Once the giddy passion of early wedded bliss ebbs, the less-romantic reality often becomes more apparent: Marriage is also a financial partnership.
These days an increasing percentage of newly married or engaged couples may be recognizing that too. In a 2022 Harris poll, 15% of Americans who have been married or were engaged reported that they'd signed a prenup, up from just 3% who said the same in 2010. More than 4 in 10 said they supported the idea of a prenup; more than a third of unmarried folks said they'd likely sign one.
What is a prenup?
A prenup is a legal document you sign before you marry. It details how financial assets and responsibilities—real estate, investments, retirement benefits, and the like—will be divided in the event the marriage ends in divorce or death. It is not an indication that you don't trust your future partner, or that you aren't really in it for the long haul.
"A prenup may be set up for many different reasons," says Kelly M. Quinlan, advanced planner at Fidelity. "It can establish ‘What's mine is mine and what's yours is yours.' More importantly, it forces a soon-to-be-married couple to discuss money-related issues, such as debt, credit, savings, salaries, homeownership, and the like. As improbable as it sounds, a discussion regarding the management of a couple's finances may also inspire conversation to help ensure a stronger marriage."
It is important that a potential prenup is discussed, prepared, and executed—to the extent possible—well in advance of an upcoming marriage. It also requires full disclosure of assets, debts, and in some cases, potential inheritances. Each party must also engage their own attorney to represent them.
The risks of skipping a prenup
If you divorce without a prenup in place, decisions about how you divide the property and assets you own together, as well as those you brought into the marriage, will be made at what is often an emotionally fraught time. You may be legally required to divide the property you brought to the marriage and consider solely yours. You might have to pay alimony if you're the higher earner, or you could find yourself responsible for your former partner's debts.
That's because if you can't come to an amicable agreement during separation and divorce negotiations, state laws will likely dictate how the court divides your assets and debts. That could be 50-50 in community-property states—currently Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In other states, the court may consider factors such as how long you were married and what you accumulated together.
Who should consider getting a prenup
While in the past prenups may have had a reputation as being appropriate only for extremely wealthy couples or those in which one party was very rich, the value for many more couples is now apparent. You may be bringing significant savings to the partnership or anticipate getting a significant inheritance in the future. Or maybe you own or co-own a business that you want to protect, or you have an interest in a family business that would be difficult to divide.
When you earn a hefty salary (or are likely to do so in the future)—or you foresee taking time out of the workplace for childrearing or caregiving and earning less as a result—a prenup can help set expectations for future support. A prenup can also spell out what kind of support you want children from another marriage to have.
While a prenup can be prudent at any age, if you're marrying in midlife—be it your first marriage or your fourth—you're more likely to have significant assets, so drafting a legal document that spells out your expectations and obligations prior to marriage may be especially smart. But keep in mind that a prenup isn't a replacement for an estate plan in the event one partner passes away, cautions Quinlan. "When you include prenuptial terms that apply upon death, you'll want it to be mirrored in your overall estate plan," she says.
What is a postnup?
Even after you marry, you can still draw up a postnuptial agreement, which is an agreement a married couple can enter to outline the ownership of financial assets in the event of a divorce. Like a prenuptial agreement, each party must have an opportunity to engage legal counsel, there can be no fraud or coercion, there must be full disclosure of financial assets, and the terms must be fair and reasonable at the time of execution and at the time of divorce. A postnup can make sense especially if you have a change in financial circumstances, such as receiving an inheritance or selling a business for a profit. "Assuming the postnup has been executed correctly, it is just as valid as a prenup," says Quinlan.
How to write an ironclad prenup agreement
Talk first. Each party will need to engage their own independent legal counsel. One way to keep costs to a minimum is to hash things out with your future spouse before you bring in your lawyers.
Get help. To ensure that both you and your partner have an advocate in your corner, you will each be required to hire your own lawyer to represent you and your interests. Ask friends, family members, or another lawyer you've worked with for recommendations for a lawyer who specializes in matrimonial law.
Plan well ahead. It's important to sign the prenup well in advance of the wedding date, which may help remove any impression that it was done under duress.
Be transparent. Full disclosure is vital. Both you and your future partner must come clean about all your finances, including what you own, what you make, what you owe, and in some cases, what you could potentially inherit in the future. "If there is a divorce and the prenuptial agreement is challenged by one of the parties, the court will review the agreement to help determine that it was fair and reasonable at the time of execution and it is fair and reasonable at the time of divorce," Quinlan says.
Pay attention to related paperwork. IRAs, 401(k)s, and pensions are distributed at your death through each plan's beneficiary designations, not your estate planning documents or a prenup. And for some types of assets, a surviving spouse may be deemed to be the primary beneficiary. So, in some instances, if you want your kids or other individuals to receive the proceeds of those accounts, your spouse may need to waive those rights in writing.
Talk to the kids. If you have adult children, consider discussing the prenup with them before you sign it. That way, they know what to expect. If they have other financial concerns about your upcoming marriage, it may be wise to give them a chance to chime in.
Revisit the plan. "Prenuptial agreements usually have some flexibility built into them so that if the couple decides to amend it after marriage, they can do so," says Quinlan. That may even be necessary. "Since the prenuptial agreement must be deemed fair and reasonable at the time of execution and divorce, in some instances, it may be important to amend the prenuptial agreement during the marriage to account for impactful financial changes," Quinlan adds.
Consider reviewing your prenuptial agreement every 3 to 5 years or more often as circumstances dictate, Quinlan suggests. "In addition, when you are creating or updating your estate plan, it's a good idea to revisit the prenup just to make sure that you have continued alignment between the two."