Engaged couples often go to great lengths to personalize their wedding. From monogrammed favors to a choreographed first dance, weddings express the unique qualities of the pair at their center. But before exchanging “I dos,” many couples are adding another item to their pre-wedding planning: executing a prenuptial agreement (prenup). In fact, a recent study found that among married or engaged individuals between the ages of 18 and 34, 40% of them had signed a so-called “prenup.” In doing so, they’ve customized just one more aspect of their union—their financial relationship.
Create a Flexible Foundation
A prenup is a written agreement signed by an engaged couple before their marriage to control the legal rights and obligations arising from their legal union. While commonly thought to address only the financial consequences of a divorce or the death of one spouse, a prenup may extend to a variety of financial matters based on the couple’s needs, concerns and goals for the future. For example, the pair may assign responsibility for certain expenses during the marriage or spell out whether they’ll submit their taxes jointly or as separate filers.
Ultimately, a prenup’s flexibility allows it to strengthen—rather than jinx—a marriage. Given the prenup’s potential scope, a couple may want to begin the negotiation process by creating a prenup checklist of the issues they want to address. They can then craft a shared vision of their future to thoughtfully determine how they want to approach these key decisions. Some common concerns that couples might add to their prenup checklist include:
- Do they want to have children? If so, who would be their ideal childcare provider?
- If one or both spouses have children from a prior relationship, how do they envision integrating them into their blended family?
- Will one spouse’s professional trajectory involve relocation, and how will this impact the professional goals of the other spouse?
- What sort of home do they want, and how do they plan to pay for its purchase and upkeep?
- Has one party brought a significant amount of debt to the union? If so, how will those obligations be handled?
- Do either have an idea for a business they’d like to launch? How should a startup be valued?
The conversations at the heart of a prenup negotiation span both day-to-day details and major life transitions. In addition to serving as the couple’s financial blueprint, a prenup may also ease tensions with members of the couple’s immediate family. For example, children from a prior relationship may be more accepting of a new spouse if a prenup assures them of financial support in the event of their parent’s passing.
Alternatively, the parents of either spouse may more readily embrace their newest in-law on learning that a prenup will protect their child’s inherited wealth—or ensure access to support if the relationship reaches an untimely end.
Couples interested in creating a prenup should bear in mind that enforceability varies by state. However, there are a few broad best practices to consider:
- Note the execution requirements: The prenup should be in writing. Some states require additional execution formalities, such as acknowledgment, witnesses and recording in public records where appropriate, depending on the prenup’s specific provisions.
- Avoid coercion: A prenup is only enforceable if entered into voluntarily and free from duress or undue influence. To determine whether a prenup meets this standard, a court will typically look at the circumstances surrounding the prenup’s negotiation and execution. This means that couples considering a prenup should begin discussing its terms as soon as possible after deciding to get married. Signing the prenup days before the wedding may not impact the agreement’s enforceability if the couple had engaged in lengthy negotiations beforehand.
- Come clean: The couple should provide each other with an accurate description of all property interests and financial obligations. While an express waiver of such disclosure may be permitted under some state laws, this trade of information supports a finding that the couple voluntarily entered into the agreement with a sufficient understanding of its impact.
- Enlist an ally: Each party should work with independent legal counsel to ensure they understand how the prenup will alter their rights under state law. Again, a party may decide to waive this opportunity but the provision of both time and resources to work with counsel to protect one’s rights serves as a salient indicator of the prenup’s fairness and voluntary execution.
Faced with a prewedding period short on time and filled with competing demands, an engaged couple may delay financial planning until after the wedding. In this case, they may consider executing a postnuptial agreement (postnup), rather than prenup. Postnups—which address many of the same topics that appear on a prenup checklist—can also be used to address a change in financial circumstances or a necessary change to an existing prenup. However, couples considering a postnup should note that these agreements may be subject to potentially stricter enforceability standards. For example, some states require express consideration (that is, a benefit provided to each party in exchange for entering into the agreement) to create an enforceable postnup. Additionally, a married couple that intends to stay married has a “confidential relationship” under the law of most states. This relationship imposes a duty of good faith and fair dealing in negotiating with one another that may not be present prior to marriage.
The views expressed herein do not constitute, and should not be considered to be, legal or tax advice. The tax rules are complicated, and their impact on a particular individual may differ depending on the individual’s specific circumstances. Please consult with your legal or tax advisor regarding your specific situation.