Prenuptials: Who Needs Them?
{4 minutes to read} Who enters prenuptials and why?
Generally, People with Significant, Separate Assets and Generational Wealth.
One reason for entering a prenuptial agreement (“prenup”) is one or both parties already own significant assets that they intend to keep separate throughout the marriage, in the event of divorce, or possibly in the event of death. A prenup defines how separate and joint property will be identified. It aims to set bright-line rules so that if the marriage ends in divorce, the parties can rely on their agreement and hopefully preempt litigating complex issues such as commingled or transmuted assets (Issues of whether and to what extent a separate asset has been commuted to a joint asset, and thus subject to division by the parties.)
Often, a party with significant family wealth will enter a prenup for the benefit of his family, so they have peace of mind that intergenerational wealth will continue to be managed under the existing guidelines through vehicles established and protected by the family. One goal of the agreement is to prevent the new spouse from inadvertently gaining rights to, for example, a family trust or business, just by dint of marriage.
More mature couples, perhaps where one or both parties have obligations to children from prior marriages/relationships, may use a prenup to protect the inheritances promised to their heirs and assert that the new spouse will not have rights to interfere with or challenge those trusts/gifts/life insurance policies by the rights otherwise granted by marriage.
Another function of a prenup, possibly an unintended or secondary benefit, is to develop an outline for how a couple will conduct their financial affairs within the marriage. If, for example, a couple is aware that title (i.e. the name on a title, deed, or account) shall govern ownership of an asset, couples should be attentive as to how they title bank accounts, property, and so forth. The title ensures their intentions are clearly reflected at the outset. In this way, they can establish guidelines for financial hygiene within a marriage, which can be a gift, as financial issues and discord are significant factors in marital breakdown.
RACHEL ALEXANDER
Alexander Mediation Group