A prenuptial agreement is a legally binding agreement between two people who intend to marry that determines how assets and debts shall be divided upon a separation, divorce, or death. It may also determine whether or not or how much spousal support or alimony will be paid upon separation or divorce.
There are many good reasons for getting a prenuptial and some reasons for avoiding one.
First, the good reasons.
Because the prenuptial agreement definitively determines how assets are divided, debts are allocated, and support is determined in the event of separation or divorce, you will not have to go endure the high legal fees, trauma of having your dirty laundry aired in a public court, the many months of litigation preparation, and the inevitable stress inherent in a contested divorce battle in court before the Judge.
Having a prenuptial agreement will simplify your divorce and reduce the time and costs exponentially. Upon separation or divorce, you simply refer our prenuptial agreement and divide property and debts and determine support in accordance with the agreement. Easily done. No messy contested divorce proceedings.
If you have substantial assets going into the marriage, and you want to protect them in a divorce or make sure your assets are inherited by your children from a prior marriage, you can rest assured that your assets are protected.
If your spouse has substantial debts or may incur debts during the marriage (such as educational debts), you can make sure you are not required to pay any of his or her debts.
If you own a business, you can protect the business, keep control over it, and not be forced to sell the business or transfer shares or control to your divorced spouse.
You can avoid a fight over spousal support or alimony which can often be difficult to settle out of court by predetermining whether you will pay support, how much support, and the duration of the support.
Like anything that seems too good, there are cons to a prenuptial agreement.
So, you have just gotten engaged. Everyone is excited for the greatest day of your life when you get to marry your soulmate. Romance is in the air. However, wedding planning can be stressful. So, in the middle of this emotionally charged time, you tell the love of your life that you want a prenuptial agreement. Needless to say, the mere mention of a prenuptial-which deals with what will happened if you get separated or divorced---will inevitably cause anger, pain, and create a lack of trust between you and your soon to be spouse. This resentment can have lasting effects, a black cloud both before and during the marriage.
During the prenuptial process, you will both have to make a complete disclosure of your assets and liabilities. Maybe you don't want your fiance to know your complete financial situation.
You are deciding issues now that may not come to fruition for 10, 20, 30, maybe 40 years from now. You can never know what the future holds and what issues you will be dealing with later in life. Let's say you commit to paying a certain amount of alimony, and later you become disabled. You may be on the hook for the amount of alimony in the prenuptial agreement. Let's say your prenuptial agreement waives alimony and later you become lose your job and cannot find comparable employment, you are stuck with the waiver of alimony provision in your prenuptial agreement.
Things may work out to be unfair. Let's say you work hard in your spouse's business and help it grow in value, but you have waived your rights to any share of his or her business in the prenuptial agreement, you will not be able to share in the fruits of your labor and you will receive nothing from the business.
Let's say a prenuptial agreement provides that whatever funds are titled or registered separately are that person's sole property. This creates an incentive of each party to hoard his or her earnings into his or her separately titled or registered account and contribute nothing towards household expenses. Bills don't get paid because neither party wants to deposit money into joint household expense accounts. Fights ensue.
You may not even need a prenuptial agreement. If you are careful in handling accounts and can keep financial statements over a long period of time, you can structure your separate premarital assets to maintain their separate character so that you get them and any appreciation at divorce. Keep your premarital accounts in your separate name. Don't refer to your separate accounts as "our accounts". Don't commingle your premarital funds with funds you or your spouse earn during the marriage. Keep inheritances and gifts from others in separate accounts and don't deposit funds you or your spouse earn during the marriage. By keeping your premarital investment accounts separately titled and registered, not actively investing those funds, and not depositing money that you or your spouse earned during the marriage into your separate account, you may be able to claim that your premarital account is your separate property-along with any appreciation in value in your separate account. You need to save all investments statements from before the marriage until the end to prove you made no deposits of marital money and did not actively manage invest the funds. Put the funds in the hands of a competent investment professional and keep your hands out of the investment decisions.