What many do not know is that more and more people are entering into prenuptial agreements, also known as premarital agreements, before getting married. Although prenuptial agreements have a bad reputation among some, they possess many benefits and are arguably a necessary financial plan. This article will briefly touch on the misperceptions about prenuptial agreements as well as highlight some of their advantages.
1. A Prenup is a Prediction for Divorce
The thought of introducing a prenuptial agreement into an otherwise healthy and loving relationship, typically makes the party initiating the conversation quite nervous. Many think that asking their spouse to sign a prenup indicates their reservations about the relationship and future marriage. However, the reality is that nothing in life is promised and about 50% of marriages end in divorce.
So, if your marriage happens to end in divorce, at least you and your spouse are able to determine the distribution of assets if you enter into a valid prenup. The alternative is having a judge make this determination; a person that neither knows nor cares much about your assets or marriage. A prenuptial agreement is nothing more than a financial plan and is extremely similar to a life insurance policy or savings account: a plan for the future in the event that something terrible happens.
2. A Prenup Only Protects the More Financially Stable Spouse
Many are under the impression that a prenup’s sole purpose is to protect the financially stable spouse’s assets from being acquired by the less financially stable spouse. However, a prenup is a contractual agreement by which both parties can include terms that are beneficial to themselves. For example, a non-employed spouse can include a term requiring the other spouse to pay a lump sum for every year that the non-working spouse remained unemployed and focused on the growth of the family. In fact, agreeing to a prenuptial agreement is strongly advised if you consider ceasing employment to care for and raise children to ensure that the benefit of child-rearing is split equitably.
Prenups also protect against debt. You or your spouse may not want to incur the student loan or credit card debt of the other in the chance of a divorce. A properly drafted prenuptial agreement can assure that you will not be responsible for the debts of your spouse that were accrued before, and even during, the marriage.
3. Prenups are Only Beneficial for the Wealthy
This may be the biggest misperception of prenuptial agreements. Prenups are often sought after by couples in all income levels. In fact, those with less assets and lower incomes are more at risk of a substantial change in their lifestyle in the event of a divorce resulting in a spouse losing half of their assets and income. Imagine your income is $5,000,000 a year and you own 4 houses and two boats. Will your lifestyle change that much if you lose half or even more than half? Now, imagine that your income is only $50,000 and you lose half or even a third.
But it is also important to point out that a prenup is not all about money. You can prepare an agreement that spells out how pets and sentimental items should be handled. All of which are strong emotional triggers that can often become the focal point of messy divorces.