Financial Aspects of Prenups
Financial Aspects of Prenups
By: Kemp C. Stickney, Chief Fiduciary Officer

Today a family is not what it used to be; stepparents, stepchildren, half-siblings, even stepsiblings on alternating weekends are hardly uncommon. All the more reason to set financial and legal obligations of a new couple on paper long before anyone says, "I do."

There's no need to perceive a prenuptial agreement as a sinister document, especially for women. Consider that prior to the Women's Property Act of 1838, all property belonging to a woman was automatically and irrevocably transferred to her husband upon her marriage. That included any money or business interests she inherited during her marriage. Imagine.

Today we can go one step further in protecting assets owned prior to marriage, thanks to a law called the Uniform Premarital Agreement Act, which many states have adopted in some form. These Acts typically include guidelines for dealing with issues in a prenuptial agreement related to disposition of property after separation, divorce or death; alimony; wills; and life insurance beneficiaries.

Although best known for protecting the wealthier spouse from financial ruin, prenuptial agreements typically cover three types of provisions:

  1. Divorce or Separation: Division of assets owned prior to marriage
  2. Divorce or Separation: Division of assets acquired during marriage
  3. Death: Division of assets among the surviving spouse and other heirs

While it may seem that premarital agreements spell gloom and doom for prospective brides and grooms, they can in fact eliminate much of the financial uncertainty associated with setting up a household together. The wealthier spouse may feel confident that his or her assets are secure, while the less wealthy spouse is assured of some property and/or alimony arrangement regardless of the success of the marriage.

Legal Aspects
While individual states have different laws pertaining to the details of prenuptial agreements, they basically follow the same general form. An agreement is signed by both parties and witnessed by a notary. These agreements needn't be filed with a court and can be drawn up by the two prospective spouses without assistance. However, it's recommended that each spouse obtain expert counsel to ensure that their interests are protected and that the agreement follows the letter of that individual state's law.

Each spouse should prepare a detailed financial statement when drawing up a prenuptial agreement, including all assets and liabilities, annual gross income, interests in family trusts, and even potential inheritances. Full disclosure ensures that each spouse understands what he or she is getting and giving up, and failure to do so can result in a prenuptial agreement being set aside.

Other reasons why these agreements may not hold up in court include fraud, an unfair agreement, lack of representation or poor representation by counsel, or "ink on the wedding dress" - pressure to sign an agreement within 48 hours of the wedding.

In the absence of a premarital agreement, upon the dissolution of a marriage, community property states will generally divide in half the couple's assets acquired during the marriage, while other states may make subjective assignments of assets based on years of marriage, status of children, lifestyle considerations, and any number of other factors. In the case of death, in the absence of a will, assets often transfer to the surviving spouse and/or to the children of the decedent. However, a premarital agreement can allow for the specific assignment of assets to particular individuals - such as the decedent's children from a prior marriage.

Financial Aspects
Prenuptial agreements may be drawn up to direct various types of arrangements. For example, "maintenance" constitutes the amount of alimony a divorced spouse may receive from his or her wealthier counterpart.

Another financial arrangement may include the preservation of a business, family assets, or family fortune held prior to the marriage, to ensure that those assets stay with the original owner should the marriage end in divorce. In many cases, a wealthy family will want to ensure that assets gifted to an adult child do not become the property of the non-blood-related spouse in the event of divorce.

However, it's important to recognize that no state will automatically adhere to an agreement concerning custody, visitation, or child support arrangements included in a prenuptial agreement. These matters will always be revisited during divorce proceedings, and such arrangements may be set aside at the discretion of the court if determined not to be in the children's best interests.

Premarital agreements can be instrumental in providing an orderly process if the marriage ends. From this legal and financial foundation, marital bliss may ensue.

This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service or as a determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situations, and particular needs. This article is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought.

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