Five Points to Consider Before You Tie the Knot

Contrary to popular belief, truly effective estate planning entails all parts of your life, not just the end of it. The process requires reflection on deeply held beliefs about what is important to you, your expectations for other family members, and your definitions of fairness, familial obligations, and even love.

A prenuptial agreement can play an essential role in this kind of forward thinking: it not only protects those about whom you care, but it establishes a foundation of transparency and trust in a marital relationship. Despite its reputation as a cynical repudiation of undying love, this kind of agreement can actually help strengthen a marriage by encouraging clearer communication.

Here are five reasons to consider a prenup.

1.  Marriage is More Than Romance

There is nothing less romantic than talking about splitting up. People tend to put off discussing prenups because they don’t want to think about getting divorced or, even worse: dying!

Because a prenuptial agreement anticipates a not-so-happily ever after, many people avoid considering one until it is too late. That can be a crucial mistake.

 Despite all of the fun and excitement surrounding the big day, marriage is a serious business. As lawyers say: marriage is not just a romantic commitment but a business arrangement as well.

Couples who do decide to negotiate these contracts often realize the process entails more than just a division of assets, but a meeting of the minds on critically important values such as fairness and self-reliance.

2.  The Absence of An Agreement Brings More Risk

Broaching the subject of a prenup with your intended gets easier if you consider the risks to you both of not having one.

In most states, any assets earned or acquired during the marriage are subject to equitable distribution. That means that those “marital assets” are divided equitably, based on a variety of factors—age of the parties, length, of the marriage, ability to be self-supporting and the like. If you live in a community property state like California, marital assets are automatically split 50-50. A prenup allows you to define what you feel is rightfully yours, whether earned or inherited. If you do not want to divvy up with your spouse the profits from the sale of that great app you are developing; or the interest earned on your trust fund, you may want to consider enshrining these wishes in a contract.

Prenups can also govern the end of happy marriages, by controlling what happens to your assets after death. Most states mandate that if one of the spouses dies, the surviving spouse is entitled to a share of the other’s assets. In New York and New Jersey, this is known as the elective share, and it’s generally a very bright line rule: one third of all of the assets that the first spouse to die owns at his or her death—not just assets acquired during the marriage—goes to the surviving spouse. Without a prenup, a spouse automatically inherits that portion of the other’s assets, even if they contributed nothing to creating them or growing their value. A prenup allows you to bestow your estate in the way you find to be fit and fair.

3.  Prenups are Customized to Both Parties’ Wishes

Although the law does define certain assets such as inheritances, gifts, and property owned prior to the marriage as “separate property” and thus exempt from equitable distribution, relying on the law alone does not automatically shield the property you wish to leave to your children, other family members, or a charitable cause from going to your spouse.

For example, you may have started your own business before you got married. If the business increased in value after you wed, that growth may be considered subject to equitable distribution. Your soon-to-be-ex may claim that he supported your business by taking care of the kids, allowing you to focus on your venture, and that the support he provided was integral to the growth of the company: He may say: “I handled all the rest of your life so you could grow the business. I'm entitled to some share of that growth."

All of these issues pertaining to survival, fairness, and distribution can be taken care of in a prenuptial agreement, so long as both parties provide full financial disclosure to each other and are each made fully aware of what they might be giving up. As long as the terms are not unconscionable, you have the freedom to protect your estate against all sorts of claims. You can say, "Look, anything I have now, anything I inherit—plus its appreciation—that's going to remain my separate property. Regardless if I make it grow, regardless if you make it grow, it's going to be separate."

Of course, convincing your betrothed to agree is another matter (see #5).

4.  An Agreement Will Also Protect the Spouse with Fewer Assets

The bride or groom-to-be who is bringing significant assets into the marriage is usually the one to ask for a prenup (or, even more often, it’s their parents who are demanding it). However, the spouse with fewer assets can also benefit from the protections of such an agreement.

It is possible to agree that, over time, a spouse can “earn” a share of what was once considered separate property. For example, the couple may stipulate that, if they cohabitate in the bride’s ancestral home for twenty years or more, the husband will become entitled to a portion of the property’s value if they do eventually split up, even though the house is the wife’s inheritance.

You can include clauses providing that the length of the relationship influences the amount of support. For example, you could state that if the marriage lasts more than five years, the less wealthy spouse will get a specified percentage of the wealthier spouse's separate property. The amounts can “ratchet up” with the length of the marriage, providing more support for longer relationships and increased protection for spouses who become divorced later in life.

Another option is to provide a life insurance policy to the spouse with fewer assets if the wealthier party dies first.

These kinds of strategies allow for a greater measure of fairness and flexibility than guaranteed under law. You can protect your family inheritance or business by asking your spouse to waive any potential claims to those assets while still assuring them that they will have financial protections in the future, no matter what.

5.  Communicating About These Issues Now is Always Better than Surprises Later

Fairness is a highly relative and personal concept: what appears equitable to one person may appear wholly offensive to the other. It can depend on how you were raised, your previous financial and personal experiences, and your family’s values.

Remember: there may be other players involved that can make the dynamics even more complicated and sensitive: the parents, and—when the couple is older—children.

It all comes down to communication. If you're not able to communicate about these issues in advance of the wedding, it probably is not a good sign for the marriage itself.

Timing is also critical. You cannot wait until the eve of the wedding to start talking what to do about money if things don’t work out.

We also advise against surprising your partner with an 80-page prenuptial agreement right before the big day!

Instead of blindsiding your partner, incorporate estate and marital planning into your wedding plans, along with the invitations and the cake. Once you clarify your own goals and priorities, and what is motivating your need for the prenup in the first place, then engage in an informal discussion—or several— with your loved one about the items and issues involved. That way, when your lawyer prepares a formal contract and presents it to your spouse-to-be and their lawyer, it does not come out of left field.

Bonus: this approach also tends to disempower the lawyer on the other side from causing mischief in the negotiation.

By having open and honest conversations first, you will have the opportunity to work out any disagreements that come up. You will learn more about your prospective partner’s attitudes about money, responsibility, and the future. You will see how you work together as a couple in facing challenging topics.

Then you can each sign the document and—hopefully—put it in the drawer and never have to think about it again.

*Warren K. Racusin is Chair of Lowenstein’s Trusts & Estates practice and host of the podcast “Splitting Heirs.”