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Prenup Meaning

Prenuptial agreements, commonly known as prenups, are agreements that couples sign before marriage. They specify how assets will be divided in the event of a divorce. Prenups have become more common and less taboo in current times. However, misconceptions about the purpose of a prenup still persist.

Prenups aren’t just for instances where one fiancee has significantly more wealth or debt than another. There are many different reasons why you may want to establish financial plans or agreements with your future spouse in writing before your big day. You may want to protect your fiance from your debt, or you may want to make it easier to recover financially in the case of divorce. We’ll talk through those reasons, as well as how to create the agreement, in this guide.

What Is a Prenup?

A prenup, or a prenuptial agreement, is a contract between two individuals that they create before marriage. It typically lists both spouses’ assets and dictates what should be done with those assets in the case of death or divorce. A prenup is a legally binding document with rules regarding its construction that vary from state to state.

Why Would You Want a Prenup?

There are plenty of potential motivations behind wanting a prenup beyond simply protecting your wealth. For instance, you may have children from a prior marriage, and you may want to stipulate property that would pass to them rather than your spouse in the case of your death.

Protecting one spouse from the other’s debts is another common reason for a prenup. If you or your fiancee has a significant amount of debt, be it student loans or credit card debt, a prenup can make sure the non-debtor doesn’t end up on the hook for half of the debt.

Another common motivation for getting a prenup is when one spouse is the owner or part owner of a business. A prenuptial agreement can help protect these business assets, minimizing the impact on the business and its co-owners and employees.

While no one believes that divorce is on horizon during an engagement, many marriages end in divorce – as many as 50%, according to some estimates. It pays, then, to be prepared for the worst. It’s also worth noting that there’s already effectively a “prenup” in place when you get married – the state laws dictating the division of assets in divorce. If you don’t think these rules would make for a fair division, then you may as well write your own rules to apply to your marriage. If you wind up getting divorced, you’ll be glad you did – and it will make the process go much more smoothly.

How Do You Create a Prenup?

Prenup Meaning

Before you get to writing your prenup, you’ll want to gather some information and make some decisions. If you have all the details nailed down ahead of time, writing the agreement will be a much easier process.

The first step will be to have both spouses list their income and all of their assets and debts. Most states require this for a prenup to be valid. Since a prenup may involve you signing away your entitlement to certain assets, you need to know about any assets you may be entitled to. Otherwise, the contract will be invalid.

You’ll also need to decide what assets, either now or in the future, you and your spouse will be designating as joint marital property. Keep in mind that most courts frown upon setups where one spouse owns everything that would otherwise be considered joint marital property.

Once you’ve established the full dossier of assets and established what is considered joint marital property, you’ll need to lay out how you’ll distribute property in the event of divorce. If the joint property isn’t being distributed equally, you should stipulate if one spouse would receive any sort of cash in lieu of an equal distribution. You’ll also want to discuss if one spouse will be responsible for paying alimony or child support. This will also impact how you’ll file taxes after a potential divorce.

Writing the Agreement

There is no fixed template that a prenuptial agreement must follow. However, there are a few requirements that every prenup should satisfy. For specific advice about how to write and format your agreement, it’s best to consult an attorney in your state. (In fact, you and your fiancee may both want to have your own lawyers to ensure that the agreement is fair.)

First and foremost, you’ll need to identify yourself and your fiancee by your full, legal names in the document and state that both of you are creating this document willingly. You should also state that the two of you intend to marry and include the date of the marriage (since your wedding day will most likely be the effective date of the agreement). As mentioned above, just about every valid prenup will also need to include an inventory of all the assets each fiancee owns. This could include real estate, business assets, retirement accounts and liquid property like cash.

From there, what you will need to include in your agreement will depend on what you’re looking to get out of it. You may want to stipulate certain conditions regarding how ownership will be assigned to property that one spouse acquires after the wedding. You might also describe how you’d like your property transferred to a child from a previous marriage in the case of your death. It depends on your unique situation.

The Takeaway

Prenup Meaning

Protecting yourself and your assets before getting married doesn’t have to be complicated or controversial. There are many different reasons why you might want to draw up a premarital agreement with your future spouse, and your reasons are your own. To make sure your agreement is accomplishing everything you want it to, it’s a good idea to have an attorney look it over before you take the plunge. That way, you can enter this new chapter of your life with confidence and peace of mind.

Tips for a Successful Financial Life

  • Getting married usually means big changes to your financial life. Not only are you merging finances, you might also be thinking about buying a home together and having children.  To make sure you’re heading down the right path financially, talking with a financial advisor can be a big help. You can use SmartAsset’s financial advisor matching tool to find qualified advisors in your area. Just answer some questions about your financial life and goals, and the tool will match you with up to three local advisors for you to review.
  • Marriage also changes how the government taxes your income. SmartAsset’s income tax calculator can help you understand ahead of time how your tax burden will change after you tie the knot.

Photo credit: ©iStock.com/kate_sept2004, ©iStock.com/stocknshares, ©iStock.com/fizkes

Hunter Kuffel, CEPF® Hunter Kuffel is a personal finance writer with expertise in savings, retirement and investing. Hunter is a Certified Educator in Personal Finance® (CEPF®) and a member of the Society for Advancing Business Editing and Writing. He graduated from the University of Notre Dame and currently lives in New York City.
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