Financial Advisor Insights

Should I Sign a Prenuptial Agreement?

Despite the negative connotation, prenuptial agreements can provide certain couples with unique benefits and protections. Once thought of as only a tool for the super-rich, modern prenuptial agreements have the potential to help protect the interests of individuals in a number of different situations, such as working professionals and executives, previously married individuals, widows, and individuals marrying with children from a prior relationship.  

Important disclosure: The material in this article is intended to provide generalized information only and should not be misconstrued as the rendering of personalized legal or tax advice. We strongly recommend you consult a family law attorney in your state to discuss your personal situation.

What is a prenuptial agreement?

A prenuptial agreement (also called a “prenup”) is a legal contract that is most notably used to specify the distribution of current or future assets and other property should the relationship end in divorce or even death of a spouse.

One lesser-known benefit of drafting and signing a prenuptial agreement is that the process mandates that each partner fully disclose all of their assets and financial interests to one another. In a culture where talking about money is often considered taboo, the process can be helpful as it essentially forces the couple to lay everything on the table. Assuming both partners are in agreement about the decision to sign a “prenup,” the process can effectively lay the groundwork for a healthy financial marriage and a type of first step on the road to building wealth as a couple.

I’ve never been married and have no children, should I still consider a prenuptial agreement?

In general, it’s advantageous to at least consider the pros and cons of getting a prenuptial agreement. Although the decision will always be unique to each relationship, here are some of the more common situations that lead engaged couples with no children or prior marriages to seek a prenuptial agreement:  

  • Experiences of family and friends: if you or your fiancée have a family member, friend, or relative who experienced a particularly messy divorce, financial infidelity, or similar circumstances, the idea of adding some measure of protection for yourself may be attractive
  • Protect family wealth: if one partner comes from a high net worth family or someone in the public eye, a prenuptial agreement will commonly be used as a way to help protect the interests of the family or assets in a trust, should the relationship end in divorce
  • Future inheritances or assets: prenuptial agreements aren’t limited to current assets – they can also be used to account for expected future assets or inheritances. For example, one partner may wish to ensure a family home they expect to inherit stays in the family or that any future inheritances do not become marital property
  • Debt protection: if one partner has a significant amount of debt, such as student loan debt for example, a prenuptial agreement can be used to help protect the other spouse from creditors in the event of nonpayment. Recall that agreements can also be written to apply to future assets and liabilities, too
  • Business owners: entrepreneurs and business owners may utilize a prenuptial agreement to exclude any further growth of the business from becoming marital property

Using a prenuptial agreement for a second marriage or with children from a previous relationship

Perhaps the most common uses of prenuptial agreements are in situations where at least one partner has been married before or in circumstances where there are children involved from a prior marriage or relationship.

Particularly in situations involving children, a prenuptial agreement can be an effective way to help ensure that your children inherit your share of assets or other agreed-upon property. As with other situations, it is important to make sure to draft your estate plan in accordance with the prenuptial agreement.

Limitations of prenuptial agreements

Each state will have their own laws regarding prenuptial agreements, including what terms are permissible and whether a certain provision may have a reasonable expectation of holding up in court, so it’s really important to work with a family law attorney in your area. Although prenuptial agreements may include non-financial terms such as who will be responsible for household chores, those kinds of provisions may not be enforceable by a court. As such, many family law attorneys advise against it.

Two of the most notable limitations on prenuptial agreements are as follows:

  • Child support, visitation, and custody: No state will honor an agreement limiting or restricting future visitation, custody, or child support payments
  • Alimony: States have different rules regarding alimony and whether a partner can waive or limit their right to receive alimony payments in the event of a divorce

I wish I got a prenuptial agreement, but I’m already married. Is it too late?

Actually, no; a postnuptial agreement is practically identical to a prenuptial agreement, only it occurs after the couple has already been married. There are a number of situations where couples may end up with a “postnup:” an engaged couple intended to get a prenuptial agreement and ran out of time before the wedding, a marriage is on the rocks and a couple wants to get their financial situation in order as they try to reconcile, or one spouse’s financial situation has changed drastically during the course of the marriage perhaps as a result of a windfall from an inheritance or business venture.  

Putting a prenuptial agreement into the larger context of your financial plan

From a financial planning standpoint, the majority of prenuptial agreements are done "just in case" and won't impact a couple's overall financial situation unless an event (e.g. a divorce) triggers provisions of the agreement to take effect. Regardless of whether you and your future spouse decide to obtain a prenuptial agreement, consider the benefits of having an open line of communication regarding financial matters in your household.

Having a candid conversation about your finances, goals, spending habits and lifestyle aspirations is an important step for every couple. Although not every married couple decides to combine their finances, most decisions involving money will ultimately be based on the income, expenses, and resources of both spouses combined. This is one reason why it generally isn't advisable to do any robust financial modeling based solely on one partner's financial situation.

Money is often the source of conflict and even a leading cause of divorce, but making sure both spouses are a good match financially early on can help save each person some aggravation, time, and money down the line. As you begin your life as a married couple, consider working with a financial advisor who is a fiduciary and someone that both spouses feel comfortable working with so both of you can be equally involved in planning your financial future.

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