Miranda is an award-winning freelancer who has covered various financial markets and topics since 2006. In addition to writing about personal finance, investing, college planning, student loans, insurance, and other money-related topics, Miranda is an avid podcaster and co-hosts the Money Talks News podcast.
David Schepp is a veteran financial journalist with more than two decades of experience in financial news editing and reporting for print, digital, and multimedia publications.
A prenuptial agreement typically spells out how a coupleâs finances and property would be handled if the marriage ends through divorce or the death of a spouse. It may address the division of assets such as real estate, bank and investment accounts, retirement savings, business interests, inheritances, debts, digital assets, and even pets. A prenup can also establish whether either spouse would receive spousal support (alimony) and under what circumstances. Although a prenup can clarify many financial matters, it generally cannot determine issues involving children, such as child custody or child support, because courts decide those matters based on the childâs best interests and applicable state law.
What are the pros and cons of a prenuptial agreement?
A prenuptial agreement can provide financial clarity and legal protection by allowing couples to decide in advance how assets, debts, and other financial matters would be handled if the marriage ends. It can help protect family businesses, inheritances, and property owned before the marriage while reducing the likelihood of lengthy legal disputes later. On the other hand, discussing a prenup can be emotionally difficult if one partner views it as a sign of mistrust or an expectation that the marriage will fail. To be effective, a prenuptial agreement should be negotiated openly, with both partners participating voluntarily, fully disclosing their finances, and ideally obtaining independent legal advice before signing.
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Agreeing on mutual financial protections could make sense in a marriage.
Prenuptial agreements are often associated with the rich and famous, but even if your income is modest, you may benefit from a prenup if you want to ensure that whatâs yours remains yours in case âTill death do us partâ should devolve into âSpare me the pleasure of your company.â
Protecting yourself with a prenuptial agreement can be prudent if you have substantial assets upon marrying, or if youâre getting remarried after a period of being divorced. A prenup is generally considered a way to protect everyoneâs interests, whether youâre building a business, have built a substantial nest egg, or expect to inherit substantial assets.
Key Points
Prenuptial agreements generally address the division of assets like real estate, investment accounts, and cash should a marriage falter.
A prenup can also include provisions about spousal support, businesses, digital assets, and pet ownership after a divorce.
Prenuptial agreements donât involve most issues related to children, such as custody, support, and visitation.
A will typically outlines how assets are to be divided and disbursed after someoneâs death, but a prenuptial agreement can also play a role. Particularly in a marriage involving children and other beneficiaries beyond a spouse, a prenup can reinforce the terms of the will when the two documents agree, helping to remove any ambiguity about the deceasedâs intentions. In some instances, a prenup may even supersede some late changes to a will.
A prenup can establish each partnerâs financial responsibilities, such as spousal support (known as alimony). You can also outline how you will accumulate assets together or separately during the marriage. For example, you might decide to use a prenup to ensure that a stay-at-home spouse receives contributions to a retirement account or has some other way to accumulate assets that can be drawn upon if the marriage ends.
How a prenup can protect you
Although prenuptial agreements get a bad rap from cynics who claim itâs preparing for failure, the truth is that a prenup can protect you. As the age for a first marriage continues to rise, the popularity of prenups is also increasing.
Even though divorce rates have been declining, a marriageâs dissolution remains a possibility, and younger generations recognize that prenups provide a way to protect their assets.
Maintain your premarriage assets. Maybe you own a house, or perhaps you have investment accounts and significant cash. With a prenup, you can delineate which assets remain yours during divorceâincluding which accounts are off-limits to an ex claiming a chunk of the appreciation.
Protect future earnings. Depending on the situation, you can outline the ownership of a business you establish, or how you will claim future earnings, including bonuses. Additionally, a prenup can help you claim your inheritance without a partner getting part of it.
Establish financial stability for a partner. In some cases, spouses decide that one of them will stay home and not work, thereby reducing that partnerâs earning power. A prenuptial agreement can outline responsibilities, such as making spousal contributions to an IRA and establishing what type of spousal support a partner would receive after a divorce.
Delineate how to divide other items of value. You can also figure out how to divide digital assets, determine how to manage a cell phone plan after divorce, and even determine what happens to your pets after divorce.
A prenup offers you the chance to sit down with your partner, transparently discuss finances, and then establish an agreement about how to proceed during the marriage and (potentially) after. The exercise can teach you and your partner how to talk about money and ensure that you share the same financial values.
B-Money Smart video: Should you get a prenuptial agreement?
Prenups are meant for the rich and famous, right? Not necessarily.
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How to write a prenuptial agreement
As you prepare a prenup, there are some concepts to keep in mind for transparency.
Once youâve shared everything, itâs time to decide how you want to treat various assets and debts. You can decide to treat what you have as:
Separate. Each of you manages your own assets and debts, and the other person has no claim to or responsibility for them.
Joint. All assets and debts are essentially in one big pot and you both own them. You can decide whether youâre each responsible for half, work out a proportional responsibility, or create your own formula.
Combination. You can also decide to mix things up. For example, you could decide that anything you each bring into the marriage remains separate, but come up with a joint formula for assets and debt acquired during the marriage.
Consider the fairest approach for both of you. For example, suppose one of you earns substantially more than the other. In that case, you may decide that debt and investment accounts should be apportioned to account for how much the lower-earning spouse contributed to the householdânot just how much money was brought in.
Donât forget to include business interests when deciding how to treat assets and liabilities. If you plan to start a business, you may want to make sure your partner canât take a large chunk of it if they decide to divorce you.
Prenups and community property states
In most cases, a prenuptial agreement supersedes community property state laws that would normally simply divide in half any assets acquired during a marriage. With a prenup, itâs possible to acquire property together in a community property state, but have it divided using a different formula.
You might also include how youâll treat gifts to each other, what type of confidentiality you expect, how to manage estate planning, what to do with business succession planning, and other issues. If you have pets, you can include how to manage custody and visitation.
Note: Child support or custody and visitation arrangements shouldnât be included in a prenuptial agreement. These matters are usually decided by state law.
Pros and cons of a prenuptial agreement
Consider the positives and the negatives of a prenup before you decide whether itâs the right move for you and your partner.
Pros
Cons
Requires you to talk about money and financial values with your partner.
Might not address changing situations that can happen during a marriage.
May reduce the cost of divorce, as many matters are settled beforehand.
Can be overridden in court, especially if it doesnât follow state laws.
Protects assets you own as well as property you might acquire later.
May appear to doom a marriage before it starts.
Should you sign a prenup?
After weighing the pros and cons, itâs time to decide whether signing a prenup is the best choice for you. In general, if someone asks you to sign a prenuptial agreement without discussing it first, you may want to think twiceâabout the prenup and the marriage.
On the other hand, if your partner suggests you discuss and create the prenup together, it may make sense to sign itâespecially if you get the chance to build in protections on your behalf. The key is to go through the process together, rather than have one partner issue an ultimatum.
The bottom line
Prenuptial agreements are increasingly popular among younger generations because the legal safeguards they provide are seen as mutual financial protection. Much of the cynicism aimed at prenups is disappearing for millennials and Generation Z. As long as both partners are transparent and able to contribute to a marriage, a prenup can be an instructive way to getâand stayâon the same financial page.
This article was most recently revised and updated by Miranda MarquitThis article was most recently revised and updated by David Schepp
