‘Tis the season to propose marriage—and seriously consider drafting a prenuptial agreement.
Contrary to popular belief, Christmas—not Valentine’s Day—is the most popular day of the year to get engaged. Similarly, the conventional wisdom that only the wealthy need prenuptial agreements is wrong, too. These documents are no longer just for the rich and famous.
Almost everyone can benefit from prenuptial agreements these days, especially since many states have antiquated laws that can hold nasty surprises for couples who eventually must deal with death or divorce. It may not seem romantic to discuss financial issues during wedding preparations, but frank conversations about money before marriage can strengthen relationships. And getting a prenuptial agreement can save a lot of emotional anguish and legal costs down the road.
In Massachusetts, for instance, courts divide premarital and inherited assets in divorce cases—unless there is a prenuptial agreement. If a husband or wife dies without such an agreement in place, the surviving spouse could go to court and override a will. There have been cases where a husband has died just a couple years into a second marriage, and the new wife (who was not a beneficiary under the will) forced the sale of property that had been in his family for decades.
Clearly, couples entering second marriages should seriously consider getting prenuptial agreements, especially if they have children from a previous marriage. These legal documents protect the assets to ensure that these children will receive them in the event of death or divorce.
Similarly, business owners would benefit from these agreements, too, since they could spell out who would receive an interest in the business in the event of a divorce, and if so, how much. Most commonly, business owners seek to preserve their interest in the business, with the new spouse disclaiming any interest, which protects against disputes over the valuation of the business at the time of divorce. Without legal protection, there could be long—and costly—legal battles over such issues.
Couples don’t just need to think about potential assets. They must also consider their debts, as courts can require couples to split their bills in the event of a divorce. That means that if one spouse had hefty student loans or credit card debt, the other spouse could get saddled with large bills.
Student debt could also become a major factor in the size of alimony payments, given that alimony is typically calculated on the recipient spouse’s living costs. So, say a spouse makes $500 a week but has weekly expenses of $1,000, much of it in student debt. Without a prenuptial agreement, the wealthier spouse might have to pay $500 a week in alimony to bridge that shortfall. But say the student loans cost $400 a week and a prenuptial agreement specified that all student debt be excluded from financial calculations in a divorce. Then, the wealthier spouse’s alimony payments could be slashed to just $100 a week.
Prenuptial agreements can be especially useful when there’s a large disparity between couples’ ages or earnings. That way, couples can decide in advance how to deal with thorny alimony issues. Say a female executive makes $700,000 a year and her husband earns a $100,000 salary. Without a prenuptial, she could wind up paying him $200,000 every year in alimony. Similarly, a 40-year-old woman may want to discuss with a 65-year-old man how to address support issues if they divorce, given that he is on the cusp of retirement and she may be foregoing employment to raise a family.
In the throes of romance, it may not seem important to specify wishes in a legal document. But, nice conversations and generous promises before the marriage are easily forgotten in the heat of a bitter divorce.