With gray divorce (and remarriage) on the rise, prenuptial agreements (or more commonly called “prenups”) are being considered, proposed, and executed on a wider scale nowadays. Most individuals marrying later in life have accumulated and / or inherited assets over their lives and are interested in securing those assets for their own support in later life, for their next of kin, or their favorite philanthropic entity. Alternatively, debt-free individuals are hesitant to bring outstanding liabilities into the equation through marriage as such can jeopardize the stability of their otherwise financially stable lifestyle.
Considering prenuptial agreements is therefore becoming less of a stigma to discuss and contradictory to common belief, can help build trust among the partners as the process requires each to be honest and forthcoming.
Who needs a prenuptial agreement?
Unlike the common assumption that only the ultra-wealthy need to have a prenup, individuals with any assets to protect should consider drafting one. It can be for very specific purposes like protecting inherited assets or a particular real estate investment, or it can be a tool for general distribution of assets if the marriage were to dissolve.
In addition, if one partner is bringing financial liabilities to the marriage, it may be worth the other partner’s while to consider getting a prenup to protect her / his assets and financial well-being. This is especially important for older individuals as their peak earning years may be over and they may be entering that stage in their lives when they depend on their assets for subsidizing their lifestyles.
Similarly, young couples with the potential to earn high income are good candidates to discuss a prenup. Some considerations would be how assets and liabilities would be distributed if the marriage was to end.
Pros and Cons:
Of course, one of the biggest advantages is the distribution of assets and delineation of responsibilities that a prenup can provide. Most couples spend too much time planning for the wedding and their honeymoon, and not enough on planning for financial decisions, the dissention of which is ironically one of the leading causes of divorce in the U.S.
It can provide peace of mind not just to the individual but also to the intended heirs. How many tv shows have we watched where the adult kids are worried that mom (or dad) is getting charmed by an unscrupulous (and almost always much younger) individual? But really, all jokes aside, these cases happen every day and it is only wise to think these matters through.
But perhaps the biggest advantage of even discussing a prenup agreement is that each partner gets to state their expectations regarding their current or future assets acquired during the marriage. There are no misunderstandings, and no presumptions. And if there are, it is time to talk through them and sort them out.
For smooth execution and an ironclad agreement, it is highly recommended to work with an attorney to draft the contract. Each party should hire their own legal counsel to ensure objectivity and an equitable outcome. That significantly improves the probability that the agreement will hold up in court if and when that time comes.
And as a financial planner with over two decades of experience, I strongly encourage individuals to at a minimum, run credit checks on their future spouses, especially if they are planning to co-mingle their income and have joint accounts, and eventually have jointly owned assets and liabilities. A little work today can go a long way in protecting your financial future.