a wedding. Most engaged couples think their marriage will last forever and do not want to consider the fact it may end in unhappiness. Yet with around 40 percent of marriages ending in divorce, it raises issues like:

• How do you want your debts, property, and assets handled in the event of a death or a divorce?
• Should one of the spouses receive alimony from the other?

In light of this and other issues, some couples are now considering a prenuptial agreement as the best way to prepare for any eventuality that may beset the marriage after the romance fades.

A prenuptial agreement is a private contract that two parties enter into to settle matters of finance in advance, should one spouse die or divorce. It is also known as a premarital agreement, a marriage contract, a prenup or an antenuptial agreement. It is not romantic but many experts in the financial field say it is a very smart idea. It takes your financial matters out of the hands of the state. However, you should have a serious and frank discussion with your romantic partner before you enter into such an agreement. Read on to discover the points you will need to address.

Is a Prenup Needed?

Some think only wealthy people require a prenuptial arrangement. In reality, a prenup should be considered by anyone who has liabilities, properties or personal assets. A prenup not only clarifies the financial responsibilities and rights for each party involved in the marriage but also addresses the distribution of property in an instance of death or divorce. They can also protect spouses from the debts each of them has previously accrued. They can address how property rights will be shared out with children from a previous marriage as well as determine if one partner can receive alimony. However, a prenup cannot cover any activities or actions that are illegal or that contradicts public policy. For example, child custody rights for a child yet to be born cannot be part of the contract. Usually, it is advised the prenup should only cover financial matters not issues like child-care responsibilities and household responsibilities.

It is normal for a time element to be part of a prenuptial contract. Most start on the wedding day and last for an indefinite amount of time. However, some are written to take effect once a certain number of years have passed. Others may state they end once the couple has been married for a certain length of time. This is another reason a prenuptial contract should be fully discussed with your partner well before the date of the wedding, so both parties can understand it fully and mutually craft a fair agreement.

If you are thinking about a prenup, you are going to have to be very honest regarding the state of your finances. An agreement can be invalid if one party hides something from the other party. Below is a checklist of important subjects to cover.

• Draw up a list of all property, liabilities, and assets and their approximate market values.
• The identification of important issues.
• Stating your goals.
• Honesty in prenup discussions.

You are ready to make preparations for the prenup once you have discussed the above subjects. To some degree, the preparation of a prenup is similar to the writing of your own wedding vows.

Prenuptial Agreements Costs and Legalities

Some people want to write their own prenuptial contract. Certainly, it is the least expensive method but if you do not know what you are doing it may lead to financial ruin down the road. It is often recommended that each party gets a separate attorney to handle the contract drafting. The attorneys you hire should practice family or matrimonial law. They will have knowledge of prenuptial contracts as well as knowing the laws of the state you will reside in once you are married. The attorneys work together to write the document with the best interests of each client in their mind. This can assure a prenup that is fair to both parties and helps it to be enforceable and valid in a court, should the prenup have to be invoked in a subsequent divorce.

Throughout the United States, prenuptial contracts are considered legally binding. Andif you reside in a community property state, assets that are obtained during the duration of the marriage are considered to be owned jointly. When a marriage ends, they are required to be distributed equally.

A prenuptial contract must meet the following requirements for it to be considered as enforceable and valid:

• Not opposing public policy or be illegal.
• Contains full financial disclosure and details.
• Be in writing and signed.
• Undertaken voluntarily by both parties.
• The agreement is notarized.
• The prenup is fair to both parties.
• The prenup is completed before the marriage ceremony.

A judge retains the power to invalidate the agreement is it fails to meet one or more of these criteria.

Source: Franson, Margaret. “How Prenuptial Agreements Work.” HowStuffWorks, HowStuffWorks, 21 July 2008, money.howstuffworks.com/personal-finance/financial-planning/prenuptial-agreements.htm.