Is A Prenuptial Agreement Right For You?

Is A Prenuptial Agreement Right For You?

As we approach the summer wedding season, millions of excited brides and grooms-to-be are gearing up walk down the aisle: save-the-dates are being sent, cakes are being tasted, gifts are being picked out. Amid these happy preparations, few almost-spouses are considering the possibility that their union might not lead to happily-ever-after.

Unfortunately, though, nearly one-third of first marriages end in divorce; aside from the emotional devastation that divorce brings, the monetary fallout of the end of a marriage can be just as painful. In order to avoid a nasty financial showdown in the event that a happy marriage turns sour, many couples are now opting to decide on how to split up assets before the wedding invitations are even sent. That is, more couples than ever before are choosing prenuptial agreements as a means of protecting their wealth from the terms of a tough divorce settlement.

A prenuptial agreement – a legal contract between two spouses, agreed upon prior to a marriage – is intended to provide transparency about how to divide assets in the event that the marriage ends in divorce. Laws related to marital property vary greatly from state to state, but many states consider property and savings – such as homes, retirement accounts, automobiles, etc. – that are acquired during the marriage to be eligible for equitable division in the event of the marriage’s demise. If a couple doesn’t have a prenuptial agreement which specifies how marital wealth should be split up and the couple can’t come to an agreement, the state will usually decide how the division of assets should occur. In many cases, both parties walk away unhappy with decisions the courts make.

Many couples don’t even consider drawing up a prenuptial agreement before getting married because they think that prenups are only for the very wealthy. But consider the following scenario:

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Carrie is a 24-year-old law student when she meets and marries her husband Mark, who is a teacher. They are young and in love and cannot ever imagine breaking up, so they decide against a prenuptial agreement. By the time she’s 30, Carrie is a high-powered attorney making seven times what her husband is. By 35, she and her husband purchased their dream home and have amassed over a million dollars in investments, largely because of Carrie’s bloated income. Unfortunately, at 40, Carrie’s husband has an affair. She files for divorce, and emotions are running high. Carrie and Mark cannot agree on how to split up their assets, so the courts decide to give Mark the house and Carrie the investments. Carrie feels that this is unfair because it was her salary that allowed them to purchase the home in the first place; in addition, she is devastated to be losing her home. However, the court’s decision is final and Carrie has no further legal options. She must forfeit the house and begin rebuilding her life.

While this example is a little depressing, it’s certainly not far-fetched. Had Carrie and Mark negotiated a prenup prior to their wedding, Carrie might not have walked away feeling taken advantage of. Also, the turmoil of fighting over her stuff in court would have been avoided and she would have been free to begin moving on without Mark much sooner.

Deciding whether or not to get a prenup is a personal choice, but in general experts recommend a prenup for couples in any of the following situations:

  • One spouse makes significantly more than the other spouse, or is on track to enter a high-earning field (like Carrie)
  • One or both spouses have children
  • One or both spouses comes from a wealthy family and is therefore likely to inherit a large sum of money or valuable material goods
  • One or both spouses has accrued substantial assets prior to marriage
  • One or both spouses owns a business

Discussing a prenuptial agreement with your mate may be tricky, but many financial experts recommend thinking of it the same way you think about buying insurance: you hope you’ll never have to use it, but if you do, you’ll both be glad it’s there.

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Angie Picardo is a staff writer for NerdWallet. Her mission is to help consumers stay financially savvy, and save some money with the best banks with free checking accounts.