Why Should Engaged Couples Have a Prenup?
There is a common misconception that Prenuptial Agreements are used solely to protect assets in the event of a divorce. While protection is the prenup’s most commonly-known purpose, it is not the only reason engaged couples choose to get a one.
Prenuptial agreements are a useful tool in estate planning. Couples can list which assets are considered separate property and which are considered shared (marital) property. Making this distinction before marriage is crucial to prevent separate assets from being misclassified as marital or joint property when a spouse dies.
In particular, those who are entering their second marriage, those who are marrying later in life, or those who have accumulated significant assets, may want to use a prenup to preserve their estate for children from previous relationships, past spouses, or other family members.
Prenuptial agreements may also help to avoid or prevent disputes about money and property during marriage. Couples with prenups find there are fewer discrepancies as to who owns what, and what is legally theirs to give away.
In order for a prenup to be fully functional and legally binding, both parties must fully disclose their assets, properties, and debts in the prenup document.
Dividing Your Estate Without a Prenup
Marrying someone without a Prenuptial Agreement can make dividing your estate more complicated and frustrating because there is a risk that it will not be distributed according to your wishes.
In equitable distribution/community property states, you are unable to disinherit a spouse in your Last Will and Testament. Upon marriage, he or she is automatically entitled to an elective share of your estate, which can be anywhere from one-third to one-half of your assets, depending on where you live.
If you choose to leave less than your spouse’s entitled share behind, then your spouse has the power to request a higher percentage of your estate. In this case, if you wanted to designate a percentage to your children from a previous marriage, you may not be able to do so without a prenup to prevent your separate assets from becoming a part of your marital property.
In other words, a prenup is the only way to keep your current spouse from taking a larger portion of your estate and leaving less for your children, or inheriting specific property, such as precious heirlooms, that you wanted to leave to a child.
For example:
Robert is entering into a second marriage with his fiancée Barbara. He wishes to leave his children from his first marriage part of his estate. He has a Last Will and Testament to reflect these wishes. However, a Last Will and Testament in itself is not sufficient enough to ensure that Robert’s children receive the inheritance that he intended.
Why? As a married couple, Robert and Barbara’s assets are jointly owned, meaning she is legally entitled to an elective share of his estate, while Robert’s children could potentially be left with less than what he had planned.
If Robert creates a Prenuptial Agreement, he could list the property he acquired before meeting Barbara as separate. This would allow him to allocate that property to whomever he wishes, including his children. Barbara would not have any rights to it, unless he wanted to leave her specific assets in his will.
Community States and Marital Property
The following states are community property states:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
In these states, marital property is split equally between spouses. Property acquired before marriage is considered separate. Under this distinction, you are legally allowed to leave your share (50% of marital property and all separate property) to whomever you wish.
Your Last Will and Prenuptial Agreement
A Last Will and Testament is a document that specifies who will receive your assets when you pass away. Ideally, it should work in conjunction with a Prenuptial Agreement before marriage to protect your separate property.
Ensure that your prenup and Last Will and Testament are consistent with your current wishes to prevent any future misunderstanding among your beneficiaries.
Like with all major life events, a second marriage calls for you to review your Last Will and create a prenup to specify who will be entitled to your property after death.
Always make sure your Last Will and Testament reflects your current situation and is updated after the following life events:
- The birth or adoption of a child
- The death of a beneficiary or an executor
- Marriage or separation
- The birth of grandchildren
- Major illnesses or a surgery
- Increase or reduction in assets or debts
Once you have completed your documents, store them in a secure place, such as in a safe, safety deposit box, or with your lawyer.
Prenups, Protection, and Peace of Mind
Prenuptial agreements offer financial protection to both partners in the case of a divorce or death. While many people associate a prenup with divorce, it is quite possibly the most practical and responsible thing engaged couples can do before exchanging vows to make sure your family and spouse are cared for should something happen to you.
Most importantly, entering into a marriage with a clear understanding of each other’s finances can help couples to create a solid marital foundation because there are fewer conflicts relating to money, and instead, a strong harmony founded in honesty and peace of mind.