prenuptial agreement

Using a Prenuptial Agreement as an Estate Planning Tool

Most states have laws that protect spouses from disinheritance. Essentially, this means you can’t write your spouse out of your Will. Unless you prepared properly, state law would override any Will that doesn’t distribute an estate to a spouse appropriately. 

If you’ve recently entered into a long-term relationship and you’re concerned about  maintaining a sense of control over your estate, an effective tool you might want to consider is a prenuptial (or, if you’re already married, a postnuptial) agreement. A simple, formal agreement with your spouse can allow you to maintain the control you want over your assets and can serve as protection against state laws that would otherwise dictate estate distribution upon your passing. 

Prenuptial agreements can be considered controversial, but they really don’t need to be. A prenup can be a smart move if you’re in a relationship where:  

  • Both spouses were financially secure before the union
  • One spouse has significant wealth or family money
  • You’re entering a remarriage with (or even without) children from previous marriages
  • You want to leave the bulk of your estate or assets to children from a previous marriage
  • One spouse has significant debt
  • There is a substantial age difference

If you’re in any of the above scenarios, a prenup might just be a smart move. While many people think of prenups as protection in cases of divorce, there’s actually more to them. A prenup can make things clean, clear and consistent, even if you’re not worried about a divorce. When the time comes you’re no longer here and your estate needs to be distributed, a prenup can protect your heirs in a number of ways. 

Learn more about prenuptial agreements and how they can be an important part of your Estate Plan. Our guide covers everything you need to know, including:

  • Pros and cons of prenuptial agreements
  • Why use a prenuptial agreement for Estate Planning?
  • What you can include in a prenup
  • What you cannot include in a prenup
  • How to use a prenuptial agreement as an Estate Planning tool

Pros and cons of prenuptial agreements

A prenup is a premarital contract that a couple agrees to prior to entering a marriage or civil union. It allows for unequal or predetermined distribution of assets that may fall outside of normal state laws. They can also be used in alimony negotiations, or if one spouse waives his or her share of a deceased spouse’s estate.

Usually, prenuptial agreements are arranged prior to a marriage or civil union, but it’s possible to create a postnuptial agreement after the fact, too. Prenuptial and postnuptial agreements work similarly, in that they’re both designed for protection.

While discussing finances can be difficult, it can actually be a healthy and productive exercise. Considering mutual finances and addressing each other’s financial situations early on in a relationship can set expectations around the management of finances down the road.   

There are many pros and cons to a prenuptial agreement, and you’ll want to consider each before you decide if a prenup makes sense for you and your partner.  

Pros of a Prenup

  • Allows you more control over your finances
  • Can be used to establish how finances are distributed 
  • Ensures inheritance rights and family assets remain in the family
  • More powerful than a Will
  • Alleviates some of the normal complications that come with divorce
  • Protects your assets (personal and business) 
  • Protects against spouse’s debts
  • Can limit future spousal support (can be a con as well)

By establishing a prenuptial agreement early on, you can potentially avoid battling over finances in the event of a divorce, and you can protect your family after you pass. The agreement can clearly define everything in relation to finances in advance. In some senses, prenups can actually offer couples peace of mind, knowing that discord over finances will never interfere in their relationship.

Cons of a Prenup

  • Bound by a legal contract as opposed to specific state laws
  • Agreement may be unequal
  • Potential for awkward or uncomfortable feelings during the negotiation phase
  • Some may feel a prenup establishes a lack of trust in the relationship
  • Can limit future spousal support (can be a pro as well)

State laws are put in place to protect each spouse, and superseding these laws could end up being problematic for a number of obvious reasons. Before you move forward with a prenup, you should be absolutely sure you understand what you’re agreeing to, as well as what you’re asking of your partner. 

Why use a prenuptial agreement for Estate Planning?

There are a number of states deemed “community property states,” which means that in these states, your spouse is entitled to a certain percent (half) of your estate. But even if you’re not in a community property state, disinheriting your spouse would be difficult. State laws widely differ, but in general, you can’t just write your spouse out of your Will. 

You couldn’t, for example, choose to leave your children (even if they are from a previous marriage) the bulk of your assets. No matter how much you want your children to receive from your estate, state spousal rights are more powerful than the rights of your offspring. 

Enter: the prenuptial agreement…This is a perfect example of how and when a prenup can be a beneficial tool for Estate Planning. A prenup might be the only way to ensure a spouse receives only the portion of your estate you intend. 

What you can include in a prenup

If you’re considering a prenup as an Estate Planning tool, there are a number of assets you can protect with it. These could include: 

  • Marital property (property purchased within a marriage)
  • Property purchased separately or prior to a marriage
  • Property rights of children from previous marriages 
  • Rights for children of current marriage
  • Family properties (such as a business)
  • Estate Plans that reinforce a Will or Trust
  • Details for how property distribution would occur in a divorce
  • How property distribution should occur in the event of a spouse’s death (or both spouses’ deaths)  

What you cannot include in a prenup

There are a number of things you legally can’t include in a prenuptial agreement. For example, none of the following can be addressed with a prenup:

  • Unfair or unwarranted terms 
  • Requirements not related to finances (i.e., stipulations related to personal appearance such as weight, hair color, etc.)
  • Verbal agreements 
  • Forfeiture of alimony rights
  • Custody, visitation or support agreements or terms

What You Need to Know About Creating Prenups

In order to create a legal prenuptial agreement that will hold up in court, you should know or have access to the following:

  • Details of specific distribution requests (both in the event of divorce and death)
  • Details of personal property and assets purchased under each spouse’s name, the dates and times they were acquired, legal standings of those properties and specific distribution requests (both in the event of divorce and death)
  • The role of children in the marriage (i.e., were they from a previous marriage)
  • The exact percentage of the estate each child should receive (both in the event of divorce and death)
  • State or national laws around bankruptcy and debt collection in regards to Estate Planning (who has jurisdiction over the prenup), including specific clauses that protect the surviving spouse and offspring in the event of the other spouse filing for bankruptcy
  • Details of all property held by each spouse
  • Protection clauses for privacy (for both children and spouse)
  • A non-expiry clause
  • A designated executor clause

How to use a prenuptial agreement as an Estate Planning tool

If you’ve chosen to use a prenuptial agreement as an Estate Planning tool, you want to do it right. Keep in mind, a prenup doesn’t work effectively as a standalone document if your goal is to use it as an Estate Planning tool. There are many more pieces to the puzzle if you want to set up an iron clad Estate Plan that will protect your interest and your goals. It’s important to make sure you draft a Will that works in conjunction with your prenup.  

A properly prepared legal prenup can ensure your spouse, your children and your family end up with the inheritance you envision. And just like that, you can be on your way to finalizing your Estate Plan. Even though the whole process may seem overwhelming at first, Estate Planning just got a lot easier with Trust & Will. Reach out today to learn how you can put together the final pieces and put your mind at ease.