Key Takeaways
Prenuptial agreements, though sensitive, can be clear and equitable when entering into marriage with the right person.
It's completely understandable and often prudent to want to protect assets and business interests that were established before entering a second marriage.
The earlier you initiate the conversation the better. A prenup is not about winning; it’s about fairness and ensuring the protection of each partner's interests.
What Is A Prenuptial Agreement?
Prenuptial agreements, often referred to as a prenup is a legal document that individuals entering a marriage create to provide clarity and certainty on financial matters in the case of death or divorce. Prenups do not follow a standard format. Instead, they are tailored for each partner to specify which of their assets they wish to remain protected. It typically pertains to assets that were earned or accumulated before the new relationship began – including brokerage accounts, properties, businesses, fine art, and antiques. Anything of value that you don't want to be subjected to marital division can go into that agreement. A prenup can also spell out special compensation or spousal support if the marriage dissolves due to infidelity or failure to disclose debts or lawsuits incurred before the relationship began. Another example, is one spouse might say: “I'm coming into this marriage with a lot fewer assets than the other partner, but I'm the one who is going to be taking care of the house and the kids. If something does happen, I should be entitled to X percentage or dollar amount.”
For people entering a marriage where partners are on a roughly equal financial footing or have very few assets, a prenup may not be necessary. We have several clients in their 40s, 50s, and 60s who are getting married for the second (or even third) time. They have accumulated substantial assets and have (grown) children from previous marriages and sometimes grandchildren to whom they’re planning to give an inheritance. Things start to get complicated with blended families, even more so if the couple has children of their own, and then the marriage dissolves.
At What Income Level Do You Need A Prenup?
There is no dollar or net worth threshold that makes a prenup necessary. It comes down to wanting to protect what you have before marriage. Divorce is the last thing happy engaged couples want to think about, but two in five (41%) of first marriages end in divorce and three in five (60%) second marriages end in divorce. Therefore, it is prudent to think about asset protection.
Starting The Prenup Discussion
It’s important for couples to broach the topic of prenups early in a committed relationship – i.e., soon after an engagement and wedding is in the works. It shouldn’t be a last-minute conversation that occurs when both parties and their families are excited (and stressed) about planning the wedding. Putting pressure on your partner to sign a prenup at the last minute can cause lasting damage to a relationship. It’s especially important to be honest with your soon-to-be-spouse that you have assets acquired before your relationship began and you would like to protect them if the marriage doesn't work out. It’s often a difficult conversation, but if you're getting into a marriage with the right person, a simple and fair prenup shouldn't be an issue.
Being transparent with your partner is also particularly important. Let the person know about your assets, retirement goals, expectations, and debts. If you’re not forthcoming with those things, the agreement could be invalidated. If you lead your partner to believe your net worth is a lot less than it actually is, that fact could have changed the premarital negotiations, and therefore the prenup could be invalidated. The same goes for failing to disclose substantial debts you have or legal actions you may have pending against you. That's why it's crucial to hire separate attorneys. When you share your prenup with your partner for review, they should have their attorney ensure their interests are safeguarded. The other thing to discuss is the potential for future changes such as having a child together, one spouse undergoing a career shift, or receiving a massive inheritance. All those things should be included since life is so unpredictable.
A Prenup Is Not About Winning
While you’ll always want to negotiate the best possible agreement, it's not about winning. It's about everything being fair and making sure you and your partner feel protected and secure. While prenups are never easy to bring up, it seems an easier conversation for a second marriage because they’ve been through divorce or widowhood before. They’ve experienced the loss of a spouse and having their life upended.
Prenup Do’s
Have significant conversations with your spouse-to-be well in advance of the wedding date.
Use a family law attorney rather than a general practitioner.
Make sure you and your partner use separate attorneys.
Consult with an estate planner. You want your and your partner’s new estate planning wishes to be aligned with your prenuptial agreement.
Get your financial planner involved. He or she can provide insight into how a prenup might impact your combined (and separate) financial goals or retirement planning.
Prenup Don’ts
Don’t rush it.
Don’t lead with emotion.
Don’t overlook your retirement and estate plan. Second marriages are often more complex, especially when it comes to sharing pensions, retirement benefits, and transferring assets to children from the blended family.
Don't ignore the possibility of spousal support if the marriage dissolves due to one partner’s bad behavior or lack of disclosure.
Conclusion
Prenups are never easy, but the earlier you start the conversation and the more transparent you are, the better the outcome will be. A financial planner can help you navigate these conversations and communicate with your estate attorneys to ensure your entire financial picture is being considered. If you plan on entering into a new marriage and want to discuss whether you should consider a prenup, reach out to us at Novi Wealth any time. We are happy to assist.
DAN SATZ MS, CFP® is a Wealth Advisor at Novi Wealth Partners
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