WHY DO I NEED A PRENUPTIAL AGREEMENT?
Using a Premarital agreement to protect your children, business, and family. Why you might need a prenup or a a premarital agreement as a way to protect your assets and your children.
(I am an attorney but I am not your attorney. Nothing in this post creates an attorney-client relationship and should not be construed as legal advice. This article is for educational and informational purposes only, and you should consult with your own attorney regarding your specific situations and state law.)
STOP USING PRENUP AS A DIRTY WORD
I want to put a quick end to the idea that prenups are just for the filthy rich to protect against gold diggers. Prenups get a bad name as they presuppose an end to a marriage.
But, the terms are right there in the vows: “until death do us part.”
The marriage will end at some point. So, having something to dictate the terms of its end is extremely important especially for a second or late-in-life marriage.
You might have heard the term prenup, prenuptial agreement, antenuptial agreement or premarital agreement, but they all mean the same thing.
A premarital agreement is an agreement, set out in advance of marriage, that describes how you and your spouse agree to use, treat, and divide your assets in the event of your death or divorce.
WHY YOU MIGHT NEED A PREMARITAL AGREEMENT
A premarital agreement is especially important in a second or subsequent marriage where one or both of you have children.
I am the first one to advocate for spouses. I believe that spouses are in it together 100% each…none of this 50/50 nonsense. I believe that a husband and wife dedicate their lives, their love, and their money to each other.
However, I also believe that many spouses do not understand how the state will treat their property upon their death regardless of how many conversations the couple may have about it.
IT CAN HAPPEN TO YOU
Consider these scenarios:
Scenario 1:
Dad, widowed, takes new stepmom, also widowed, to be his lawfully wedded wife. Dad has 2 adult children of his own. New stepmom has 2 adult children of her own. Dad has a small farm, a retirement account, and a home. New stepmom has a small farm, a retirement, and cash in the bank from the sale of her home before she moved in with dad.
Dad and stepmom build a life together but have no children. When Dad dies, he leaves everything to stepmom with the understanding that she will share everything equally among the 4 children after she dies. Dad and stepmom never keep their property separate. Stepmom dies without a will. After dad died, everything was in stepmom’s name, and EVERYTHING goes to stepmom’s children.
Stepmom’s children had no idea that their mother had accumulated all of dad’s assets too (or maybe they do). Dad’s children go to an attorney. Unequivocally, dad’s children’s attorney will tell them: tough luck, it all belongs to your step-siblings now.
Dad’s children get nothing.
Scenario 2:
All of the same details of scenario 1 except dad and stepmom have a premarital agreement.
A premarital agreement can allow stepmom to use (life estate) all of the property belonging to dad for her life but transfers the property to his children at his death.
Now, the property belonging to dad goes to dad’s children, and the property belonging to stepmom, goes to stepmom’s children.
See the difference?
PRENUPS ARE FOR DIVORCE TOO
But wait, there’s more. What if the couple decides that divorce is the right decision for them?
A premarital agreement also sets out in advance how a couple will divide their assets if they ever do divorce. In community property states, all property of both parties is counted for marital division. Those states will always take the entire fortune of both spouses and put it in one pile in a divorce.
That means if one spouse is independently wealthy, receives a large inheritance, or runs her own business, then other spouse can take ½ of it.
Writing down that a business always stays with the one who started it, that an inheritance is intended to stay in a blood line, or that family wealth is supposed to stay in the family line can be very important. A prenuptial agreement will protect both the spouses and the children from unexpected loss.
WHAT ABOUT MINOR CHILDREN?
If you read why every parent needs to have a will, then you already know that a stepparent has no legal obligation to care for your children.
At a death or divorce, it is possible that he or she can take ½ of your property without any regard to the number of children you have, their ages, or their needs. (Believe me, it happens).
Although you might have all of the wealth and all of the children, without a premarital agreement, you might be stuck with half of the wealth and all of the children.
So, if you are contemplating a second marriage or a marriage after children, consider getting a premarital agreement. If you are a small business owner, a child in a family business, or a parent, consider getting a premarital agreement before you say “I do.”
WHAT IF YOU ARE ALREADY MARRIED?
If you are already married, talk to your attorney about getting a post-nup (an agreement that determines how you will divide your assets if you get a divorce even after you are already married). Or, better yet, ask your attorney to set up a trust.
Don’t rely merely on the conversations and understandings that you have with your soon to be spouse. Their children may never have heard those conversations, and the law doesn’t care about them. Further, relationships change and blended families can grow apart after a death. Be sure that your children are cared for in any event. Get a pre-nup.
WHAT DO I NEED TO KNOW TO GET A PREMARITAL AGREEMENT?
Ok, I convinced you. You agree that a prenup is a good idea for you. Now what?
1. GET AN ATTORNEY
I am always going to tell you to go to an attorney. Don’t try to DIY this. Attorneys are uniquely situated to analyze and review your situation for problem areas. They can also review your titles, the applicable laws of your state, and the nuances of your particular family.
2. Get a separate attorney for your soon-to-be-spouse.
One of the easiest ways to challenge a prenup is to demonstrate that it was one-sided. The other spouse (usually the economically inferior spouse) should always have independent counsel review the terms of your premarital agreement.
Just because the two of you sit next to each other and gaze longingly does not mean that you can use the same attorney. Be prepared to each dole out the money for independent advice and counsel.
If one of you can’t afford it, then the other is going to have to pony up the cash to cover the costs. Don’t try to do this on the cheap.
3. Disclosure
Disclosure…I mean FULL disclosure of all of your assets, income, investments, ownership, potential inheritances, checking accounts, etc. You need to list it ALL. Everything needs to be described and reviewed by the other party.
If you intend to keep secret money on the side, then you need to disclose that fact. Anything not listed in that prenup or included in the disclosures is fair game for a challenge in the event of death or divorce. List it all!
4. Terms
Of course, you already know that you are going to have to decide your terms. Are you going to waive the rights to each other’s estate? Do you want to waive the rights to alimony? Are you going to make a large gift to each other in the event of death or divorce?
What are the contingencies? What are the conditions? How are you going to include the children or the business?
5. Signing
After both of you agree to the terms and both of your attorneys have reviewed the Prenup, then you need to take the time to properly execute the document. Some states require notaries or witnesses. Other states require counsel to sign off on the transaction. In any event, it must be signed before you get hitched.
6. Get married
Finally, after signing, you have to actually go through with the marriage! As any first year law student will tell you, every contract must have consideration. Every contract must have a valuable exchange.
In the case of prenups, consideration is MARRIAGE. The contract is invalid if you never live as man and wife. Getting married is a prerequisite to enforcing any premarital agreement.
GET A PRENUP FOR YOUR KIDS
Getting a prenup is fairly painless if you know that you are going to need to make disclosures and pay for independent counsel.
Plus, knowing that your children are protected in the event of death or dissolution is well worth the money.
I don’t care what kind of agreements, understandings, or relationships that you have in your blended family. Adult children of second marriages are often cut out of the picture entirely when their parents fail to properly plan.
Don’t lose the family farm, the family business, or the family respect just because you didn’t want to talk to an attorney about your family situation. Get a prenup!