If you think prenups are only for older, affluent and/or celebrity couples, think again. Prenups are becoming increasingly common –especially now that many people enter marriage at a later age with significant assets, such as cars, 401Ks, real estate, etc. Long considered stuffy, stodgy and decidedly unromantic, the prenup is beginning to win favor as a reasonable, practical and smart sign of trust between a woman and her fiancé.
So before you dismiss the possibility, let’s review the basics to help you decide if a prenup is right for you.
A prenup can help protect your property rights and financial interests.
A prenup (short for “prenuptial agreement”) is a contract signed by both parties before their wedding. By using a prenup, both the husband-to-be and the wife-to-be can decide certain financial issues in advance. For example, a prenup can specify:
- what property will be considered separate property,
- what property will be considered marital property,
- how any marital property should be divided,
- particulars about estate planning and inheritances, and even
- how much alimony will be paid and for how long if there’s a break-up down the road.
In short, the prenup details what the couple’s property rights and expectations would be upon divorce. If done correctly, a prenup can be an excellent way to supersede your state’s marital laws; however, in order for it to be “done correctly,” both the husband-to-be and the wife-to-be must be represented by their own separate attorney. In addition, the agreement:
- must be in writing.
- must provide full disclosure (no hiding of assets and/or liabilities).
- must be executed voluntarily and without coercion.
- must be executed by both parties, preferably in front of witnesses.
- cannot be unconscionable, meaning that it cannot be completely lopsided giving one party so much more than the other.
- should be in a recordable format.
And of course, just to reiterate, the prenup must be executed before the wedding!
Many women find even the idea of a prenup awkward and unromantic. That’s unfortunate. In reality, a prenup underscores a couple’s mature level of commitment and trust. Since the agreement requires full disclosure about personal assets and candid discussions about potential financial concerns, a prenup can actually serve to bring a couple closer together. With a prenup in place, the marriage can begin on a firm foundation with clear and consensual expectations.
You may want to seriously consider a prenup if you:
- Have considerable assets such as a home, real estate investments, stock (including stock options) or retirement funds that make you (or have the potential to make you) much wealthier than your fiancé
- Own all or part of a business or professional practice
- Have children and/or grandchildren
- Have loved ones, such as elderly parents, who need care
- Are expecting an inheritance
- Have (or are pursuing) a degree or license in a potentially lucrative profession
Of course, a prenup is not the only way a bride-to-be can protect her property rights and financial interests before the wedding. For instance, you can establish a Domestic or Foreign Asset Protection Trustor pursue other options that do not require your fiancé’s approval.
In fact, if you’re a business owner looking to protect your business interests before you get married, aDomestic or Foreign Asset Protection Trust can be particularly useful. A financial vehicle like this transfers the ownership of your separate property (including your company) into the trust, and it can work for most entities — C Corporations, Limited Liability Companies, Limited Partnerships–but not necessarily for an S Corporation. Only certain types of trusts can own S Corporation stock, so this is something that you would need to discuss with a trust attorney who is experienced with asset protection trusts.
How these types of trusts work is somewhat complicated, but the bottom line is that by creating the right type of trust, you can make the entire issue of separate vs. marital property irrelevant. That’s because, the trust, rather than you, would legally own your separate property, including your company.
A postnup is a contract established while you’re married.
If you’re already married and missed out on the opportunity to establish a prenup before your wedding, or your financial situation has dramatically changed , or you feel there’s reason to modify a prenup already in place, you may want to consider creating a postnup. Similar to a prenup, a postnup (short for “postnuptial agreement”) is a contract between husband and wife, but it is entered into and signed after the wedding.
There are many reasons why you may want to protect your assets with a postnup. Maybe you’re establishing a new business in your name or working to patent an invention? Perhaps you’re writing the next best-selling book or you agreed to quit your job to take care of the kids? If there’s any chance your financial situation may change (for better or worse), you may want to establish your property rights and the expectations surrounding any shift in finances.
Remember: When celebrities divorce, one of the biggest points of contention is typically intellectual property rights. These rights cover property such as patents, trademarks, copyrights and royalties and other contractual rights, and depending on the individual circumstances, they can be worth thousands, if not millions, of dollars.
What’s more, any intellectual property rights obtained during a marriage may be considered marital property –and that means they may be divided during divorce. Although the specific rules vary from state to state, the general rule of thumb governing intellectual and other property is this: Value that’s created during the marriage must be divided.
Despite all the potential benefits, postnups come with possible pitfalls, as well. For instance, anumber of states don’t recognize postnuptial agreements, and even in the states that do, they are frequently challenged and often invalidated. Still, if you’re a married woman involved in a business endeavor or career that makes you (or has the potential to make you) much wealthier than your husband, my advice is simple: I believe having a postnup in place is usually better than having nothing at all.
To be truly effective, any protective methods I discussed above should be in place long before divorce is a possibility. Obviously, something like a prenuptial agreement needs to be signed before you are married, but even techniques such as transfers to an irrevocable trust need to be done years in advance. Depending on your state’s fraudulent transfer laws, transactions can be voided up to seven years after the transfer!
So, please, be proactive. Learn to Think Financially, Not Emotionally® and establish a sound strategy, one that will provide you with financial security and peace-of-mind both during your marriage and afterward, if you divorce.
Jeffrey A. Landers, CDFA™ is a Divorce Financial Strategist™ and the founder of Bedrock Divorce Advisors, LLC (http://www.BedrockDivorce.com) a firm that exclusively advises affluent women throughout the United States before, during and after divorce. He assists women and their divorce attorneys with deciding on the most advantageous way to divide marital assets and enable them to negotiate more favorable settlements, especially when there are complicated financial and tax issues. Jeff also advises happily married women who have seen their friends blindsided by a divorce initiated by their husbands and wonder (wisely) how financially vulnerable they’d be in that situation. Jeff developed the nation’s first Just in Case(TM): Secure Your Financial Future,a one-hour program, which quickly shows married women how to be prepared in the event of a future divorce with immediate, practical steps. He can be reached at Landers@BedrockDivorce.com. All articles/blog posts are for informational purposes only, and do not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney. Follow Jeffrey A. Landers on Twitter: http://www.twitter.com/Bedrock_Divorce