Five Most Common Reasons for Getting a Prenuptial Agreement

Once considered a necessity only for the wealthy, written contracts between couples in anticipation of marriage, also known as prenuptial agreements or prenups, are becoming common estate planning documents. A properly executed prenup can offer protection to both parties, even those without substantial assets, and help avoid disagreements in the event of divorce or the death of a spouse. While prenuptial agreements aren’t binding on third party creditors, they can be used to put creditors on notice and protect family business interests.

1. Protect Children of Prior Relationship

While custody and support of children of the current relationship should be exempted from a prenup as they are barred in most jurisdictions for public policy reasons, prenups can be used to protect children from prior relationships. For example, as part of the full and accurate disclosure of assets and liabilities, each spouse must list any child support paid or owed for children of other relationships. The same is for maintenance (spousal support) paid to or received by a spouse from a prior marriage.

2. Second and Third Marriages

People on their second or third marriages are common prenup users. They’ve been through divorce before, possibly to their financial detriment, and don’t intend to make the same mistakes again. Besides protecting children of prior relationships, prenups can protect each spouse's interest in property they brought into the marriage like retirement accounts and real estate.

3. First Marriage Later in Life with Substantial Assets

Among other things, marrying later allows focus on education and careers, which often means higher incomes and more property.

4. Protect a Family Business

Often it is parents who want the prenup drafted with terms that will prevent their prospective-spouse child from losing his or her interest in the family business if the couple divorces or if their child dies. By protecting the interest of their child, the prenup can be used to indirectly protect the interest of family members who have a financial or emotion stake in the family business.

5. Protection from Spouse’s Creditors

Student loan aren’t the only debts that millennials bring into marriage, but it tends to be by far the largest, and certainly the largest unsecured debt, not to mention one that’s nondischargeable in bankruptcy. Student loan debt brought into the marriage begins as the individual debt of the student spouse, but time and comingling can eventually become marital debt. While third-party creditors aren't bound by prenups, a prenup can be used to put the creditors on notice of what are separate assets and on notice that the student spouse is solely liable for their debt and do not have access to the innocent spouse’s assets. It also lets potential lenders know the risk if they extend additional loans. Prenups can also include an indemnification clause wherein the student spouse agrees to be solely liable it the lender takes property of the innocent spouse to satisfy student loan debt.

If the parties are going into the marriage with one spouse concerned that the other will waste assets (gambling problem, substance abuse issues, compulsive shopping, etc.), a prenuptial agreement can be used to protect the innocent by putting creditors on notice. including an indemnification clause in the event that third party creditors do take property of the innocent spouse.

Don’t think you need a prenup?

Even if none of the top five needs for prenups applies in your situation, if you’re planning to get married these days, you should definitely consider a prenup for these reasons:

• Award or waive spousal support, including whether a spouse will be compensated for staying home to care for children
• Get full and accurate disclosure of assets and debts by both spouses
• Change property from individual to joint or vice versa
• Decide income tax filing status and how to distribute refunds/deficiencies
• Choose how household expenses will be paid (ex. 50/50 split or pro rata)
• Determine how any future inheritances will be distributed