Are Prenups Bad?

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“We want prenup.”

“We want prenup!”

Fans of early 2010s music will surely understand this original reference. But while none of us might be Kanye West (and Ye—even if you’re reading this, we still encourage you to continue), there is no doubt that the term “prenup” is deeply engrained in our broader financial brains.

Of course, this begs the question, should I get a prenup? And, of course, as we have discussed in our other financial articles, there is no universal answer that will apply to everyone. To put it frankly, there are plenty of situations in which a prenup might make financial sense. There are also situations in which getting a prenup will be financially irrational (or, at the very least, indifferent). In other words, there are a lot of factors you will need to keep in mind when it comes to a prenup agreement.

But what, exactly, are the factors you should take into consideration? After all, there is no single financial blueprint that everyone will be satisfied with. If you are considering getting married soon (or, in a few cases, if you are already married), start by asking yourself the following questions:

1. What is a Prenup?

A prenup is a shorthand for a prenuptial agreement (often known as a premarital agreement). As the term implies, an agreement you make with your spouse before you get married. Prenups are often used to declare who gets what in the event of a divorce and are, more often than not, used by the wealthier members of our society. But there are also a few other reasons you might consider getting a prenup even if you are not a billionaire.

These reasons might include the general clarification of rights and obligations, the need to protect one of the two people involved in the marriage from debt, the need to pass assets relating to an existing marriage to children from the said marriage, etc. In other words, a prenup is not just to protect a spouse from gaining access to wealth in the event of divorce. It’s also about protecting one’s rights and avoiding unnecessary conflicts. Even couples that are mutually financially constrained with limited assets could benefit from a prenup discussion before formalizing their marriage.

2. What Does My (Prospective) Partner Think About a Prenup?

A prenup is a legal contract describing the financial structure of your marriage and often includes details on who will be entitled to what in the event of a divorce. And whenever you are making decisions that might affect your finances, it is usually best to do so with the most rational mindset possible.

However, due to the unique nature of prenups, there is also often a very emotional component involved along the way. Some people consider the very idea of even talking about a prenup to be an insult. In their mind, they might view it as their partner “creating an escape plan” or, at the very least, expecting there to be a high probability of divorce—not exactly very romantic.

New York Times article examining the pros and cons of getting a prenup suggests that couples unwilling to pool their assets together are 145 percent more likely to get divorced. The article ultimately concludes, “If You Want a Prenup, You Don’t Want Marriage.”

Of course, this is just an opinion piece. And since it was published, social attitudes have been shifting to be more tolerating of either partner proposing a prenup. Ultimately, there is only one way to know how your partner feels about getting a prenup: talking to them about it. A quick word of advice – if you’re uncomfortable talking about finances together, whether a prenup or anything else, you’re probably not ready to be married.

3. Does Either Party Own Real Estate? Or Other Valuable Assets?

Another essential factor to consider is how much wealth each of you currently owns. If neither of you has very much wealth, getting a prenup might not seem necessary. But if there are many assets involved, especially if the assets are not evenly distributed, a prenup might be something worth seriously considering.

While having money in the bank is often the underlying trigger of a prenup discussion, real estate is also an important asset class to consider. Simply put, “splitting” a house is much more difficult (and costly) than splitting an evenly divisible lump sum of cash. Suppose one partner plans to sell their home and move into the home owned by the other. Do you put both names on the mortgage? Who will be expected to make future mortgage payments, pay taxes, and reap the benefits of any future sale? These are all questions that can be, and often are, effectively answered through a prenup.

4. What State Do We Live In?

When you get married, your marriage will be recognized at the federal level, which provides certain tax benefits as long as you are an American citizen. However, the laws and rules relating to the legal institution of marriage can also vary by state.

The benefits of marriage—including “default” rulings for couples with no prenup—and the viability of divorce can vary by state (and even by city). In other words, where you live might affect whether or not you decide to get a prenup. According to a recent Forbes article, Nebraska, California, New York, and Arkansas are the four most difficult states to get divorced in (four states that are not really geographically or politically correlated).

5. Do We Currently Have Any Children Together? Children From Other Marriages?

Whether or not you and/or your partner have any children will directly affect the necessity of a prenup. Generally speaking, if you do have children, especially if one of the children is from a previous marriage or with a different partner, a prenup should probably be something you take a bit more seriously.

When children are involved in the situation, that means another person, not just you and your partner, will be affected by any future changes to your marriage. Other factors to consider relating to children could be their age, level of financial dependence, whether they live with you, and whether you plan to have any more in the future. 

6. What Are My Long-Term Financial Goals?

There is not a single financial decision you will ever make that is made entirely in insolation. Deciding whether or not you want to get married, get divorced, or even get a prenup will ultimately affect many other components of your financial life.

This is why it is often a good idea to meet with a financial planner, an accountant, and even an attorney before making any serious decision. At the very least, it certainly doesn’t hurt to think about what the future might have in store.

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