Pros and Cons of a Prenup Agreement

Couples need to have many important discussions before walking down the aisle, and the topic of signing a prenuptial agreement can be uncomfortable for some. Many couples struggle with discussing finances in general, so adding a layer that’s essentially planning for divorce may be awkward or even confrontational. However, the outcomes of a prenuptial agreement can actually be beneficial to both parties.

Prenuptial agreements aren’t just for the super-wealthy. More couples are choosing to put their financial cards on the table before saying “I do” — whether it’s because there’s a financial inequality between the couple or simply to protect themselves in the future. Although it’s not a romantic conversation, it may be worth having this honest discussion before marriage depending on your financial situation and relationship history.

What’s a prenup?

A prenup agreement is a contract that details how a couple will divide the financial aspects of their life in the event of a divorce. The agreement must be in writing, signed by both parties voluntarily, and notarized. Both parties must disclose all assets and there can be no element of fraud involved in the process or it can be deemed invalid later down the line.

Considerations before signing a prenup agreement

Talking about signing a prenuptial agreement can evoke many emotional reactions, but a prenup is meant to protect each spouse. As much as no one wants to acknowledge that they may not get their ultimate happy ending, divorce does happen.

Pros of signing a prenuptial agreement

There are many positives to signing a prenup, including giving the couple a chance to practice their communication skills — which is vital to a long, healthy marriage. Other benefits include:

  • Asset protection. It may be the most obvious benefit, but a prenup can protect financial, real estate and property assets. It can also protect retirement assets accumulated before the marriage and protect inheritances, both current and future.

  • Protection of the rights of children. If there are children from a previous relationship, separate property can be designated for them in case of death. This prevents the surviving spouse from having a legal claim over the property in question.

  • Potentially avoid legal fees. By agreeing up-front when the couple is in an amicable place in their relationship, they can avoid unnecessary legal fees in the future from getting swept up in the drama of a divorce.

  • Division of debt responsibility. Debts that were acquired before marriage, like student loans or credit card debt, can be clearly divided among the couple. This can protect spouses from future creditors. Learn more about managing debt.

  • Allowance for special provisions. The agreement can be tailored to fit each couple’s unique financial situation and relationship by including specific provisions, such as a sunset clause that voids the prenup agreement after the marriage exceeds 10 years.

  • Less stress during a divorce. Although it may seem uncomfortable at the moment, deciding important financial decisions ahead of time can help make divorce less stressful in a time when the couple is already emotionally exhausted.

Cons of a prenuptial agreement

There are some potential negatives to signing a prenup, primarily stemming from the conversation that must take place between the couple.

  • May stir up trust issues. A prenup can make either party feel like the couple isn’t fully committed to the marriage if they’re already planning for divorce. Simply discussing the option to sign a prenup may cause temporary or even long-term friction in the relationship.

  • It may not be necessary. Not all couples need a prenup agreement. For instance, young couples usually haven’t acquired considerable assets before marriage. 

  • It doesn’t apply to everything. Legal issues, like child support and child custody, must be addressed through other legal proceedings.

Does a prenup override community property state laws?

Even with a prenup in place, it may not apply to property and other assets that are accumulated during the marriage depending on the state you live in. Community property laws dictate that anything earned or acquired during the marriage is equally divided in the event of a divorce. 

Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. However, the existence of a prenup agreement may still be considered in divorce proceedings in community property states, so be sure to consult a divorce attorney familiar with your state’s requirements.

Choosing to sign a prenuptial agreement shouldn’t be an emotional decision. Instead, both parties should enter the discussion with an open mind and a willingness to view the agreement as a document for financial protection in a worst-case scenario. Both parties should seek their own legal counsel to ensure each is protected and receiving fair treatment before signing the dotted line.

The Financial Gym Team