Prenup Isn’t a Four-Letter Word

Young couples going into their first marriage with little or no assets don’t usually have much to lose by combining their assets as they start to build a family and plan for the future. However, The Pittsburgh Post-Gazette says in a recent article, “Financial planners: Prenuptial agreements shouldn’t be a deal breaker in remarriages,” that marriages can be more complex when they happen later in life. This is especially the case when both spouses have children from past relationships and separate assets they’ve acquired over the years. It can be even more complicated if one spouse has more assets than the other.

When you start out early with very little and you acquire your assets together, arguably they should be shared, but that’s not necessarily true if you come to the marriage with assets. In contrast, when you enter the marriage with assets, many feel that those assets should be held separately—but assets built during the marriage should be put together. Keep assets entering into the marriage separate to protect the heirs of both spouses.

Pew Research Center in 2013 found four out of ten new marriages included at least one partner that had been married prior. The researchers concluded that there were two reasons for the increase in remarriage: (i) divorce rates in the U.S. have increased since 1960, so more divorcees may be looking to remarry; and (ii) Americans also are living longer, so divorcees, widowers and widows have more time to marry and divorce and marry and divorce.

Prenuptial agreements give both parties the ability to identify exactly what each of their assets are at the time of marriage, so they can show what they brought in if they divorce in the future. In order for a prenup to be enforceable, there must be a full and fair disclosure of all assets and liabilities. Any hiding of assets could void the agreement. There also must be no duress—no pressuring a bride to sign a prenup as the organist is playing the wedding march and threatening harm if she doesn’t. It should be done well in advance of the wedding, and when considering a prenuptial agreement, the fiancée should seek independent legal advice.

A big benefit of a prenuptial agreement is that it frequently can mesh with a person’s estate plan—including life insurance, wills, trusts, retirement plans and beneficiary designations. If the assets remain separate in a marriage, the prenup will protect the surviving spouse and the heirs of the deceased spouse.

A spouse entering into a second marriage with more assets than the other spouse can leverage a prenup to create a trust that will pay interest income to the surviving dependent spouse for as long as he or she lives. When that person dies, the money from the trust is distributed to the children of the first spouse who passed away. This is used a lot with higher net worth couples when at least one of them has been married before. The same strategy to provide protection to heirs can also be accomplished via a will, but a will is restricted to death while a prenuptial agreement covers the possibility of a divorce as well as estate planning.

Prenuptial agreements have a negative connotation, but think of them as an estate planning tool—not a divorce planning tool. This makes it easier for people to grasp their importance and agree to sign one, especially in second marriages.

Prenuptial agreements have been thought of as taking the romance out of a relationship, but what truly removes romance is when someone tries to take advantage of the other spouse who enters the marriage with more assets.

Reference: Pittsburgh Post-Gazette (July 29, 2016) “Financial planners: Prenuptial agreements shouldn’t be a deal breaker in remarriages”