Prenuptial agreements: Not just for the wealthy

Prenuptial agreements (aka prenups) have existed for thousands of years, dating back to ancient Egypt. These days, a prenup can be a smart way to enter a union with eyes open and clear expectations for both parties.

What is a prenuptial agreement?

A prenuptial agreement is a contract between two people signed before marriage detailing what will happen in the event of divorce, particularly regarding financial affairs. Those with significant assets, business owners, and people with children from previous relationships may find prenuptial agreements particularly attractive, but contrary to popular belief, even people with mid-level incomes can benefit from having a prenup in place. There are many reasons a couple might consider a prenup. The only real requirement is the desire to spell out what will happen if there is a divorce, especially regarding finances.  

When to bring up the subject

The right time for a couple to begin thinking about a prenuptial agreement is as soon as they begin seriously considering marriage. Whether that timeframe is years or a few months before the wedding, couples should discuss the issue openly, honestly, and as soon as possible in order to allow enough time before the wedding to hammer out any sticking points.

What does a prenuptial agreement cover?

Most people think of prenups as having to do with finances, and—make no mistake—financial arrangements do play a large role in most prenuptial agreements. But prenups are among the more fluid of legal documents; they can include a wide variety of provisions regarding many subjects, including:

• Property division
• Assets held before marriage
• Assets acquired during marriage
• Debts held before marriage
• Debts acquired during marriage
• Tax filing status
• Rewards for certain behavior (though these are not always enforceable in court)

Remember that state laws vary regarding prenuptial agreements, so there may be issues that specifically can or cannot be included depending on the jurisdiction.

Are prenups enforceable?

Prenuptial agreements, if drawn up and executed correctly, are legally binding and are usually upheld in court. One recent, high-profile case, however, has shown that prenups are not always ironclad.  

A Brooklyn appellate court struck down a prenuptial agreement “signed four days before the marriage of Elizabeth and Peter Petrakis, a real estate magnate worth millions of dollars. The couple tied the knot in 1998 after signing a prenup assuring Peter would keep everything in his name in the event of a divorce.”  

Elizabeth argued that Peter coerced her signature under duress with the threat of canceling the wedding if she didn't sign. Even Elizabeth's lawyer, Dennis D'Antonio, called the decision “unprecedented” as the vast majority of prenups are upheld in court.

Common mistakes to avoid

Other than the above-mentioned instance of one partner signing under duress, some other reasons a prenup may be found invalid, including the following:

• Includes provisions for child support and custody of unborn children
• Less than full financial disclosure by one or both parties
• Includes provisions that are blatantly unfair to one party
• One partner did not have the opportunity to consult an attorney
• Prenup was signed very shortly before the wedding (such as in the car on the way to get married)

It's important to understand that a prenuptial agreement does not take the place of an estate plan; they are not intended to serve as a will or any other estate planning document. Even if a couple has a prenuptial agreement, each partner should have a legally binding will or other legal documents to protect their assets and ensure they are distributed according to their wishes.

Creating a prenuptial agreement doesn't have to be complicated. With a small investment of time, a prenuptial agreement can provide peace of mind and a sense of financial security for both parties heading into the union.