If you’re concerned about protecting yourself financially, you’ve come to the right place. Prenups are, first and foremost, a way to protect yourself financially. Word to the wise: prenups can protect anyone, not just the ultra-wealthy. So, if you’re here and you feel like you’re the disadvantaged spouse, don’t worry; there are ways to protect you, just as there are ways to protect the wealthier spouse. Whether it’s protecting your assets, protecting against debt, or adding in a lump sum clause, there’s something for everyone in a prenup. Let’s dive in!
Protect your assets
First of all, prenups can help you protect your assets. What are assets, you ask? Good question; assets are anything with economic value, such as real estate, bank accounts, investment funds, retirement accounts, jewelry, crypto, and much more. The question is, how do you want to treat the property you bring into the marriage, and how do you want to treat the property that you accumulate during the marriage? Should it all be kept separate? Should only the property you bring into the marriage be separate?
The key terms to understand here are separate property and marital/community property. If something is deemed separate property in a prenup, it is not subject to division in a divorce. In other words, your spouse has no way of touching it. If something is deemed marital/community property in a prenup, it is subject to division in a divorce. In other words, a court will divide up anything considered marital/community property between you and your spouse.
Moral of the story? Whatever you want to protect, you should make sure to keep it separate in your prenup.
Protect against debt
One surefire way to protect yourself financially is to make sure you don’t absorb any of your partner’s debt. And, yes, it is possible that you could take on some of their debt, even if it’s not in your name and even if it was taken out years before the marriage. Does your spouse have a staggering amount of student loans? Credit card debt? Business loans? These types of debt, and others, are stuff you do not want to be responsible for in the event of a divorce, trust us!
The important concepts to understand regarding debt are debts accrued before the marriage and debts accrued during the marriage. They are two different things and can be parsed out differently. For example, you can make sure that any debts accrued before marriage are separate, but then you can say debts accrued during the marriage are shared.
Takeaway? If you want to protect yourself against your partner’s debt, you should make sure both debts accrued before marriage and during the marriage are marked as separate debts.
Protect yourself against alimony (or protect yourself by keeping alimony)
Depending on what side of the fence you are sitting on, you may either want to protect yourself against the possibility of paying alimony or protect yourself by leaving alimony on the table. Either way, it’s possible to include this in your prenup. Of course, you’ll need to negotiate this with your partner and possibly compromise a little.
Without a prenup, the higher earner may be required to pay their ex-spouse alimony money for a period of time or indefinitely. There are rules set out by each state on how to determine if alimony is appropriate, the amount, and the duration.
In your prenup there are several ways you can address alimony in a prenup. For example, you might waive alimony altogether, which means neither of you will be entitled to ask for alimony in the event of a divorce. You might also cap the alimony in some way, whether by amount, percentage or by restricting the type of income that can be used for alimony. If you’re not sure what to do about alimony, you can always write in your prenup that you’ll let the court deal with it if you ever get divorced.
Moral of the story? Prenups can protect you by either eliminating/limiting alimony or by leaving alimony on the table.
Protect your businesses
If you have an entrepreneurial spirit and either already own a business or plan on opening one, then this one is for you. Prenups can help make sure your business is protected. Every state is different, but many states will “split up” a business in a divorce by requiring the business-owning spouse to pay a percentage of the value of the business to the other spouse. For example, a court might say Spouse A (the business owner) is required to pay Spouse B 40% of the business’s value to offset that business asset. That’s just one way a court may handle it; again, it depends on your situation and state laws.
Takeaway? If you’re looking to protect your current business or future business, make sure your business is marked as separate property, just like you would with other assets you want to protect.
Protect your inheritances and gifts
No, your inheritance is not automatically “safe” in a divorce. Yes, inheritances can be split up between spouses. Same thing with gifts (think: wedding presents, large Christmas gifts, etc.). How do you want to treat gifts, such as wedding presents, in the event of a divorce? Are you okay with splitting them, even if they came from your family? What about inheritances? Are you okay with possibly splitting an inheritance with your future ex? Not to worry, prenups can help protect both your inheritances and gifts.
The lesson here is if you want to protect your future inheritances and gifts, you’ll want to mark them as your separate property, not subject to division in your prenup, just like your other assets.
Protect yourself if you are a stay-at-home parent or have less wealth than your partner
Contrary to popular belief, prenups can also protect the person with less money in the relationship. Thanks to the media and Hollywood, prenups are often portrayed as only beneficial for millionaires, and that’s just not true! There are several ways a prenup can provide for a person with less money.
For starters, a prenup can provide a lump sum payment which helps equalize any financial imbalances between a couple. For example, a lump sum clause might say something along the lines of, “Spouse A shall pay Spouse B $200,000 upon divorce.” This is not alimony; it’s separate from that. It’s simply a payment made to benefit the lesser-monied spouse. Why? Maybe they skipped out on having a career to take care of the house and kids. Maybe they make significantly less than their partner, and having a lump sum clause helps them feel they are on equal ground as their partner.
Another way a prenup can provide for a lesser-earning spouse is to allow them to reside in the primary residence during the pendency of the divorce and for a period of time after the divorce. For example, the prenup might say something like, “Spouse A may reside in the primary residence during the divorce and for a period of three years after the divorce is finalized.” This is especially useful for those stay-at-home parents who are the children’s primary caretakers.
Allowing the lesser-earning spouse to have more assets is another great way to protect yourself if you are the lesser-earning one! This may be through phasing in separate property or allowing certain types of property to be considered marital/community property instead of separate.
Takeaway? Protecting yourself with a prenup if you are the lesser-earning spouse is not only possible but important! You can do so in many ways: you can afford more assets, ask for a lump sum payment, request to stay in the primary residence in the event of a divorce, and more.
Protect yourself financially if your spouse dies
Two words: life insurance. Financially savvy folks tend to think about all possible obstacles. One of them being if their spouse passes away. This may be especially useful for a financially disadvantaged spouse. A life insurance clause in a prenup can require the spouses to maintain a life insurance death benefit in a certain amount for the benefit of the other spouse. For example, you might have the clause say something along the lines of, “Spouse A will maintain life insurance for the duration of the marriage with a death benefit of $50,000 and shall name the beneficiary as Spouse B.”
Including a life insurance clause protects the grieving spouse by providing money for things like funeral expenses, medical costs, and any other unforeseen expenses that come along with a spouse passing away.
Nicole Sheehey is the Head of Legal Content at HelloPrenup, and an Illinois licensed attorney. She has a wealth of knowledge and experience when it comes to prenuptial agreements. Nicole has Juris Doctor from John Marshall Law School. She has a deep understanding of the legal and financial implications of prenuptial agreements, and enjoys writing and collaborating with other attorneys on the nuances of the law. Nicole is passionate about helping couples locate the information they need when it comes to prenuptial agreements. You can reach Nicole here: [email protected]