We usually hear about prenuptial agreements, or prenups, in the context of Hollywood divorces. Ordinary couples can benefit from signing a prenup, but many of them are wary because of the stigma surrounding this legal document.
So, What Is a Prenup?
At its most basic, a prenup is a binding legal document that outlines how assets (and if necessary, debt) will be divided in the event that the couple divorces.
For many couples, the division of debt is even more important than the assets. For example, if one party comes into the relationship with credit card debt or accrues significant debt during the marriage, how is that to be handled in a divorce? What about buying a house that ends up “underwater” and sells at a loss?
Not Just for Divorce
Although prenups are most often talked about in terms of a divorce, they can also be helpful in estate planning.
Prenups can apply in the event of the death of a spouse–something that is especially relevant if one or both of the spouses has children from a prior relationship.
Not Only for Rich People, Either
The other major assumption is that prenups are only for rich people. After all, if you have $1000 in savings and a used Honda, why bother drawing up an agreement to protect your assets in the event of a divorce?
Regardless of your current assets and debts, it’s still wise to outline how property might be divided in the future. You never know where life might take you.
Prenups generally ignore your premarital property–so the Honda will still be yours if it outlives your marriage–but future inheritances and other windfalls could be up for grabs. Ditto if you end up getting a job with a much higher salary or writing a bestseller.
In addition, most people don’t realize that prenups can detail how finances and assets are handled during the marriage as well as after it. That means you could have a legal document protecting yourself against shared debts and plan for future financial decisions together.
A lot of couples don’t like to talk about money, so this conversation–which will include lawyers for both future spouses–could be very important to laying the foundation for a more secure marriage.
But It’s Not Very Romantic!
Planning for the end of a marriage before it even begins might seem like a depressing thought. Many people assume that a prenup means the couple doesn’t trust each other or even feels uncertain about the marriage.
However, most lawyers will tell you that a prenup can actually help strengthen trust between a couple. You have to disclose all of your financial information, and having that level of honesty with each other can make a relationship stronger.