Pros and Cons: Premarital Agreements (“Prenuptials”)

The truth is, marriage is not only a romantic relationship, but also a sort of business relationship. This dual nature and purpose of marriage has led to the increased acknowledgement that a prenuptial agreement (also called a premarital agreement or prenup, for short) can be useful to protect each spouse’s financial interests. Let’s take a look at the pros and cons of entering into a valid prenuptial agreement based on your state’s laws.

Pros

• A premarital agreement can protect the inheritance rights of children and grandchildren from a previous marriage.

• If you have your own business or professional practice, a premarital agreement can protect that interest so that the business or practice is not divided and subject to the control or involvement of your former spouse upon divorce.

• If one spouse has significantly more debt than the other, a premarital agreement can protect the debt-free spouse from having to assume the obligations of the other.

• If you plan to give up a promising career after the marriage, a premarital agreement can ensure that you will be compensated for that sacrifice if the marriage does not last.

• A premarital agreement can address more than the financial aspects of marriage, and can cover any of the details of decision-making and responsibility sharing which the parties agree to in advance.

• A premarital agreement can protect the financial interests of older persons, persons who are entering into second or subsequent marriages, and persons with substantial wealth.

Cons

• The agreement may require you to give up your right to inherit from your spouse’s estate when he or she dies. Under the law, you are entitled to a portion of the estate even if your spouse does not include such a provision in his or her will.

• If you contribute to the continuing success and growth of your spouse’s business or professional practice by entertaining clients or taking care of the home, you may not be entitled to claim a share of the increase in value if you agree otherwise in a premarital agreement. Under the law of many states, this increase in value would be considered divisible marital property.

• Starting a relationship with a contract can engender a sense of lack of trust.

• It can be difficult to project into the future about how potential issues should be handled, and what may seem like an unimportant decision in the romantic premarital period may seem more serious and burden some later on.

• A low- or non-wage-earning spouse may not be able to sustain the lifestyle to which he or she has become accustomed during the marriage if the agreement substantially limits the amount of spousal support to which that spouse is entitled.