You’ve found the right partner and picked the perfect ring, but there’s still one more thing you need to do before you get married. Signing a prenuptial agreement – a legal agreement specifying how assets will be divided should you later divorce – may not be the most exciting item on your wedding planning to-do list, but it’s a critical step for many couples.
“Anyone who has anything they would not want to lose needs a prenup,” Rosemary Frank, a certified divorce financial analyst based in Brentwood, Tennessee, told The Cheat Sheet.
Though it may sound unromantic to start a marriage by talking about what will happen if the trip down the aisle eventually leads to divorce court, legal and financial experts say it’s simply a matter of protecting yourself.
“I tell my clients to look at it like car insurance,” Joleena Louis, a New York-based divorce and family law attorney, told The Cheat Sheet. “You don’t plan for an accident to happen, but if it does you are prepared. You will save a lot of time, money, and stress by having a prenuptial agreement as insurance.”
More couples seem to be coming around to Louis’s way of thinking. Sixty-three percent of divorce attorneys surveyed in 2013 said they’d seen an increase in clients seeking prenuptial agreements, according to the American Academy of Matrimonial Lawyers. And such agreements aren’t just for the wealthy or the famous. Couples of all financial stripes can benefit, especially if they’re bringing significant debt or assets into the marriage. Plus, hashing out money matters before saying “I do” is a sign of a healthy relationship.
“Marriage is filled with unsexy processes like taking care of sick spouses, dealing with someone getting fired, and having to budget with less than you’d hoped to have,” April Masini, a relationship expert and author of the “Ask April” advice column, said. “Accepting these very unsexy processes early on, as part of the relationship, is healthy. It’s also the road to success in a long-term relationship.”
While all couples can benefit from talking about finances before marriage, for some, a formal prenuptial agreement is a must. Here are five signs you need to sign a prenup before you tie the knot.
1. You own a business
If you own a business, it’s likely one of your biggest assets. But what happens to your company if you and your spouse break up? Without a prenup, your ex could try to claim a share of the business. A fight over ownership could easily destroy all your years of hard work building the business.
“One of the messiest things to do in a divorce is to value a business,” Rebekah L. Rini, an attorney with Lagomarsino Law in Las Vegas and the author of Everything You Need to Know About Las Vegas Divorce, said. “If you have a young business that you anticipate will take off, a good compromise for the prenup is that the W-2 or 1099 income you take from the business is presumed to be community property, but the business itself, and any increase in value, is your separate property.”
2. One of you plans to quit working
Having one spouse give up a career to stay home with the kids might be the right choice for your family, but it can put the non-working spouse in a tough spot financially if the marriage ends. A prenup can specify what kind of support the income-earning spouse will provide to the stay-at-home parent (who may have been out of the workforce for decades) if a divorce occurs.
“Couples have to look outside of their love bubble and consider real world issues,” Louis said. “If one party stays home to raise the kids, does the working party promise to financially support them, even in the event of a divorce?”
3. You have children from another relationship
Do you have a priceless collection of baseball cards you want to pass on to your son from your previous marriage? What about your mother’s engagement ring, which you hope will go to the daughter you had with your ex? Or maybe you just want to be sure your kids will receive a portion of your estate when you pass away. Addressing questions of inheritance in a prenup can prevent an ugly legal fight during a divorce or after your death and will ensure your children aren’t accidentally disinherited.
“If you have children from a prior marriage, you can use a prenup to protect their inheritance by outlining how you want your estate divided. Having these agreements determined before you walk down the aisle helps ensure that you and your spouse enter the marriage with a clear understanding of expectations and that the children from the prior marriage will be provided for according to your wishes,” Phoenix attorney Ron Adams wrote in a blog post.
4. You expect to receive a big inheritance
Say your beloved aunt passes away and leaves you a six-figure inheritance. In most states, that money is your separate property, even if you’re married, Rini explained. But if you dip into your inheritance to pay down debt you share with your spouse or buy a community asset like a house, things get tricky, and your ex could try to claim a share of your inheritance because the funds have been commingled. A prenup can help avoid a fight about who’s entitled to the inheritance money, even if you haven’t received it yet.
“You can state in a prenup that any money you inherit is yours, and if you use it toward community expenses [or] assets, it will not convert to a community asset,” Rini said.
5. You and your partner manage money differently
You’re a saver with a six-figure 401(k) and your spouse-to-be is spender with six figures in credit card debt. When each half of a couple has a different approach to managing money, a prenup can be a way to get those issues out in the open and avoid later conflict.
“Revealing debt – and types of debt – tax returns, salary and savings at the beginning can lead to a more transparent and healthier relationship,” Elaine Nissen, an attorney, mediator and collaborative law practitioner in New York, told The Cheat Sheet.
A prenup can also protect you from being on the hook for your partner’s debts should marriage not work out.
“If your intended carries a large amount of debt, have this issue clearly addressed in a prenup that allocates assets in a way that will protect you from being saddled with that debt,” Linda Loving Mellevold, a divorce and family law attorney in New York, told The Cheat Sheet.