A prenuptial agreement may be the first legal document an engaged couple signs, even before they apply for a marriage license. Think of a prenup as a complement to the marriage license and estate planning documents: it’s another document to protect the couple’s future.
A prenuptial agreement, as described in Forbes’ recent article, “Pre-Nuptial Agreements: A Hedge For Happily Ever After,” protects both members of the couple with a legal agreement that designates certain current and future assets as owned by an individual and those owned by the couple together—marital property.
Although there are two types of laws dealing with the ownership of marital property (common law and community property), typically if one spouse enters a marriage with significant assets and would like to keep these assets separate, a prenuptial agreement can provide him or her with protection, if the marriage ends in divorce.
For example, although inherited assets have traditionally been considered separate assets, these assets can easily become marital property. It’s possible for these inherited assets to remain as separate property through careful segregation. It’s also common for a couple to unintentionally comingle these assets, making them marital assets.
Depositing inherited assets into a joint account or using separate assets to purchase a jointly owned residence that benefits both spouses are frequently seen examples of comingling that can create marital property. Even when a couple attempts to keep assets separate, depending on state law, an inheritance (or the appreciation) may still become marital property.
In some instances, a trust with a prenuptial agreement may give a person the best protection against the inadvertent conversion of separate property into marital property.
Prenuptial agreements can be quite important to protect children in high-net worth families. These agreements create a clear structure that will help to avoid uncertainty of a divorce settlement and make certain that the intended beneficiaries receive the appropriate family assets.
No, discussing a prenuptial is not romantic. However, don’t think of it as planning for divorce, but as a means of putting the couple’s financial house in order. When there are children from prior marriages or if one spouse has significantly more wealth than the other, the conversation will be necessary at some point in time. Take care of this business now, so you can move on to enjoying building a new life together.
Reference: Forbes (July 30, 2018) “Pre-Nuptial Agreements: A Hedge For Happily Ever After”