Many people come to us with the misconception that prenups only benefit one person (and that’s usually the person with more money). This shouldn’t be the case for a well-done prenup. Not to mention, if prenups are overly one-sided, they can actually be thrown out by a judge. There are plenty of ways that a prenup can benefit BOTH spouses. This article will explore the different ways to ensure both people benefit from the prenup, followed by an example of how it may work in real life.
Understanding Prenuptial Agreements
Before we jump in, let’s get a quick overview of prenups in general. A prenuptial agreement (a.k.a. a prenup) is a contract that couples sign before marriage, outlining how their assets and liabilities will be divided in case of divorce (among other topics). A prenup can cover everything from property division to confidentiality to death. Prenups are not only a financial tool but also an emotional one. By signing a prenup, couples can have a clear understanding of one another’s expectations of each other, and the process of creating a prenup itself requires in-depth communication. Creating a prenup is a great way to start off a successful marriage.
Protection of Assets
One of the most significant benefits of a prenup is asset protection. By outlining how their assets will be divided in case of a divorce, and sometimes death, both partners can protect their financial interests.
But how do you make sure that BOTH parties are protected here? Well, you can get creative here, and every situation is going to be different. However, here are some ways that protecting assets could benefit both parties simultaneously:
- Keeping everything separate. For example, maybe both parties are relatively equal in terms of wealth, they don’t plan on having children, and both have great sources of income, so they decide to keep everything separate, both prior to marriage and during the marriage.
- Keeping premarital stuff separate but splitting marital stuff according to spousal contribution. For example, if you want to make sure both of you retain the property you came into the marriage with but want to split your marital property (accumulated during the marriage) according to how much each spouse contributed to each asset. If one person put down $800k on a $1 million house and the other put down $200k, each party would get back their respective contributions in a divorce.
- Keeping only certain types of property separate. For example, maybe one person is wealthy while the other person is a stay-at-home parent with few assets. In order to balance out the wealth and compensate the person staying at home, the wealthier person only keeps certain property separate, but shares the rest of it.
Spousal Support
Spousal support, also commonly referred to as alimony, is another way to make sure both people are benefitting. You may be thinking, “How could the person PAYING alimony benefit from alimony?” Well, it could be negotiated for in the prenup. For example, leaving alimony in as an option in a prenup, and in exchange for that, different property division clauses. This is why prenups are extremely custom because everyone’s goals and finances are different.
Keep in mind there are some state limitations on spousal support in prenups. For example, in California, if you alter spousal support, you must obtain legal representation (i.e., you must hire a lawyer and have them sign off on your contract). If you are in New Mexico, you cannot contract around spousal support at all! It’s just simply not allowed in a New Mexico prenup.
Protecting Inheritances and Gifts
Future inheritances and gifts are another way to balance out each partner’s interests. You may include in your prenup what to do with inheritances and gifts you haven’t received yet. For example, if one person really wants to make sure their inheritance from their Grandma is kept safe, they may be able to do that in exchange for paying a lump sum payment to their spouse in the event of a divorce. The lump sum amount should be agreed upon. Same goes for gifts. If you expect to receive lots of gifts from family over the years and want to make sure it stays separate, you can do so while also making sure your partner gets something in return to benefit them (if they want).
Protecting Against Debt
Prenups allow parties to determine what to do with debts in the event of a divorce. This includes both premarital debt and debt accumulated during the marriage. There are several ways to put debt allocation into a prenup to make it benefit both parties (again, what makes sense for you will not necessarily make sense for another couple, it’s very circumstance driven):
- All debt (both premarital and marital) stays separate. This is one good way to keep things fair–any debt you take out, you pay back.
- All premarital debt stays separate, but marital debt is split. This one may make sense for many couples to keep things fair. Maybe it’s because the marital debt is for a business from which the other party benefits, or maybe they are both entering into a business together and taking out debt but only putting it in one person’s name.
- All debt is fair game to be split up. Maybe the couple has been together for 20 years prior to getting married and premarital debt should be shared in this situation.
Avoiding Lengthy Legal Battles
One of the most significant benefits of a prenup that benefits BOTH spouses is avoiding lengthy legal battles. In the case of a divorce, deciding on certain divorce issues, such as property division, spousal support, and other financial matters, can lead to long and expensive legal battles. However, with a prenup, you can predetermine what you want to happen in the divorce. That means you can decide on property division, spousal support, and other financial matters long before the divorce ever takes place. Having these issues worked out beforehand saves time, money, and your sanity. For both parties! It’s a win-win.
Ensuring Peace of Mind
Another huge benefit of a prenup is peace of mind, and that’s true for both parties if they negotiate their prenup to their liking. Of course, if one party didn’t negotiate and simply signed off on every term without thinking about it, they may not have the same peace of mind. (This is why negotiating your prenup to a level of satisfaction is CRITICAL!).
Either way, by signing a prenup, both partners can have a clear understanding of their financial obligations towards each other and avoid a lot of misunderstandings in the future. This can provide a sense of security and peace of mind, knowing what your exact financial obligations are in divorce and knowing that you are protected in a way you feel comfortable with.
Open Communication
The process of creating a prenup itself facilitates in-depth communication. You legally cannot hide things when making a prenup because it could wind up getting thrown out if you do. By discussing their financial situation and future expectations, couples can have a better understanding of each other’s needs and priorities. This can help build trust and strengthen the relationship.
Joint Decision
Signing a prenup is a joint decision that both partners must agree upon. That means DON’T SIGN ANYTHING YOU ARE NOT COMFORTABLE WITH AND FEEL PROTECTED BY! Signing a prenup you are happy with and feel protected by is crucial. Otherwise, you will be “kicking” yourself when/if a divorce ever happens.
The fact that a prenup is a joint decision (that both parties should be comfortable with) demonstrates a commitment to one another and to the relationship. It’s a great way to take the first leap into a successful marriage!
Example Scenario
John and Maria had been dating for several years and are planning to get married. Both of them are successful in their careers and have accumulated a significant amount of assets before they ever met. As they began discussing their future together, they realized that they both needed to protect their individual interests in case of a divorce. Enter: the prenup!
John and Maria introspected individually on what each of them wanted out of the prenup. John’s main goal was protecting his children from another marriage, while Maria’s main goal was protecting her business. Thus, they created a prenup that made sure John’s other children were protected by keeping certain of John’s assets separate. On the other hand, Maria made sure to keep all of her business interests separate. They agreed to waive alimony since they didn’t plan on having kids, nor did they plan to stop working (and each already had a significant chunk of money to retire on).
Both John and Maria were happy with the prenup and felt that it protected their individual interests while still acknowledging their commitment to each other. They knew that in case of a divorce or separation, they would not have to worry about legal battles and could focus on having a happy and loving marriage.
Final Thoughts
The bottom line is that prenups can and SHOULD protect and benefit both spouses. It should not be one-sided, and if it is egregiously one-sided, it could wind up in the garbage! By protecting assets, addressing debt and spousal support, and other financial matters in a fair and balanced way, you and your partner can create a prenup that is beneficial to both of 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]
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