
BY: Morgan Gearhart J.D.
Vice President & Trust Officer
Argent Trust Company
Many people who’ve heard of prenuptial agreements think of them as only necessary for ultra-wealthy celebrities — people like Kanye West, who memorably turned “We want prenup” into a chant in his 2005 single “Gold Digger.”
But contrary to popular belief, even individuals of more modest means would be wise to consider a prenuptial agreement prior to marriage. Few people entering into marriage stop to consider the possibility that their relationship might not be lifelong. But, statistics from the CDC tell us that approximately 37% of all marriages in the United States end in divorce or separation.
Instead of having a court determine which assets are to be considered marital and which are separate, a prenup allows a couple to determine how they would like for the property attained before and during their marriage to be split in the case of divorce.
Why prenuptial agreements are a win-win
A prenuptial agreement is the perfect opportunity for an individual to lay the groundwork for what he or she has accumulated, or expects to accumulate, should there be a divorce. Each individual can contemplate the assets that they bring to a marriage and decide what will happen to their assets should the marriage fail.
This is a win-win situation. If the marriage does not end in divorce, then the prenup is simply a precaution and a planning tool. But if it does end in divorce, then much of the time-consuming and costly effort of fighting over assets will have already been decided. In theory, the prenuptial agreement is arranged during harmonious times, and will govern if the relationship turns contentious.
It’s common for an individual to use a prenup to protect their family inheritance — even one they haven’t yet received — from the other spouse. It’s also common to have provisions to provide for children from a previous relationship. Some other common items covered in a prenup are debts, financial planning, estate planning, interfaith disputes, real property division and spousal support. While prenups are covered by state law, it is uncommon for a prenup to be upheld when it addresses preemptively arranged child custody and support, forfeiture of alimony rights, provisions encouraging divorce or provisions about anything illegal.
Prenuptial agreements for millennials
Although many people would be happy to take another’s share of wealth, few would like to share in someone else’s student loans or debt. This is a particularly relevant issue for millennials, who are waiting longer to get married than earlier generations — according to Pew Research Center, 46% of millennials ages 25 to 37 are married, compared with 83% of those from the Silent generation, born between 1928-1945 and married before 1968. This means that millennials will have accumulated more wealth by the time they get married — but possibly more liabilities as well. According to Pew Research Center, the share of young adult households with student debt doubled from 1998 to 2006, and the median amount of debt for a millennial is nearly 50% greater than that of a Gen X person with student debt. The average college debt among student loan borrowers in America was $37,500 in 2020, according to Investopedia. With this in mind, many millennials are using prenuptial agreements as an opportunity to be proactive with their prospective spouses about their debts as well as their assets.
One more motivator for millennials to get prenuptial agreements is to avoid the costly mistakes of their parents. With a large percentage of people coming from divorced households, the younger generations of today are looking for ways to plan and avoid fighting over issues that can be prevented.
Things to discuss in your prenuptial agreement
The negative stigma of a prenuptial agreement should be long gone. Discussing a prenup with your estate planning attorney should be part of a healthy estate plan. It should be considered along with a will, trust, power of attorney and healthcare directive, and can be amended at any time. Use it as an opportunity to be open and honest about what you have and to discuss what is important to you with your future spouse.
Determine how you want to title big-ticket items that one individual might have purchased before the relationship, such as a house, a vehicle or collectible art. Consider whether investment accounts that existed before your relationship should remain the property of each individual, or whether they’ll be combined and have shared ownership. You can also use this opportunity to discuss financial goals for the future and specify investment strategies to achieve them.
In addition, a prenuptial agreement can direct the flow of new money that’s earned by either person in the relationship, such as into separate or shared bank accounts. The individuals can also agree on how they’ll share household expenses or pay bills, and even set up individual spending allowances to ensure that they remain within a fixed budget.
Throughout this process, transparency is absolutely vital. You need to fully disclose your financial picture to the other spouse before entering into a prenup agreement — and that means the good, the bad and the ugly. This is crucial because each party cannot agree to a division of property that is not fully disclosed. Both parties should have separate legal representation so that it is evident that both parties are entering into the agreement voluntarily and fully informed. And, the prenuptial agreement should be fair and not take the rights of one party unjustifiably.
In conclusion, consider a prenuptial agreement before your marriage. There are many advantages to taking the steps necessary to plan a prenuptial agreement, and it is a great opportunity to start your marriage off on the right track by being fully transparent about your assets and liabilities of today and those you are expecting in the future.
If you need advice on how prenuptial agreements may need to be included in your estate plan, or simply need help with estate planning strategies, please contact me or any one of our professionals at 800.375.4646. We are ready to help.