Questions you can ask your UBS Financial Advisor
- Why should you consider a prenuptial agreement?
- What key considerations should you and your spouse explore?
- How can you approach the conversation thoughtfully and respectfully?
For many prospective partners, discussing a prenuptial agreement might seem like an awkward topic, conjuring notions of uneven marriages with failure pre-written into contractual documents. In reality, however, they can offer essential protections to both parties entering into wedlock and serve a much nobler purpose than merely keeping wealth in the bloodlines.
Marriage is more than romance and religion as it creates legal rights and obligations between partners that can prove contentious at divorce and be complicated by death. A prenup memorializes each party's understanding of the property and financial rights of their spouse, and can save costly and emotionally damaging litigation after a marriage has ended.
While most couples aren't thinking about death and divorce when they marry, about half of all marriages in America end in divorce, and everyone eventually passes away. In light of this reality, it is only prudent to at least consider drafting a prenup.
Prenups are especially necessary for high net-worth individuals and those who have previously been divorced and divided their assets.
Providing protections for both parties to a marriage
Although prenups are sometimes seen purely as a means to keep wealth in the bloodline, they have other important functions: They can protect a spouse from assuming the debts of the other and prevent creditors from seizing marital property when only one spouse is the debtor.
They can also determine how property is to be passed upon death—which can be vital if there are children from a previous relationship, or heirlooms and businesses that need to be kept in the family. Remember, proper estate planning does require securing other documents such as wills and living trusts.
Prenups can be used to clarify financial rights and responsibilities during and after a marriage, spelling out how each party manages retirement contributions, tax, management of household bills and expenses, insurance and education. The predetermination of alimony can be prohibited by some states, however.
A perfect prenup means awareness of state laws
While recognized in all US states and the District of Columbia, prenups may not always be enforced and can be treated differently in across state lines. Five elements are generally required:
- it must be a written agreement;
- the parties must enter into the agreement voluntarily;
- there must be full disclosure of assets and liabilities;
- the agreement cannot be unconscionable; and
- it must be properly executed
State laws can limit provisions that might have a spouse engage in an illegal activity, such as the filing of a false income tax return. Certain arrangements related to children also cannot be pre-determined in advance. These include agreements to raise children in a certain religion, custody and access issues, and child support payments.
Clauses involving the waiver of the right to alimony are allowed by some states but banned by others. Judges tend to take a dim view of provisions that might be read as providing a financial incentive for divorce. Personal details of a relationship, as opposed to financial details, tend to be unenforceable. This extends to aspects like the division of household chores, child-rearing and relationships with relatives.
Parties to a prenup must be mindful of conflicting laws between states that enshrine community property laws and others governed by equitable distribution states. The nine community property states, which include California and Texas, regard property earned or acquired during marriage as being owned equally by both spouses, regardless of whether only one spouse has engaged in wealth-generating activities. In equitable distribution states, property acquired is regarded as belonging to the spouse who earned it. Upon divorce, the property is intended to be split in a fair and equitable manner, according to a range of factors.
Updating prenups when moving states can be crucial to acknowledge local laws that could impact the enforceability of their contents. Conflicting international laws may provide additional complications for prenups involving non-US citizens, particularly when property spans multiple jurisdictions, so seeking legal advice is essential.
A commitment to respect
Getting a prenup right the first time can save a lot of heartbreak further down the track. Both parties to a prenup should have lawyers represent them separately in the drafting process to boost the likelihood that the agreement can be enforced in a court of law if ever required.
Raising the topic of a prenup may be initially confronting, but being honest and direct is the best policy. No matter the prenup's objectives, they are more effective for couples in a loving, cooperative relationship as opposed to those in distressed or emotionally vulnerable circumstances.
While prenups are, at best, a partial solution to controlling risks of marital property disputes, those made in good will and underpinned by clear communications are generally the most successful—not unlike marriages themselves.