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What are prenuptials? PrenupsWhat is a prenuptial agreement? How do they work? A prenuptial agreement is a legal contract established between two parties PRIOR to marriage (hence the "pre") that outline how assets acquired before or after the marriage will be distributed in the event of divorce or death. Prenuptials take precedence over state and local laws, protecting both parties from the vagaries of impersonal laws. Who needs a prenuptial? How much do they cost? What should be included? In this guide, we will review all these details and give you some suggestions on putting together a prenup that is best for everyone's interests.
Why do I need a prenuptial agreement?This is a common questions, and it comes up because there is this fuzzy area around prenups that makes people feel like they are somehow suspicious or wrong, or only people in Hollywood need them. And it is true, that not everyone needs to worry about a prenuptial agreement. The main thing to consider is this: Do you or your future spouse have any special assets or circumstances that would be better served by having specific instructions on how they will be handled rather than relying on the random rules established by your state? For example, do either of you have children from a prior marriage? Does one of you or both of you already have significant assets or expect to receive inheritances that should remain in your possession if the marriage ends? Think of a prenup like a will -- if your marriage ends without a prenup, it is like dying without a will. It doesn't matter what your wishes were, the state will simply go through a process and distribute your assets according to the law -- your spouse gets X amount, your kids get X amount, if those people aren't alive, your parents and siblings get X amount, etc. All this is estalished in law and there is nothing you can do about it UNLESS you have a will that spells out what YOU want to happen. The same is true with a prenuptial agreement. Let's say you are a widowed woman with 2 small children, and your husband left you $1 million in life insurance to care for your kids. You then remarry without a prenuptial agreement, get divorced 2 years later, and your new ex-husband takes $500K of that money -- not fair to anyone and certainly not what was intended for that money. Or an 80 year old family business gets passed down to you, but in the divorce proceedings, it has to be sold off and liquidated to pay an ex-spouse their half of the value of the business, even though they had nothing to do with the business and it was meant to stay in the family. So a prenuptial agreement should be designed to be fair to all parties involved, with no one being rewarded or punished unfairly. Who needs a prenup? If you are both 25 years old with no assets and just starting out in life, chances are you don't need any prenup agreements (though if one spouse has $150K in student loans and the other is debt free, it might make sense to spell that out in an agreement). Normally, prenups occur only when one party has significantly more assets than the other, and when children from prior marriages are involved.Are Prenups Legal? What to watch out for..Prenuptial agreements are legal, but some steps should be taken to make sure they remain enforceable. First of all, full financial disclosure is required by both parties. All current and future expected assets and liabilities need to be spelled out on paper, along with access to past tax returns and financial records. If you spouse is agreeing to $1000 per month alimony based on the fact that you appear to have only $50K in assets, this won't stand up in court if it is later revealed that you have another $10M in a trust fund you "forgot" about. You should include any expected inheritances here as well, along with any debts or other income. If debt is involved, your prenup should specify how and by whom it will be paid. Secondly, the prenup should be prepared, reviewed, and signed adequately in advance of the wedding -- it cannot be signed under duress at the last second before the wedding ceremony. So plan it in advance and finish it in advance. Also, both parties involved should have independent legal review and advice on the prenuptial agreement - use separate lawyers or counsel for unbiased opinions and advice. Of course the end result needs to be a written document - oral agreements are not valid. A prenup created under these conditions is generally considered fair and reasonable. We recommend you stop by the bookstore and pickup a book about prenuptial agreements - $20 spent doing a little homework is a minor investment, and you should familiarize yourself with what you can and can't do in a prenup. Or check out some of the offerings from Nolo.com, like "Prenuptial Agreements: How to Write a Fair & Lasting Contract" or LawBooks.com "Write Your Own Prenuptial Agreement" by Haman.How much do prenups cost?Most prenuptials agreements are not very difficult to write. Most lawyers start with a basic template and then customize it with the financial specifics for each couple - property and assets listings, how assets will be distributed, alimony provisions, etc. In fact, you can even buy simple template documents yourself and create your own prenuptial, but as discussed above, for the prenup to be upheld both parties involved need to have independent counsel review, so at some point in time you will need to get legal professionals involved to review and sign off on the document. How much do lawyers charge for this? You can expect to pay about $600 on the low end, and as much as $10,000 or more if you have a very complicated situation that requires hours and hours of back and forth negotiation between lawyers involved. For an average couple, $800-$1500 should more than cover it. Get a written estimate from your lawyer in advance. We have heard of cases where a lawyer quotes a price of about $500, then when he saw the parties assets list and realized they had more money, sent them a final bill for almost $2000. This is unethical, and fortunately there had been a verbal contract at the lower amount, so the higher billing was refused and did not have to be paid. While lawyers want you to think they are on your side, unless they really are an old family friend or something, remember these folks see you with a big $$ sign over your head when you walk in the door. Ask anyone who has been in a divorce - the goal of many of these lawyers is to take as much money from you as you allow them to. Be careful.You can also find some online sources for help with your prenuptial, like LegalZoom.com. They offer prepared prenup docs, including review, for less than $200. What is included in Prenuptials?Each prenuptial is tailored to the individuals involved, but common elements normally include:
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