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Prenups: No Longer Just for the Rich and Famous

November 29, 2014

Prenuptial agreements used to be only for celebrities, but in the last few years they have become dramatically more common in the U.S., and now it’s quite ordinary for middle-class couples to ask for them.

There’s no one single reason for the change.  Rather, a number of factors are working together to make prenups more acceptable including:

  •  The recession.  Many people have seen the value of their homes, pensions, and investments shrink dramatically, and they are concerned about protecting what they have left.  In addition, a lot of people want to shield themselves from debts brought to a marriage by the other spouse.
  • Women are more likely to bring substantial assets to a marriage.  Years ago, the vast majority of prenups were initiated by men, but today it’s increasingly common for women to ask for a prenup.
  • A growing number of people are entering into a second marriage (or third or fourth marriages), and they want to protect children from prior relationships.
  • Many people today have memories of bitter divorce battles between their own parents, and they want to prevent that from happening to them.
  • The social stigma of prenups is far less than it used to be, as more and more people view them as a straightforward financial planning device.
  • At the same time, the law involving prenups has become clearer, so people can enter into them with more certainty.

Prenups can be a valuable technique for sheltering assets, avoiding expensive divorce battles, and protecting children.  However, it’s important to remember that signing a prenup doesn’t solve every problem Even if you sign a prenup, you have to remember to take certain actions (and avoid certain actions) during the marriage in order to preserve the validity of the agreement.

For instance, even if a prenup says that your pension or 401 (k) plan will remain separate, your spouse must generally still sign a waiver after the marriage takes place in order to satisfy the requirements of federal pension law.  If your spouse doesn’t sign the waiver, the federal law will override your prenup, and your spouse may be entitled to a share of your pension.

Also, suppose you have an investment account and your prenup says that it will remain your separate property.  You’ll want to be careful not to add your spouse’s name to the account, file joint tax statements that include the account, or use joint assets to pay taxes relevant to the account.  Each of these things could potentially undermine the agreement by suggesting that you have made the account joint property.

If you have any questions about prenuptial agreements, we’d be happy to help you.