Prenuptial agreements: What they can and cannot protect

Thinking about a prenuptial agreement before you get married? You're not alone. According to the American Academy of Matrimonial Lawyers, 62% of attorneys in a 2016 study said they saw a significant rise in prenuptial agreements, also known as prenups. The largest increase in prenups, they said, was among millennials.

But although more and more couples are entering into prenups, it isn't always a wise decision. One woman, who chose to remain anonymous, confessed that she signed her prenup because she believed she would earn enough money "that it wouldn't matter ultimately." But she admits she prioritized her marriage over her career, which didn't help to build her finances. "The prenup has always been a thorn in my side, and how our arrangement is so heavily skewed in his favor," she says.

But in other cases, prenups work well. One woman and her soon-to-be husband readily agreed to sign a prenuptial agreement. "It is a financial merger when you get married. Having a prenuptial agreement can prevent mental stress and increases the chance of the marriage succeeding." This was a second marriage for both of them, and after contentious divorces, an attorney emphatically stated, "If you remarry, please get a prenup."

How do you decide if you should get a prenup? Arming yourself with the knowledge of what a prenup can and cannot cover is the best way to protect yourself.

What is a prenuptial agreement?

A prenuptial agreement is a contract between two people who are engaged to be married that covers what happens to the individuals' assets (financial or otherwise) in the event of a divorce.

Prenuptial agreements are governed by the 1983 Uniform Premarital Agreement Act. It has been adopted by 26 states in an effort to create consistent state-to-state enforcement.

Couples can include the following provisions as a part of their prenup agreement:

1. Each party's rights and obligations in any property and the right to control and manage the property. If one spouse enters into the marriage with his or her separate property, there could be a provision outlining that maintenance costs post-breakup wouldn't fall on the individual who doesn't have an ownership interest.
2. Division of property if the parties separate, divorce, or die. A beach house, for example, can be rented or leased by one spouse, while the other is able to vacation at the same house during the summer.
3. Spousal support modification or elimination. This could include short-term, long-term, or no payments.
4. Creation of a will or trust and how that might impact the prenuptial agreement.
5. Rights or ownership of life insurance policy benefits.
6. Which state law will govern the agreement.
7. Any other issue that doesn't violate public policy or a criminal statute. Where the couple would live or raise their children are examples.

Reasons why you may want to have a prenuptial agreement

Some couples may have extra incentives to enter into a prenuptial agreement. Prenups provide protection in a variety of scenarios, including the following:

1. You have significant assets. If you have significant property/wealth, you may not want to equally distribute those assets in the event of a divorce.
2. You have significant debts. If you have significant debts in your own name prior to marriage, the prenup can designate it has premarital debt. Should a divorce occur, the spouse would not be responsible for premarital debt.
3. You have dependents, such as other children from a prior marriage or elderly parents.
4. You have a small business. If you have a small business, you may want to make certain that half the business doesn't go to your spouse in case of a divorce.
5. You plan to get additional education.
6. You want to protect family heirlooms.
7. You want to add lifestyle-specific clauses to require or incentivize certain behaviors. For instance, if your spouse engages in drug use, infidelity, gambling, or other harmful behaviors, a clause can be placed in the document to compensate a certain sum to the aggrieved party. These clauses need to be drafted carefully, and depending on the state, there might be some conflict on whether a specific lifestyle clause is enforceable.
8. You have pets. It can become contentious to determine pet “custody." Couples can include provisions regarding pet ownership in prenups in the case of divorce.

Reasons why you may not want a prenuptial agreement

Prenuptial agreements don't always provide the best protection for individuals. Here are some scenarios in which a prenup may do some damage:

1. Both spouses weren't involved in the negotiations. If you are not both involved in negotiating terms or other aspects of the agreement, there is a chance it might heavily skew in the favor of one person.

2. It might cause discomfort and hurt feelings. The feelings prenups bring up can begin to color a relationship.

3. Friction with extended families. In-laws might be particularly offended that their son or daughter is entering into a prenup and may assume the marriage is "doomed"even before it has started.

4. The prenup is conditioned on future events. Some of the events outlined in a prenup may or may not happen, and it is hard to predict financial and future circumstances.

How do you bring up the subject of a prenup?

There's never a perfect time to bring up the subject of a prenup. But having this uncomfortable conversation with your significant other before getting married could potentially save financial and emotional stress for both of you should you decide to divorce. Plan to have this conversation early in the engagement instead of a few weeks before the wedding. Couples who have significant individual assets or debts, dependents, and small businesses should definitely discuss a prenup as soon as marriage is on the table.

Here are some ways to navigate the initial prenup discussions:

1. Weave the conversation into a broader topic surrounding your wedding or marriage.
2. Don't make a prenup sound like a demand.
3. Be cognizant about timing. Don't, for example, do it a week before the wedding.
4. Emphasize the idea of fairness.

Do you need a lawyer to draft a prenuptial agreement?

It is possible to draft a prenuptial agreement on your own, but be aware that it may be unenforceable if it is determined by a court that certain requirements aren't met.

Evidence of technical errors, coercion, and disproportionate terms could invalidate a prenuptial agreement. In addition, certain states have complicated requirements for prenuptial agreements. Judges will evaluate a prenuptial agreement and decide whether it is fair for both parties in the event of a divorce.

What does a prenuptial agreement cover?

A prenuptial agreement, when properly negotiated, can protect the following assets and interests:

1. Retirement or education funds that either party may have accumulated before marriage.
2. Property that either party owns at time of marriage.
3. Property interests of any children from previous relationships.
4. Obligations of spousal support should the marriage dissolve.
5. Educational and religious upbringing of children born from marriage.
6. Finances of each party and responsibilities should the couple decide to part ways.
7. A provision that one spouse isn't obligated to pay the debts of the other spouse.
8. Handling an inheritance.
9. Ownership rights in life insurance or disability policies.

If a judge, however, feels that the agreement is unfair or conflicts with a legal standard, these provisions can be unenforceable. This can vary from state to state.

What doesn't a prenuptial agreement cover?

A prenuptial agreement does not cover the following:

1. Child custody or visitation matters.

2. Child support.

3. Alimony in the event of a divorce.

4. Day-to-day household matters.

5. Anything prohibited by the law.

Is a prenuptial agreement enforceable?

The short answer is yes. A prenuptial agreement can be legal and binding if executed correctly and in accordance with the law. Whether certain clauses are upheld will depend on state law.

What are common mistakes to avoid that would make the prenup unenforceable?

A prenuptial agreement may be found invalid for the following reasons:

• It includes provisions for child support and custody of unborn children.
• There is less than full financial disclosure by one or both parties.
• It includes provisions that are blatantly unfair to one party.
• One partner did not have the opportunity to consult an attorney.
• The prenup was signed very shortly before the wedding (such as in the car on the way to the ceremony).
• There is evidence that the prenuptial agreement was signed under duress or coercion.

What happens when a will and prenup conflict?

If parties have a prenup in place during estate planning, make it clear which document takes precedence. To avoid costly litigation in the future, the parties can resolve any disagreement with the prenup by using appropriate language to clarify which document takes precedence.

When it isn't clear which document takes precedence and the terms of a prenuptial agreement conflict with a last will and testament, a probate court carefully examines the terms of the prenuptial agreement. The court is likely to find that the terms of the prenuptial agreement take precedence over the terms of a last will and testament.

A prenup should indicate which law the reader should use to interpret it. If the prenuptial agreement does not contain this information, and a spouse dies in a state other than the state where the couple created the document, the laws in the state of the spouse's death take control. A prenup sometimes contains a "sunset" clause, which sets an expiration date for the agreement. After that date, a will automatically takes precedence.

If the beneficiaries of the last will and testament can show that the prenuptial agreement is invalid, the court will not enforce its terms. This might occur if a spouse entered into a prenup under duress.

What is the enforceability of a prenup in a community property state?

There are nine states that are community property states—Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. This means assets are distributed equally in the event of a divorce. But if a prenup agreement is in place, the terms of that agreement override the community property rules.

What is a postnuptial agreement?

You can get a prenup after marriage—this is called a postnuptial agreement. A postnuptial agreement is a contract established between a married couple that will establish how to divide marital property and financial interests in the event of death or divorce.

A postnuptial agreement must be in writing, voluntarily entered into and signed by both parties, and notarized.

A postnuptial agreement could deal with inheritance issues, debt, and custody of children. It could also require a spouse to pay monetary support after a divorce.