How to Make a Prenuptial Agreement

A prenup agreement is a contract that two people sign to define what will happen with their property and finances, should they get divorced. The division of property and assets during divorce varies from state to state; therefore, the division of property outlined in a prenuptial agreement may not be upheld by the court. Prenuptial agreements are legal contracts that establish the financial responsibilities of both parties during the marriage and, in some states, after a divorce. In short, a prenuptial agreement is a legally enforceable contract between two people who are planning to get married. Generally speaking, it spells out what happens with their property and finances should they get divorced.

Reasons to Get a Prenup

There are several reasons why couples might choose to create a prenuptial agreement.

Having Significant Assets

Couples may enter into a premarital agreement because they own significant assets, or wish to protect their assets in the case of divorce. Prenuptial agreements can also protect a party’s future inheritance.

Clarify Financial Arrangements

Some couples also use prenuptial agreements to clarify their financial arrangements during the marriage. For instance, they may want to establish who will be responsible for what debts or bills.

Define Alimony and Child Support

Prenuptial agreements can also outline the amount and duration of alimony payments, or child support payments, in the case of a divorce.

Establish Paternity

In the case of a divorce, a prenup can protect what has been defined as “non-marital” property. In other words, it can establish paternity – whether a child born during the marriage is legally considered to be the child of just one party.

Usage of Prenuptial Agreement

A prenuptial agreement can help protect your future assets in a few ways. First, it can establish who owns any property or assets that are acquired during the marriage. This can be important if you come into the marriage with significant assets that you want to keep separate from your spouse. Second, a prenup can help protect your assets in the event of a divorce. If you get divorced and your ex-spouse is entitled to half of your assets under state law, a prenuptial can ensure that they only receive what was outlined in the agreement. This can be helpful if you have a lot of assets that you want to keep separate from your spouse.

Benefits and Drawbacks of a Prenup

Like any other legal agreement, prenuptial agreements have both benefits and drawbacks. Here are some of the primary benefits and drawbacks of a prenup.

Benefits

Prenuptial agreements can protect your assets in the case of divorce if you have significant assets during the marriage. They also provide clarity about financial arrangements. In other words, they ensure that both parties’ financial lives are up-to-date and well thought out.

Drawbacks

Signed prenuptials are usually viewed by the courts as binding contracts, so they can be difficult to overturn. Courts often infer that these documents must have significant weight since both parties signed them. Suppose one party later wants to void (make it null and void) the agreement; this is more likely to be challenged if that person is the spouse with lower income or fewer assets.

Protecting Future Assets

Prenuptial agreements help protect and define your future assets by establishing who controls them, and how they’re divided in case of divorce. States differ on the types of property they consider marital or non-marital. But, in general, the marital estate is everything acquired during the marriage – both assets and liabilities. Who owns assets that are purchased during the marriage often comes down to whether or not they were purchased with marital or separate funds. Marital funds are those acquired by either spouse, while separate funds are those kept separate even during the marriage.

Creating a Prenuptial Agreement

There is no single way to draft a prenuptial agreement, but they generally require the same steps as other legal contracts. The following outlines five basic steps that should be included in any prenup:

  1. Agree on key terms.

Each party will want to set its own financial expectations about sharing assets and protecting future assets.

  1. Set up a structure for the agreement.

Prenuptials need to be clear and organized – including separate provisions governing different types of assets and arrangements for what will happen after a divorce.

  1. Determine how to resolve disputes if they arise.

Many couples include a provision that requires mediation, judicial discretion or arbitration in the event of divorce.

  1. Language.

Write up the agreement using language that is clear and unambiguous to avoid confusion or disputes later on.

  1. Signatures.

Put the final document in writing with both parties’ signatures, names and dates it was executed. A notary’s signature may also be necessary.

Different Types of Prenuptial Agreements

Prenuptial agreements are very flexible documents that can be tailored to the needs and circumstances of each individual couple. There are many different ways to create prenuptial agreements, but here are some common examples:

  • Basic agreement with fewer provisions or restrictions – Each party keeps separate assets, and individual property is not divided.
  • Agreement that combines marital and non-marital property, or income from separate sources.
  • Prenup that requires a division of all assets upon divorce.
  • Agreement that creates a trust for children from a former marriage.

The Process for Getting Married With an Agreement in Place

If you’re planning to get married and already have a prenuptial agreement in place, there are a few extra steps you’ll need to take.

  1. Notify your wedding planner or officiant about the agreement. They need to be aware of the document in order to officiate or plan your wedding accordingly.
  2. Get a copy of the agreement notarized and have all parties sign it.
  3. Make sure both you and your spouse have a copy of the agreement – it’s important to keep them in a safe place.
  4. Keep the agreement updated as your life changes. If any major changes occur (a new job, inheritance, etc.), you’ll need to update the agreement to reflect those changes.

The Bottom Line

A prenuptial agreement (prenup) is a legal document signed by couples before marriage that outlines who owns assets and how they will be divided in case of divorce.  Prenups are often thought of as being only for couples with significant wealth, but they can also be used as a tool for those who want to keep certain assets separate or protect future inheritances.  Prenups help ensure that there will be no surprises if the marriage ends in divorce.

Prenuptial Agreement FAQs

A prenup agreement is a legal document that outlines how assets and debt will be divided in the case of divorce.
A prenuptial agreement, or prenup for short, is an agreement between two people who are planning to marry each other. The prenup defines how their assets and debts will be divided in the event of a divorce.
Prenuptial agreements are contracts that define the financial rights of both parties in case they decide to get divorced.
Every couple considering marriage should consider drawing up a premarital or prenuptial agreement. State laws determine who is eligible to sign a prenuptial agreement and a lawyer can help answer any specific questions you may have.
Some of the benefits include ensuring that assets or property acquired during the marriage remain separate, defining how assets will be divided in the event of a divorce, and providing each partner with financial security if their marriage ends.

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.