First come love, then comes marriage — at least, that’s how the saying goes. But for some couples, a prenuptial agreement is the missing middle step to protecting each partner as they head into the marriage.
As couples prepare for marriage, it’s wise to have a range of financial discussions such as disclosing debt, income, and assets and even setting shared financial goals. One conversation you shouldn’t overlook is whether a prenuptial agreement is right for you.
Here’s an overview of what engaged couples should know about prenuptial agreements if they’re interested in creating and signing their own.
What Prenuptial Agreements Are (and Aren’t)
First, what is a prenuptial agreement? A prenuptial agreement is a legal contract that outlines each partner’s ownership of assets and financial arrangements before they become legally joined through marriage.
“The prenup would come up at the time of a discussion of a dissolution of a marriage so that you have a starting point and you can unwind the lines that have been woven in the marriage easier,” says New York-based attorney Leslie Tayne.
Without a prenuptial agreement, the process to split community property in the case of divorce will be determined by the marriage and divorce law of the U.S. state you’re residing in. So this contract is how you and your partner can have more control over how you want your specific marriage to be constructed — and dismantled, if necessary.
“I’m particularly struck by the sentiment that a prenup is like getting any other kind of insurance,” says Erin, founder of Reaching for FI, who signed a prenuptial agreement with her spouse. “It protects both you and your partner in the unfortunate and (hopefully) unlikely circumstance of your relationship ending.”
It’s important to understand what a prenuptial agreement isn’t for, however. “The goal of a prenup isn’t to necessarily pull it out after every argument and go, ‘Okay, let’s see what the prenuptial agreement says,’” Tayne says.
In fact, including personal or relational clauses in a prenuptial agreement can actually defeat its purpose of protecting both parties by making the contract harder to enforce, Tayne warns.
Couples interested in making this kind of agreement should consider an informal and non-legal marriage contract, instead. “If you want to come up with boundaries for your relationship,” Tayne suggests, “that’s better suited for a marriage counselor.”
Do You Need a Prenuptial Agreement?
A prenuptial agreement isn’t necessary for every married couple. So how do you know if it’s right for you to take this step? Consider your current financial situation, and how getting married could affect it.
“Certainly if you have built up assets during the years prior to that marriage, or if you’re getting married later in life, then it’s definitely advisable,” Tayne says. A prenuptial agreement is how a couple would agree on ownership and handling of assets, and even liabilities, owned before marriage.
But a prenuptial agreement isn’t always necessary, Tayne points out. “When you’re very young and you haven’t built up any type of assets or equities in your name and you’re both in the same position, there’s less risk,” she adds.
Couples should also consider the marital and divorce laws of the state where they live, Tayne suggests, or expect they might during their marriage. Reviewing these laws will help you understand the baseline for how the state might determine property division and alimony in the case of divorce.
If you and your partner think the laws are fair and align with your situation, a prenup may not be needed. But many couples may have special considerations or needs that could make a prenuptial agreement a smart idea.
What to Discuss Before Creating Your Prenup
You and your partner have informed yourselves about your state’s marital laws, and agreed a prenuptial agreement may be in your best interest. Now it’s time to start preparing to create and sign this contract.
Couples will need to start the discussions about what they may want the prenuptial agreement to cover, and what each views as a fair agreement. Here are some topics that you could discuss as possible inclusions in a prenup:
- Defining marital property and separate property that belongs to just one partner
- Handling of retirement savings and investments
- Responsibility for debt, including student loans
- How disputes will be resolved in a divorce, such as through mediation or arbitration
- Financial arrangements in the marriage, such as management of joint accounts
Not every agreement you could make as a couple will belong in a prenup, however. Many couples might want to add lifestyle, relationship, or personal clauses to the prenup. But proceed with caution, Tayne warns: including unenforceable clauses can be a waste of time and money at best, and could risk invalidating the contract at worst.
When Erin and her partner discussed a prenuptial agreement for example, they discussed who owned the assets each was bringing into the marriage. Erin acknowledges that a prenup was not necessarily the most advantageous to her, financially, as the lower-net-worth partner going into their marriage.
“But getting the most money out of the end of our relationship was never the goal,” Erin says. “We both worked extremely hard and are proud of what we accomplished separately before we got married.” They agreed to document their net worth totals at the end of the month of their marriage date, and split all assets gained after that point 50/50.
While it can feel like prenups are all about the potential ending of a marriage, they can be an important ingredient to helping partners feel secure and respected going into the marriage.
“Having these conversations before you get married makes so much sense because you’re both very much in love, feeling generous towards your partner, and don’t want to hurt them or want them to not have to worry about money in a future where you go your separate ways,” Erin adds.
Drafting and Signing a Prenuptial Agreement
If you’re started these discussions, it’s time to consider your options to draft and sign a prenuptial agreement.
You have two main options for this: hire a lawyer to draft the prenuptial agreement or write it yourself using a guide or template.
Be aware, however, that it’s wise to hire an attorney to at least review the contract and ensure it is valid and enforceable. Typically, each partner will need their own lawyer to review the prenuptial agreement and independently advise and protect the interests of either person.
“I would highly recommend an attorney,” Tayne says. Specifically, an attorney who specializes in writing prenuptial agreements and understands what will be enforceable and what will not. “This prenup is going to be what you consider your bible; you’re going to live and die by this agreement.”
Take Erin, for example: she and her partner used a Rocket Lawyer form to generate their prenuptial agreement, then both signed it. While this was an affordable and straightforward option, Erin acknowledges that she isn’t sure if it would be legally binding — as they didn’t hire a lawyer to review it.
The average cost of a prenuptial agreement is $2,500. But for couples who have decided a prenup is in their best interests, that cost is well worth the peace of mind this agreement can give. Bottom line: plan to hire a lawyer to ensure your prenup is sound and providing the protection you’re intending.