Reasons People Should Get A Prenuptial Agreement

One of the best reasons people should get a prenuptial agreement before marriage is to protect their assets should their relationship end in divorce, or if your partner dies.  I know that it's unpleasant to consider these things when you feel that you have met that certain someone you want to spend the rest of your life with.  But if you have already been through a divorce, you need to look ahead, as pointed out by the following article.

Asset Protection: Reasons to Consider a Prenuptial Agreement

By Michelle Ash, MSFS, CFP®

I encounter the question more and more these days of - what do you think of prenuptial agreements? Are they something to be considered for individuals getting married, and if so, who should use them?

Pen and prenuptial agreement

The answer is that prenuptial agreements are definitely something for marrying individuals to consider. The interesting thing is that they're not just a tool for use in situations of divorce. They can also be very important tools as a part of estate planning, particularly if the marriage comes later in life and the marrying individuals want to make sure at death that children, friends, or charities receive the assets instead of the automatic rights under the law to the new spouse.

Prenuptial Agreement Basics

First, let's briefly discuss the basics of a prenuptial agreement. A prenuptial agreement is a legally binding contract signed by spouses-to-be that governs how their assets will be divided in the event a marriage is terminated by death, divorce, separation, or annulment. In particular, it spells out in precise detail who owns which assets, which assets are held jointly, and the rights and obligations of each partner. In some cases, related issues, such as alimony, child support, and the provisions of inheritance, may also be covered.

For the agreement to hold up in court, both partners MUST be represented by legal counsel - in fact, by separate legal counsel. Each partner must fully disclose all financial assets and liabilities to ensure the agreement is not legally voided in the future.

Protecting What You Have Acquired

So, let's consider some uses of prenuptial agreements. As I began this article, I was struck by the broad range of clients and situations this topic addresses.

For example, many of you may have adult children. A number of you have children who are past that "just out of college" phase in life. They have established themselves in their careers and accumulated wealth, no doubt like you taught them! One of the very best financial tips you might give your child before marriage is to get a prenuptial agreement - not because you don't like their choice of a mate, and not because you think the marriage won't last - but for their protection. In the event of divorce, it will help them make sure what they've worked hard to accumulate thus far in life remains theirs.

Think of Beatles' great, Paul McCartney. Have you heard about the nasty divorce between Paul and his wife of 5 years - Heather Mills?  The reported $375 million settlement she requested in the divorce settlement represents approximately one-quarter of McCartney's net worth. (The judge in the case ultimately awarded her $48.7 million.)

The sums may not always be that large, but think of your own risk aversion to a double-digit loss in the stock market. Without protection, losses of significant percentages are very real in divorce.

Protecting Your Children's Inheritance Rights

Another use of prenuptial agreements is for individuals considering remarriage later in life, whether previously divorced or widowed. One or both spouses may enter the marriage with significant assets. If so, it may be important to ensure family members from the first marriage inherit property and assets. 

Once married, unless there are estate-planning documents in place to determine otherwise, a new spouse has an automatic entitlement to a certain portion of assets. A prenuptial agreement, drafted with full disclosure before the marriage, may help avoid such an outcome. 

Prudent financial planning advice includes preservation of assets from significant risk. You protect your home from fires and catastrophe, your auto from collision; preserving your assets from events in life can be an important protection measure as well. 

As a Managing Partner of PARAGON Wealth Strategies, Michelle Ash helps clients plan for their financial futures. She is a CERTIFIED FINANCIAL PLANNER™ professional and Adjunct Professor at Florida State College.

After considering some of the reasons people should get a prenuptial agreement, you can also work on getting your financial house in order, with these articles: