What You Need to Know About Prenuptial Agreements: Part 2 – Considerations Before Entering into a Prenuptial Agreement

January 26, 2024

Prenuptial agreements (or “Prenups” as they tend to be referred to colloquially) tend to have an unfair reputation as a societal matter. Indeed, it’s not uncommon for critics of prenuptial agreements to view them as the most pessimistic way to start a marriage, in effect, heralding the end of the marriage before it has even started.

Overview of Prenuptial Agreements

While it’s not untrue that a prenuptial agreement does, in fact, address what will happen to an engaged couple’s assets, liabilities and finances if the intended marriage were to subsequently terminate, the process of negotiating and entering into a prenuptial agreement is not inherently negative. To be sure, many engaged couples enter into a prenuptial agreement for purposes in addition to addressing what will happen to their property and financial matters upon a termination of the marriage. These possible other purposes for a prenuptial agreement include, but are not necessarily limited to, memorializing agreements on certain marital financial planning matters as well as estate planning matters.

In the first part of this two-part series, we, generally, defined a prenuptial agreement and discussed the criteria for a prenuptial agreement to be valid. In this installment, we will examine what engaged couples should consider when preparing and negotiating a prenuptial agreement.

Key Considerations Before Entering into a Prenuptial Agreement

Regardless of the reason (or reasons) for an engaged couple’s decision to enter into a prenuptial agreement, once the decision is made, the following questions represent some aspects that intended spouses may want to consider before entering into a prenuptial agreement:

How do you, as couple, anticipate operating financially during the marriage?

This first point is important, and often one that many couples tend to skip over when initially discussing a prenuptial agreement. There is likely a good reason for this. Specifically, many couples, understandably, are under the impression that prenuptial agreements only address what happens if the marriage were to terminate. That issue is, of course, always addressed. One of the other beneficial aspects of a prenuptial agreement is that it enables engaged couples to have financial discussions upfront, so as to get on the same page from day one in an effort to avoid any surprises.

For example, if a couple already owns a jointly-titled and jointly-mortgaged primary residence, in connection with that couple’s prenuptial agreement, it may be appropriate to address how the expenses of that residence will continue to be paid during the marriage. Will they be paid from a joint bank account? Will one of the spouses be responsible for paying the same, while the other spouse will be responsible for other fixed expenses of the marriage? Similarly, if an engaged couple knows that they want to save for the future purchase of a primary residence, it may be beneficial, in connection with the negotiation of a prenuptial agreement, to discuss the specifics of how that future purchase will be funded.

Another common scenario that may be helpful to discuss in connection with the negotiation of a prenuptial agreement is whether the parties intend for one of the spouses to stay at home in the event that the parties subsequently have a minor child. Not only can this discussion be helpful to set the expectations of both spouses in the marriage, but, for a future stay-at-home parent, establishing an agreement and clear assurances with respect to his or her continued day-to-day access to at least some portion of the parties’ finances may prove to be critical.

If the marriage were to terminate, how do you, as a couple, believe the assets, liabilities and financial issues should be addressed, if at all?

This second point is, traditionally, what most people think of when it comes to a prenuptial agreement. For this reason, it will likely come as no surprise that the meat of most of a prenuptial agreement is dedicated to addressing this exact issue—specifically, what will happen to the parties’ assets, liabilities and finances upon a subsequent termination of the marriage. Of course, these terms tend to be negotiated in the “shadow of the law,” meaning that, in discussing the same, spouses often must to take into account, in the absence of a prenuptial agreement, what he or she would otherwise receive (or not receive) upon a subsequent termination of the marriage.

Notably, not all issues need to be addressed and decided in connection with a prenuptial agreement. Instead, the parties can agree to make no agreement on certain issues. While that may sound odd or counter-intuitive, the result of ‘an agreement not to agree’ is simply to punt the issue. In this way, upon a termination of the marriage, any issues carved out in this fashion will simply be determined by a court of competent jurisdiction, given the governing law and the facts and circumstances of the parties at that time. For various reasons, spousal support or alimony is a common issue that is carved out and punted in this way in many prenuptial agreements.

If one spouse were to predecease the other during the marriage, what would you, as a couple, want to happen to that spouse’s assets and liabilities? Additionally, is there any financial pre-planning that should be done by either or both spouses at the outset of the marriage in order to prepare for this possibility?

This third and final point is another critical term to discuss in connection with a prenuptial agreement. While a prenuptial agreement is not the appropriate legal vehicle to do any robust estate planning, it can be a helpful way for intended spouses to kickstart their future estate planning. This is especially important to consider when a couple, upon their marriage, plans to move into a home that is one spouse’s solely-titled separate property.

For example, if the spouse with the separate property interest in the home were to predecease the other spouse, what would he or she want to happen to the real estate at issue? Would he or she want it to go to the other spouse? Would he or she want it to go into his or her separate estate. Or is there some hybrid approach that he or she would prefer as it pertains to the division of the real estate at issue?

Additionally, conversations about financial pre-planning can also be helpful to have at this juncture. Indeed, in many circumstances, it may be worthwhile for intended spouses to discuss obtaining life insurance policies on one or both spouse’s lives in order to ensure the continued financial stability of the family in the event of the untimely death of one of the spouses. This is an especially important consideration if one of the spouses in the marriage is currently—or is anticipated to be at some point in the future—the primary breadwinner in the marriage.

Are you or your intended spouse considering entering into a prenuptial agreement and want to know more? The experienced attorneys at KJK Family Law can help. If you need assistance on these or other domestic relations matter, please contact Janet Stewart Scalley at js@kjk.com or by phone at (216) 696-8700.