Prenuptial agreements are not just for aging New Jersey businessmen who want to shield their fortune from young spouses. Prenuptial agreements are contracts between future spouses which determine what each person brought into a marriage and what should happen to those assets when the marriage ends in either death or divorce.
“I see a prenuptial as the start of an ongoing conversation about money, finances and ultimately the values that you hold that get expressed financially,” a certified public accountant told the Los Angeles Times. “Everyone needs to have the conversation.”
The CPA said that prenuptial agreements are especially important the following six situations:
- When spouses enter a marriage with disparate assets. A prenuptial agreement can determine what happens to assets brought in by one partner such as real estate or investment accounts when the marriage ends.
- Vastly different income levels. A prenuptial agreement can cap the amount that the lower-paying spouse can receive in spousal support, but these agreements may be thrown out if a judge believes that the agreement is blatantly unfair.
- Second marriages or children from different parents. A prenuptial agreement can make it clear who will pay for the expenses of any children from a previous marriage or relationship.
- When disparate debts are brought into the marriage and the spouses want to keep the debts separate. Be careful however, when federal debts such as student loan payments are at issue. The federal government may hold both spouses liable for the debt regardless of a prenuptial agreement.
- Business ownership. A prenuptial agreement can protect the assets of a spouse’s small business and can also shield the non-owner spouse from some potential business liabilities, the CPA said.
- Inheritances. A prenuptial agreement can help spell out how inheritances will be kept separate from marital property in situations where assets such as real estate interests are inherited.
The CPA recommends having a financial conversation with your spouse before the marriage even if you decide not to create a prenuptial agreement.
“Failing to having a conversation about money when you get into a partnership can lead to serious problems later,” she said. “And marriage is probably the biggest partnership of your life.”
Source: Los Angeles Times, “Six situations in which you may need a prenup,” Kathy M. Kristof, 4/24/11