Prenuptial agreements

In short

A friend of mine once said that the most romantic thing he ever did was sit at a kitchen table with his fiancée and talk about money. If you are thinking about a prenuptial agreement, you are already doing something wise. A prenup is a written contract that a couple signs before the wedding. It says how money and property will be handled during the marriage and if it ends. To see how it might fit you, look at how the rest of this page explains the parts, the numbers, and one worked story. Learn what the law in your state says, and ask a licensed family lawyer about your own case. Take this page as a friendly map, not a set of orders. A prenup can be a plan for a good life, and it need not be a forecast of a bad one.

The whole of it

What it is

You have probably heard the word prenup and pictured movie stars and yachts. I once watched a young couple at a diner argue over the check, laugh about it, and then get quiet when the word came up. That quiet is common, and it is nothing to be ashamed of.

A prenuptial agreement is a contract between two people who plan to marry. It is signed before the wedding and takes effect when the marriage begins. It can say who owns what, who pays which bills, and how property and debt get divided if the marriage ends by divorce or by death. Some couples call it a premarital agreement. The words mean the same thing.

Here is the part that surprises folks. Without one, you already have an agreement. The law of your state writes it for you. Those default rules decide who gets what if the marriage ends, and you did not choose them. A prenup lets the two of you choose instead.

Many people believe a prenup is only for the rich. That is not so. Anyone with a home, a business, a retirement account, student loans, or a child from an earlier marriage may have a good reason to write one.

How it works

If you are holding a ring and a question, here is the path many couples follow. The two of you talk first. Each of you then hires a separate lawyer. One lawyer drafts the agreement, and the other reviews it and suggests changes. You trade drafts until you both feel it is fair. Then you sign, and the timing matters, as you will see later.

Each of you also hands over a list of assets and debts. This is called financial disclosure, which just means telling the whole truth about your money. A hidden account or a debt kept secret can sink the whole agreement later.

States take different paths. Some have adopted a model law called the Uniform Premarital Agreement Act. Others have their own statutes or court rules. The details differ, so your own state matters a great deal.

A prenup is often about two kinds of property. Separate property is what each person owned before the marriage, such as a house or a savings account. Marital property is what the couple builds together during the marriage. States handle these differently. Some are community property states, where things earned during the marriage are generally treated as shared. Others use equitable distribution, where a judge divides property in a way that seems fair, which is not always equal. A prenup can change how these rules apply to you.

There are limits. A prenup cannot decide child custody. Child support terms can be set aside by a court if they harm the child. Courts also look hard at any term that leaves one spouse with almost nothing. And a prenup cannot make someone break the law.

The numbers, and where to find yours

Prenups do not run on one national number, but a few figures matter. Start with the cost of a lawyer. Fees vary by city and by how complex your finances are. Ask each lawyer for a quote in writing before you commit.

Next, look at the numbers that touch your plan. Retirement accounts have yearly contribution limits set by law, and the current limit for a 401(k) is the current figure, which the official source publishes each year. Gifts to other people can count against the annual gift tax exclusion, which is the current figure, which the official source publishes each year. The estate tax exemption matters if you plan to leave property to others, and it is the current figure, which the official source publishes each year. Check the IRS website for the current figures and the date they took effect.

To find your own numbers, gather your bank statements, retirement account statements, mortgage papers, loan balances, and business records. Pull your credit report. You can request it from each of the three credit bureaus through the federal site AnnualCreditReport.com. Your state's court website or bar association often explains your state's rules on premarital agreements. The Uniform Law Commission publishes the model act many states have adopted. Reading it can help you follow your lawyer.

A worked example

Let me tell you about Daniel and Maria. Daniel is 34 and owns a small landscaping business that he built over eight years. He also has a house worth 300,000 dollars with a mortgage of 180,000 dollars. Maria is 32, a nurse, with 28,000 dollars in student loans and a savings account of 15,000 dollars. They plan to marry in the fall.

They sat down in the spring. Each hired a lawyer. Each wrote out a full list of what they own and owe.

Daniel's list showed the following. The house equity is 300,000 minus 180,000, which is 120,000 dollars. The business is valued at 150,000 dollars by his accountant. His total net worth is 120,000 plus 150,000, which is 270,000 dollars.

Maria's list showed the following. Her savings are 15,000 dollars and her loans are 28,000 dollars. Her net worth is 15,000 minus 28,000, which is negative 13,000 dollars.

They talked about what felt fair. Daniel wanted the business to stay his if the marriage ended, since he started it before he met Maria. Maria wanted her student loans to stay her own debt. She also wanted a share of the home if she helped pay the mortgage after the wedding. They agreed on this. The business and its growth stay Daniel's separate property. Maria's loans stay hers. Any mortgage payments made from joint earnings during the marriage build a shared stake in the house.

Say they later pay down the mortgage by 20,000 dollars from joint earnings. The agreement says each spouse gets half of that gain in equity, which is 20,000 divided by 2, or 10,000 dollars each. Daniel keeps the original 120,000 dollars of equity. That is a number they can check on paper, and neither felt tricked.

Both lawyers read the final draft. They signed six weeks before the wedding. Nobody cried. They went out for pie.

Where it goes wrong

I have seen good plans fall apart, and it is nearly always for plain reasons. The first is timing. If one person hands the other a prenup the night before the wedding, a court may decide the signing was not truly voluntary. Weeks of time are safer than days, and months are safer still.

The second is hiding things. If you leave out a big asset or a debt, the other person can argue later that they signed without the full picture. It hurts less to tell it all now than to explain it in a courtroom.

The third is sharing one lawyer. It looks cheaper, but it can weaken the agreement and leave one of you without real advice. Two lawyers is the safer way.

The fourth is a term that is too harsh. A court may refuse to enforce a clause that is deeply unfair or that leaves one spouse unable to get by. Terms that both of you would call fair on a good day and a bad one hold up better.

The fifth is forgetting to update. Life changes. A child is born, a business grows, a house is sold. An agreement can be changed if both agree in writing, and many couples look it over again every few years. A calendar reminder helps.

Finally, watch for the hurt feelings. A prenup can feel cold. Say out loud what it means to you. It can mean I want to protect my family, or I want us both to feel secure. Say it kindly, and listen twice as long.

Questions to answer before you leave this page

Have you and your partner talked about money in plain words, and do you both know what the other owns and owes? Which of your assets, such as a home, a business, or savings, do you most want to protect, and why does that matter to you? What would fairness look like to your partner, and have you asked? Do you know whether your state follows the Uniform Premarital Agreement Act, uses its own law, or treats property as community property? Have you found a lawyer for yourself, and has your partner found a different one? Is there enough time before the wedding to review, revise, and sign without feeling rushed? What will you do to keep the agreement current as your lives change?