Why you should consider a prenuptial agreement

What Is a Prenuptial Agreement?

Upon marriage certain rights accrue to each spouse under state law that determine how assets will be distributed in the event of death or divorce. These rights include a spousal inheritance, as well as spousal support and property distribution upon divorce. Absent a prenuptial agreement, state law prevails regardless of a couple’s wishes. 

A prenuptial agreement is an agreement between two individuals before they are married addressing financial issues during their marriage, upon death, and upon potential dissolution of the marriage. A prenuptial agreement sets forth the minimum that an individual intends to provide for their spouse. An individual can always choose to do more, but the prenuptial agreement sets the minimum. It is not unusual after a couple is married for a long time for an individual to add to the inheritance for their spouse by beneficiary designation or by a will or trust.

A prenuptial agreement does not and cannot address custody of children or child support, as this is almost always set by state law. It simply addresses the assets and liabilities of the couple getting married.

Just as young parents execute a will and trust naming a guardian and providing for the care of their children if they should die, a prenuptial agreement addresses financial issues related to death and divorce. Few young parents expect to die before their children are 18, but it is a possibility. Similarly, few couples expect their marriage to end in divorce or by an untimely death. But addressing financial issues early during the engagement ensures that if the unexpected happens, the discussions at least occurred when the couple was most respectful toward one another.

Examples of Issues to Consider with a Prenuptial agreement

• Family inheritances or interests in the family business
• Children from a prior relationship
• High earning and investment potential
• Significant business assets
• Significant savings
• Significant debts

When and Where Does a Prenuptial Agreement Get Signed?

The discussion surrounding a prenuptial agreement can begin before or soon after the engagement. It should be a part of the wedding planning and added to the wedding checklist, somewhere between the engagement and the wedding itself.

The prenuptial agreement should be completed well before the wedding to ensure there is no concern that either party pressured the other to sign. Each individual will be required to have their own counsel. One person cannot represent both. 

Generally, the prenuptial agreement is executed in the jurisdiction of the state where a couple will reside after their marriage. Most states provide inheritance rights for a surviving spouse, so the prenuptial agreement in some ways is state specific. For couples that move often, the agreement can be tailored to take into account the law where the couple resides or to remain in the state where they execute it.

The laws regarding prenuptial agreements vary from state to state, and while states such as Florida, Illinois, and Michigan allow for a postnuptial agreement (either an amendment of the prenuptial agreement after marriage or an entirely new agreement), Ohio does not.

Why Should a Couple Execute a Prenuptial Agreement?

A prenuptial agreement is a symbol of respect entered into by both parties. It not only outlines what each party owns and owes, but what each party will continue to be responsible for themselves. Marriage is a partnership of two equals and the prenuptial agreement reflects that equality, even though one spouse may have more assets or debts. 

Sometimes parents will request a child enter into a prenuptial agreement. This request does not mean the parents believe the marriage will end in divorce. Rather, parents generally want their children to be happy and have long marriages that end in death (and grandchildren). These are often the same parents that had a will drafted when their children were young naming guardians, wanting only the best, but planning for the unexpected to care for their children. In the end, the couple has to decide whether a prenuptial agreement is right for them.

Issues to Discuss for a Prenuptial Agreement.

1. Property division. Property may be divided in several different ways:
   • Separate property. This is property that will be brought into the marriage or property that may be inherited from each spouse’s own family. This is generally protected from claims in
     divorce. Often, the assets remain in the family in which the asset was given. Generally this includes growth and income of such separate property. So, if property is inherited from a parent, on the individual’s death, such property may stay in trust for the couple’s children, rather than the surviving spouse.
   • Marital property. This is property accumulated during marriage, either through investments and savings, or by the labor of each party. This property is generally divided equally upon divorce but all of it will generally be subject to spousal inheritance rights.
2. Earned income. This is property that has accumulated over the lifetime of the marriage through one party’s specific work efforts. There may need to be an offset in case of dissolution or death if one party worked part time or not at all to allow the other spouse to earn more.
3. Spousal support. Spousal support can be waived or limited. The typical way to handle spousal support is to waive spousal support.
4. Property division on termination of marriage. Instead of spousal support a better option is to create a formula or a dollar amount to create a property settlement upon dissolution. This amount is fixed and does not get changed, but is based on a formula. 

How Does the Process Work?

After the couple has discussed their goals for one another, each party meets with their lawyer. The starting point with the lawyer is focusing on what to do for one another if the unexpected occurs. Each partner must be both sensible and sympathetic to the possibility that they may die prematurely or face the impact of a divorce—each should consider preservation of their estate as well as protection of their future. One of the lawyers drafts the agreement, and the other lawyer reviews the draft. Both parties disclose their assets and liabilities. Changes may get made so both parties agree and the parties sign the agreement before the wedding.

When prepared properly, with tremendous love and respect, a prenuptial agreement is a tool to make a couple stronger, and help the couple understand what happens from a financial perspective when the marriage ends earlier than anticipated.