What is a prenuptial agreement?

When two people get married, they join more than just their hearts — they also join their financial assets and liabilities. From cars and homes to student loans, what’s “mine” becomes “ours.” However, while the vows of marriage may focus on forever, sometimes relationships can end in separation or divorce.

Having a prenuptial agreement ensures that you and your spouse have a guideline in place for how to split up your assets and liabilities should the marriage end. While a prenuptial agreement may not be a romantic topic, it’s definitely something you and your partner should discuss before you tie the knot, as it protects both people in the marriage. What is a prenuptial agreement, how does it work, and should you get one? In this article, we cover all of this and more.

What is a prenuptial agreement?

A prenuptial agreement, often referred to colloquially as a prenup, is a written, legally binding contract made between two people before they get married. Also referred to as an antenuptial or premarital agreement, this document stipulates the division of each individual’s assets and liabilities should the couple end their marriage in divorce. It specifies what is individual property, what is shared property, and what are individual or shared debts.

Nicole Sodoma, divorce attorney and author of Please Don’t Say You’re Sorry, explains: “For example, if one partner has a retirement plan before marriage and wants it to continue to be a separate asset (not subject to any division), then a premarital agreement would outline how that would happen.” 

Sodoma continues, “The same applies for any asset or debt, to include school debt, real estate, bank accounts, etc. Premarital agreements can also address whether spousal support (also known as spousal maintenance or alimony) will be paid if the circumstances are appropriate in the event of your separation and divorce.”

What is the purpose of a prenuptial agreement?

State law specifies what happens to assets in a marriage when a couple divorces. If you and your spouse want to deviate from that directive, then having a prenup is a must. The agreement specifies your own plan for the division of assets. It’s also important to remember that not all states have the same laws regarding the division of property. Some states have equitable distribution laws that strive to divide property in a fair (but not necessarily equal) manner, while others have community property-based laws, which aim for an equal split.

When a marriage is ending in divorce, the dynamic between the couple can be emotional and antagonistic. A prenup makes the division of assets clear and simple during a particularly stressful time for the parties involved.

Who should get a prenuptial agreement?

People commonly assume that prenups are for wealthy people only and that those with average incomes don’t need to worry about such contracts. However, this is hardly the case. 

A prenup is a good idea for any couple — regardless of their individual assets —  who wants to be open about their financial status and about their assets and liabilities. A prenup ensures that the couple clarifies all of their financial rights and responsibilities.

Prenups are particularly useful for people who have children from past relationships. In this case, the agreement can specify what happens to the individual’s assets in case of their death and whether any or all of it is passed on to the child. This can reduce any confusion between the surviving spouse and the child about who gets their loved one’s assets.

Here are some other scenarios in which a prenup might be useful:

• If individuals have a large amount of debt before entering into a marriage, such as student loans, a prenup protects the other spouse from incurring any portion of the debt should the marriage end in divorce. 
• If individuals have an inheritance or a business prior to getting married, a prenup allows them to keep such things separate.
• If one individual is considerably wealthier than the other, a prenup protects the individual with more assets at stake in the event of separation or divorce.
• If one individual is considering being a stay-at-home parent or caregiver, a prenup protects that individual.

“What I hear most often is that a prenuptial agreement feels like a ‘love killer,’ and I think that’s what might deter a lot of people,” says Sodoma. “But really, a prenuptial agreement can be right for anybody, no matter the size of your estate when you marry. These agreements are not a one-size-fits-all.”

Sodoma suggests reframing the situation: “Instead of thinking ‘love killer,’ change the narrative and use the discussion as a relationship and trust builder. You’re starting this new chapter; you’ve come to the point in your life where you think marriage is the right thing for you; that is the beginning of a contract. It’s a promise. Think about the premarital agreement as parameters around that promise. It also could be insurance for what you can’t control.”

How does a prenuptial agreement work?

While some people choose to write their own prenups, it’s important for each individual to consult their own legal counsel while drafting the prenuptial agreement. This way, legal experts can ensure that the document clearly outlines everything and that nothing is left up to interpretation. In addition, having legal counsel for each party means that everyone gets fair treatment. State law governs prenups, so it’s best to work with a local legal expert.

The costs of a prenup can vary greatly. Some law firms offer free initial consults, while others charge for the first meeting. Drafting a prenup can cost anywhere from the low hundreds to tens of thousands of dollars, depending on many factors, including the lawyers’ rates, the complexities of the financial assets involved, and the clauses present within the agreement.

It can take several months to draft and finalize a prenuptial agreement, so it’s important to start thinking about it long before you get married. This way, both parties have time to discuss their financial situation, come to an agreement, and get everything in writing.

Many people think of prenups as being ironclad. While they are for the most part, there are certain cases in which the prenuptial agreement can be broken during divorce proceedings — such as if the agreement is significantly unfair to one party or if one party didn’t make a full financial disclosure to the other party. However, this is the exception, not the rule.

How do you create a prenuptial agreement?

When you and your partner are ready to begin thinking about a prenuptial agreement, follow these steps:

1.      Acknowledge that it can be a difficult or awkward conversation to have. If you’re like many people, talking about or even bringing up a prenup with your partner can feel stressful. Be prepared for a tough conversation but remember that it will greatly benefit you in the long run. Always discuss the details for your prenup when you both feel levelheaded and calm. Be open and mindful of the other person’s feelings during the discussion.

2.      Do your homework. A prenup is about much more than just who gets what if your marriage ends in divorce — it’s also about who has what. Both you and your partner will need to come prepared with a list of your individual assets and properties and their estimated worth, any debts or liabilities, and information about other aspects you may want the agreement to cover, such as estate planning.

3.      Speak with an expert. While some couples prefer to use a mediator or just one attorney, it’s best if each person has their own legal representation to safeguard their interests. “Make sure that you’ve consulted with a family law attorney,” says Sodoma. “If you’ve chosen not to use an attorney and you look at the forms online, remember that they are not one-size-fits-all. It’s all about planning and communicating your expectations for each other.” Be sure to customize online forms if you choose to take that route instead of speaking with legal counsel.

4.      Ensure your prenuptial agreement is legally binding. Once the document has been drafted and both parties have agreed to it, it’s imperative that both parties sign it. 

How can a prenuptial agreement benefit you and your spouse?

You’ve probably heard horror stories in the news or through anecdotes from friends, but couples may have to deal with some negative consequences from not having a prenup. Consider what a prenuptial agreement is all about: It allows each individual couple, based on their needs and preferences, to set their own terms for handling financial matters in case of a divorce. 

For many people, one of the biggest drawbacks of skipping the prenup is that they must let the state’s laws determine how assets are split in the event of a divorce. For example, depending on your state, if you don’t have a prenup, your spouse may have rights to shared assets acquired during marriage, or one spouse may be forced to assume some of the burden for debts the other spouse has incurred. If you and your spouse want to deviate from your state’s laws surrounding the division of assets and liabilities in divorce, then you’ll need to have a prenuptial agreement.

“If you don’t feel comfortable having the hard conversations before you get married, then you are already starting a tough climb to a successful, long-lasting relationship. Ask yourself, what are you afraid of?” says Sodoma.

If you’re already married, you can still get something similar to a prenuptial agreement — it’s called a postnuptial agreement. This agreement is similar to a prenup and is used for the same purposes. It often goes into effect if one spouse wants to leave the workforce to take care of children, for example, or if one spouse receives a large inheritance.

What are some prenuptial agreement best practices?

“The people we marry are not the people we divorce,” says Sodoma. “Premarital agreements can take the guesswork out of what happens in the event of your separation. And while it cannot address all issues (such as child custody and child support), it can allow you to focus on your relationship instead of financial worries. In addition, it will create the opportunity to have hard discussions before you start a life partnership together.”

It’s important to ensure your prenuptial agreement benefits both parties and is legally valid. In order to make that happen, follow these recommendations (and always speak with a legal professional first):

• Keep each other informed. Don’t start your marriage without being fully transparent. Keep your spouse informed throughout the process about each other’s debts, assets, and income, and make sure you both understand how a prenup works and why you need one.
• Keep it fair. A court can throw out a prenup if the terms in the agreement treat one person unfairly. Be sure to consider how you can treat each other fairly and amicably.
• Look into the future. It’s important to remember that situations can change financially over the years. Some people actually include a schedule in their prenup that accounts for adjustments to the original terms over time.
• Avoid coercion in all cases. If a court deems that either party has signed the prenup under duress, it will be invalid. Ensure you set aside plenty of time to discuss and negotiate terms as needed so that no one feels forced to sign an agreement they’re not satisfied with.
• Keep feelings to a minimum. Drafting a prenup is understandably an emotional process. However, it’s important to think about the terms logically and clearly, without letting your feelings cloud your judgment.

What are some important prenuptial agreement terms?

If you’re not a legal expert, you may be confused by some of the terminology you’re likely to hear in discussions about prenuptial agreements. Here’s a breakdown of common terms you’ll need to be familiar with:

• Assets: This refers to anything of financial value that belongs to you, such as real estate, jewelry, cars, cash, stocks and bonds, and more. Assets can also be called property.
• Liabilities: This refers to debts you bring into the marriage, which can include student debt, loans, and related items. Liabilities can also be called debts.
• Separate property: This refers to what you have bought under your name using your own money before the marriage.
• Shared property: Typically, anything you purchase after being married is considered shared property, unless your prenuptial agreement specifies otherwise.
• Separate debts: These are liabilities you acquired before you got married that are under your name.
• Shared debts: These are liabilities you acquired together as a married couple, such as a mortgage for your home.

Before taking steps to initiate a prenup, first determine whether it’s right for you and your partner. If you do decide to go ahead with it, keep it simple, leave plenty of time to iron out the details before you get married, and speak with a legal expert to make sure your agreement is valid and fair.

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