And Why They’re Important
By Logan Matura
In the past ten years or so, there has been a significant rise in couples exploring the option of entering into premarital agreements, especially younger couples in their 20s and 30s. A premarital agreement (also commonly called a prenuptial agreement or a “prenup”), by definition, is a written contract in which an engaged couple states their rights and responsibilities regarding premarital and post-marital assets and debts, including what would happen should their marriage end in divorce.
Traditionally, many soon-to-be-married couples try to avoid the topic of premarital agreements as they feel it could be detrimental to their relationship. However, experts agree that in many circumstances, it can be a very smart thing to do both financially and emotionally. Here are a few important reasons why:
1. It outlines a couple’s finances
When going through the process of preparing and negotiating a premarital agreement, both spouses are required to make a full and fair disclosure of their assets and debts. That way, both parties have an understanding of what exactly the other spouse is entering into the marriage with. Having this disclosure allows partners to get on the same page about what their financial situation looks like as a couple, and many times, it opens up the door to a conversation about financial goals and how you can work to achieve those goals together.
2. It can help you create a roadmap of your financial future
Another benefit of premarital agreements are plans that they require. During the planning process, many important questions will be asked of both partners. Do they plan to have children? If so, does one parent plan to sacrifice their career to stay home with the children? How will they, as a couple, account for that? Who will pay the monthly expenses for the marital home and, if they are sharing them, in what proportion? Will they own any real property jointly or separately?
3. It can protect your earnings and your potential spouse’s earnings
Though any terms can be negotiated into the premarital agreement, one of the most common terms to include is that both parties will keep his or her own earnings and retirement assets as their sole and separate property. This means that whatever money each party earns and saves during the marriage will be their own, and in the event of divorce, their spouse will have no entitlement to it.
3. It can protect you from possible liability for your spouse’s debt
Especially in the current economy, many young people are facing the burden of enormous debt (credit card debt, student loan debt, and more). As a result, more people are choosing to include in their premarital agreement that each spouse intends to take on their own debt, without any liability for their spouse’s debt. If this is not included, it is possible that one person could find yourself on the hook for some of their spouse’s debt.
4. It can prevent a costly and contentious divorce proceeding if the marriage doesn’t work out in the future.
So often, there is such a negative connotation associated with premarital agreements. This is a mistake! The best way to look at a premarital agreement is by looking at it as an insurance policy. In the same way that we insure our health, our cars, our home, our life, and more, we should be insuring our marriages. A prenuptial agreement basically provides people with a plan for what will happen during their marriage and in the event they get a divorce. Having these plans in place can avoid conflict both during the marriage and as it’s ending. So, in that sense, it can actually take quite a bit of pressure off of the couple. There will be no room for conflict and contention as you navigate the divorce process because it will already be clear who gets what. In the end, if a couple decides to get divorced, it will save them both thousands by having the premarital agreement already in place.
For young couples in their 20s and 30s who are just starting out their careers, a premarital agreement can be very important. It has nothing to do with the outlook of your marriage, nor does it have to do with how committed you are to your partner. Having a premarital agreement can strengthen your relationship in many ways by starting difficult conversations and ensuring that you both are open, honest, and willing to work together as you embark on this new journey together.