There’s a difference between “if” and “when”
A prenup does not presume you will get divorced. Anyone that fatalistic maybe shouldn’t get married. A prenup lays out what would happen if your marriage ends.
To some people, that is a distinction without a difference. By anticipating divorce, you already have one foot out the door. Yet thousands of happily married couples with prenuptial and postnuptial agreements would disagree. Think of it as an insurance policy; hopefully you never need it but if you do you’re in good hands.
Many Millennials and Generation Z couples are more open to exploring the pros and cons of prenups, while there is still a stronger stigma among older generations. But increasingly, even couples who have been married for years are seeing the value of marital agreements.
Aren’t prenuptial agreements for rich people?
True, many celebrities and high net worth individuals have prenups. However, these agreements are not exclusive to the jet set. And you are probably more “wealthy” than you might think once you tally up retirement savings, home equity, business interests and investments.
Prenuptial and postmarital agreements make sense for many scenarios:
- Spouses with a wide disparity in income
- “Power couples” who are both high earners
- Individuals who own a house or other assets prior to getting married
- Preserving inheritance for children from a prior marriage
- A business or professional practice built after you got married
- Gifts, inheritance or lawsuit proceeds received during marriage
When does a postmarital agreement apply?
A prenuptial agreement is not always feasible or necessary when couples marry. But the longer you are married, the more wealth you accumulate. One spouse may develop a more successful career or business, or come into some money during the marriage.
The trick is keeping separate property separate. Using joint funds to improve property or pay taxes, for instance, can nullify the separate property presumption. A postmarital agreement, also known as a mid-marriage agreement, can designate separate property and help to avoid “commingling” of those assets.
In the event of a divorce, the parties would retain their separate property as spelled out in the agreement, rather than litigation over the characterization and valuation. A mid-marriage agreement can also avoid having your assets pass to your stepchildren or your ex’s future spouse.
Are these agreements enforceable?
The divorce process and estate planning are simplified by a prenuptial/postnuptial agreement. There are fewer issues to argue about or litigate. On the other hand, a prenuptial agreement can unfairly deprive one spouse of equitable consideration in the marital estate. It is important to have any agreement drafted or reviewed by legal counsel, and it is important that both parties understand and consent to the agreement.
No contract is truly ironclad, but prenups are generally upheld if they are fair and freely entered. A court can nullify a prenup if there is evident of fraud, coercion or conflict with New Jersey statute.
A marriage is not a mere business arrangement, but many of the same principles apply. You have to be pragmatic about an “exit strategy” if that hypothetical divorce scenario does arise.