Crafting the perfect prenup is like choosing the perfect first-day-of-school outfit. It should be tailored to fit you perfectly based on your body type, it should feel comfortable, and you should feel confident after putting it on. Same thing with a prenup. It should be tailored to fit your needs, it should be comfortable for both you and your spouse, and you should both feel confident with the outcome after signing.
So, how do you craft the perfect prenup for you? You should first understand what your options are. Then, you should contemplate how they play into your needs and life goals. This article will help get the brain juices flowing on how to craft a prenup that’s right for you.
Do you want to protect any assets and income?
The “meat and potatoes” of a prenup is protecting assets. Assets are anything with economic value, such as real estate, cars, bank accounts, investment accounts, artwork, jewelry, crypto, NFTs, etc., etc. In a divorce, depending on your state and your specific situation, your assets can be divided 50/50, 60/40, 70/30, or any other combination of split. The good news? A prenup can make sure your assets are not split up in any way and remain separate property. The question becomes: do you want to protect certain assets? If so, you should mark those as your separate property in your prenup.
You should also think about things like appreciation in value (e.g., your house that is separate property gains $100,000 in value, do you want that increase to remain your separate?). Also, purchasing property with separate property (e.g., your house is separate property, and you sell it. With the proceeds, you buy another house. Is this new house still separate property?)
What about future earned income? Earned income can be many things; it may include salary, bonuses, commission, royalties, rental income, etc. You can make sure that any earned income is protected and remains your separate property.
At the end of the day, what’s right for you depends on your goals. Try listing out all of your assets and earned income on a piece of paper and think about if you’re okay with potentially losing a portion of it if you ever get a divorce.
Do you want to protect yourself against your partner’s debt?
Debt can be scary for many people, and if your partner has any debt, then you should consider protecting yourself from that. Does your partner have existing credit card debt, student loans, car loans, business loans (or any other type of debt), or do they plan on taking out any debt after getting married? If so, you could end up footing the bill for some of that debt in a divorce without a prenup. Scary, we know! Not to worry, a prenup can help with that. You can make sure that any debt accrued before the marriage and during the marriage is the separate property of the person who borrowed it.
Food for thought: are you okay with paying for some of your partner’s student loans or credit card debt if you get a divorce? If the answer is no, then you should definitely consider keeping each person’s debt separate in your prenup.
Do you want to protect any future inheritances or gifts?
For some reason, people always think that inheritances are automatically protected in a divorce, and it’s just not true! Inheritances can be split up in a divorce, and if you want reassurance, you should delineate your inheritance as separate property in a prenup.
The same goes for gifts. You may want to protect things like large wedding gifts or, if your parents are generous, they may give you large Christmas or birthday gifts, too. Maybe they randomly send you money just for the heck of it. Gifts, whether it be real estate, money, or something else, can be protected in a prenup.
The question remains: if you are expecting an inheritance or gifts, do you want to protect them in your prenup? If you don’t, you risk losing it in a divorce.
Do you want to include a lump sum clause?
A lump sum clause is basically a payment upon divorce from one spouse to the other. This is usually used for couples with significant wealth disparities and/or stay-at-home parents who don’t take in an income or have the means to support themselves. It’s usually a way to equalize the wealth between the parties and allow the more financially disadvantaged spouse to feel supported, even in the event of a divorce.
For example, let’s say Amanda and Pete are engaged and writing up their prenup. Amanda plans to be a stay-at-home mom, and Pete is a CEO making over $500,000 a year. They decide to include a lump sum clause in their prenup, which states that upon divorce, Pete will pay Amanda a lump sum of $1 million. This helps balance out any uneven power dynamics within the relationship and gives Amanda agency and independence. She feels safe (and not trapped in the marriage), knowing that even if they were to get a divorce, she’s supported.
What you need to consider: is there any reason that a lump sum clause may be appropriate for your situation? If so, you might consider adding it to your prenup. How much money you include is up to you and your partner, and you will have to work that out privately.
How do you feel about alimony?
Alimony, sometimes called spousal support or maintenance, is money paid from one ex-spouse to the other after a marriage comes to an end. Alimony can vary in duration and length depending on the state laws and your specific situation. Sometimes alimony can be paid for a very short period of time, such as only during the divorce proceedings, or it can be paid for a very long period of time, such as until the other person remarries or dies. That may sound scary to some people, but the good news is you can change your alimony destiny with a prenup. In a prenup, you can dictate whether or not one or both people will be allowed to have alimony. With HelloPrenup, you can waive alimony altogether or keep it on the table and let a judge decide.
Whether you are Team Alimony or Team No Alimony, this is something you need to think about and discuss with your partner. It may depend on each of your financial situations, jobs, roles, and children. For instance, leaving alimony on the table for someone who is a stay-at-home parent may be a good idea, but again, this is a personal decision that only you two can make.
Do you want to maintain separate or joint bank accounts during the marriage?
Prenups don’t just cover what happens in a divorce but also what happens during the marriage. You may outline certain financial obligations during the marriage, such as whether or not you will have a joint bank account. If you do decide to have a joint bank account, then you will also need to work out how much goes in and out of that bank account. For example, what expenses will be paid from the joint account? How much will each of you deposit each month? These sorts of things should be agreed upon between you and your spouse if you agree to have a joint bank account. Also, keep in mind that joint bank accounts are generally considered joint property subject to division in a divorce. So that joint bank account will most likely be split up accordingly in a divorce. Whether that’s 50/50, 60/40, or something else depends on your state and your situation.
At the end of the day, you and your partner need to work this out together and decide if having a joint bank account is right for you. If so, then make sure to sit down and plan out those finances to a degree you both find fair… because it will likely be split up if you ever get a divorce.
Do you want to add any other additional miscellaneous clauses?
We covered all the major financial topics you may want to consider, but what about the other miscellaneous clauses? For example, pet custody, life insurance, health insurance, confidentiality, social media image, sunset clauses, and more.
Some people may choose to include a mandatory life insurance clause (requiring parties to maintain life insurance for the benefit of the other spouse), and others may not want that. These miscellaneous clauses, sometimes called lifestyle clauses, are important to tailoring your prenup to your perfect fit.
Pet custody is a common one that people use to determine who gets to keep their pets. With this clause, you can say which partner keeps which pet, and that person will also be responsible for all their costs and care.
Confidentiality clauses may come in handy for people that have businesses and want to make sure their private information stays private. Or maybe you simply don’t want a spouse (or ex-spouse) to speak publicly about the divorce or finances. If either of these is you, then a confidentiality clause may be a good addition for you.
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]