The Benefits of Prenuptial Agreements

Excerpted from The Complete Prenuptial Agreement Kit by Edward A. Haman ©2006

Your state government has created a plan for how your property will be divided in the event of divorce or death. Ask yourself if you are satisfied with the state’s plan or if you want your own plan. Think about all of the laws your state legislature has passed. Then, ask yourself if you like any plan the legislature came up with on any subject.

Most state laws regarding the distribution of property after death or in the event of divorce leave plenty of room for a judge’s interpretation. Therefore, you can never be sure what a judge will decide is really your property after a marriage. The only way to possibly avoid this is with a prenuptial agreement.

The need to have a prenuptial agreement often does not become apparent until there is a divorce or a death, which is when problems you never thought of tend to emerge. Divorce is more common than most want to believe. Some statistics suggest the divorce rate is even higher in second marriages than in first marriages.

Do not forget that prenuptial agreements can be useful in the event of death, which is a subject even fewer people seem comfortable thinking about. It is always strange to hear insurance salesmen talking about “in the event of death,” as if some people escape it altogether.

Most people think that a prenuptial agreement is what rich people use to protect their property in the event of divorce from their less wealthy spouse. Actually, there are many more reasons to use a prenuptial agreement.

First Marriages
Even if you and your partner are a young couple with no significant property and typical jobs, and this is the first marriage for both of you, there is some evidence to indicate that prenuptial agreements actually promote stability in a marriage. This is because preparing one gives you a chance to carefully think about the significance of marriage, to clearly understand each other’s financial situation, and to consider how you see your financial futures (individually and together). Discussing a prenuptial agreement, even if one is never finalized, will make you realize that by getting married, you are entering into a legally binding contract with financial rights and obligations. This side of marriage is usually totally overshadowed by the romantic and religious aspects, and by the ceremony and honeymoon planning.

Many spouses do not know any of the details of the other’s finances. Since one of the requirements of a prenuptial agreement is fully disclosing each party’s financial situation, preparing one will help the couple get a clearer understanding of their total financial health. This can be very helpful in making financial decisions. If more couples had worked together on such things as purchasing decisions and monthly budgeting, perhaps the bankruptcy and divorce courts would not be as crowded as they are today.

It is also good for a couple to share common dreams and goals. Focusing on a prenuptial agreement can help the couple discuss their career and economic goals in life. Especially with the common two-career couple, it is important to share thoughts on where each person intends his or her career to head. If each person is intent on developing his or her career, it might be a good idea for the couple to sign a prenuptial agreement giving up rights in each other’s income or business (especially if they have a fairly equivalent earning potential and they are just starting out in their careers). On the other hand, if they are in business together, a prenuptial agreement could outline how the business will be divided in the event of divorce. This document would avoid expensive attorneys’ fees later, and prevent a fight over the business in the divorce proceeding.

Children of Prior Marriages
One of the main circumstances for a prenuptial agreement is when one or both of the parties have children from a prior marriage or relationship. In such cases, a prenuptial agreement may be the only way to assure that the children are protected in the event of divorce or death. Otherwise, all of your property may go to your second spouse, with your children getting nothing.

Example: Rob and Rita are married and have no children together, but Rob has two adult children from his former marriage. If Rob dies without leaving a will, under the laws of their state, all of Rob’s property goes to Rita. Rob’s children will receive nothing.

A prenuptial agreement can help assure that children from a prior marriage will be provided for as intended by their parent. Your future spouse should have no objection to you wanting to take care of your children.

Business or Investment Partners
If you have business partners, especially if they are family members, you should have a prenuptial agreement to prevent disruption of the business in the event of divorce or death. Otherwise, you or your partners may end up with your spouse as a business partner, and that can cause all kinds of problems.

This caution also applies if the business is a privately held corporation. Many problems have occurred when a spouse inherits stock or receives stock as part of a divorce judgment.

Example: Mark and his brother Jim each hold 50% of the stock in a small restaurant business started by their father. Mark married Jane, and several years later Mark died, leaving Jane his half of the stock. Jane was then the business partner of her brother-in-law. Jane then married Fred. When she and Fred divorced two years later, she gave Fred the stock in the restaurant as part of the property settlement. Now Jim has Fred for a partner. Is this what Mark would have wanted? Is this what Mark and Jim’s father intended to happen to his family business?

Suppose Mark and Jane had divorced. A judge might have divided the stock between them. Now Jim would have 50%, and Mark and Jane would each have 25% percent. Now Mark has his ex-wife as a business partner. Mark and Jim together could out-vote Jane, but what might happen if the relationship between Mark and Jim was strained to begin with? Now Jim and Jane might
join forces to out-vote Mark.

Your Situation
Most states first divide property into two categories: marital property and nonmarital property. Generally, nonmarital property includes what each of you had before your marriage. If you are like most people, you would both want to keep what was yours before you got together, in the event you split up. This sometimes becomes a problem if you cannot prove what was yours before. In a prenuptial agreement, you can write down what these nonmarital items are for each of you. That way, there is no arguing later.

You may have family heirlooms or other special items that you would like to stay in your family when you pass away.

Example: Diane has a diamond pendant that belonged to her great-grandmother. In the event of her death, Diane would want it to go to her sister. However, if she died without a will, the pendant would go to her husband. Even if she left the pendant to her sister in a will, her husband might have the right to the pendant if it was so valuable that it is a substantial portion of Diane’s estate.
Diane’s husband might then marry, have a daughter with his new wife, and give the pendant to his daughter.

This type of situation is common in countless families, quite possibly including yours. In such cases, a prenuptial agreement might avoid undesirable results. You should consider a prenuptial agreement if any of the following situations apply:

? you and your f

As Featured in the Book

Complete Prenuptial Agreement Kit (+ CD-ROM)

Edward A. Haman, Attorney at Law

The Complete Prenuptial Agreement Kit helps you understand this need and create your own premarital agreement to legally and financially protect you, your spouse and your children.

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