A prenuptial agreement is a contract a couple enters into prior to the marriage that set forth each parties’ financial rights and responsibilities during, and sometimes after the marriage. While there is still some small social stigma that persons seeking prenuptial agreements are demonstrating lack of faith in the strength and longevity of the relationship, prenuptial agreements are commonly entered into for reasons that go beyond how they will handle divorce. Consider these four non-divorce related reasons to have a pre-marital agreement that actually promote the health and happiness of a marriage.
Premarital Agreements:
1. Clarify Expectations of the Marriage. Before marrying couples often fail to discuss their expectations for themselves and of their partner after marriage. While not every expectation directly involves finances, many expectations have financial consequences. Clarifying expectations prior to the marriage allows couples to analyze the compatibility of their respective expectations, come to agreements on conflicting expectations, and resolve the financial consequences of each expectation in advance. Consider the following questions that may or may not be relevant to every couple:
- What type of employment, if any, does each party intend to pursue after the marriage? Does the employment involve travel? How does each parties’ career choice affect the other’s career or affect other marital decisions such as the decision to have children?
- Where will the parties reside after the marriage? Does either party own a home prior to marriage? Will the couple reside in a pre-marital home? If the answer is yes, will the other spouse contribute to pre-marital home mortgage payments or expenses? Will the non-owning spouse desire an ownership interest for contributing to the home expenses? What happens to the home if the spouse owning the home dies during the marriage? If the parties buy a home following the marriage, will either contribute non-marital funds to the purchase?
- Do the parties plan to have children? Is there the expectation that one party will stay home with the children and put their career on hold; what are the financial consequences to the marriage with one income earner? Will the at home spouse be supported in returning to their career after a period of time or compensated in some manner for leaving their career.
2. Creates a Custom Marital Contract. Once expectations have been discussed parties are in the best position to determine whether their expectations are compatible with one another and whether to proceed with the marriage. If the determination is affirmative, the prenuptial agreement acts to memorialize these agreed upon expectations and provide the couple with a guide on how the predetermined expectations will affect their financial future. This will minimize future arguments and financial stress as the issues will have been discussed in detail and agreed upon in advance.
3. Answers Financial Questions that Often Cause Marital Stress. There are all kinds of reasons people get divorced. At the top of that list of reasons is “money”. Financial issues can place a great strain on relationships. By addressing financial questions at the front end of a marriage, you are proactively eliminating potential for future argument and financial stress after the marriage. Here are just a few questions a couple may want to consider addressing in their premarital agreement:
- Whether to file for joint or separate income tax returns and how the liability or refund, if any, will be shared;
- How will the household bills be paid;
- Will the parties have joint and/or separate bank accounts;
- How to handle the acquisition of marital debt (i.e. what amount is acceptable before joint approval is required and who will be responsible for said debts);
- How to handle pre-marital debt and how it is paid;
- Whether the parties will be seeking education or training during the marriage and how that is paid;
- Whether savings and investment accounts will be opened and how they will be contributed to; and
- Whether one spouse, after their death, will provide for the surviving spouse, and how.
Prenuptial agreements are not about divorce, they are about getting out ahead of any potential issue that might strain or cause damage to the marriage. By engaging in the exercise of creating a premarital agreement, couples are discussing expectations prior to the marriage, analyzing their compatibility, coming to agreements on conflicting and non-conflicting expectations, and resolving the financial consequences of each expectation in advance.