You are in love and about to be married. As you think about your future together perhaps you envision owning a home, starting a family, and (eventually) retirement. It is an exciting time with many things going on at once.
While many people often think about the emotional aspects of marriage, often times they fail to consider that marriage is a financial partnership. Over the course of your marriage you will make many financial decisions with your spouse. While you are planning for your wedding day, you should also consider using a prenuptial agreement to plan for your future together.
The problem with prenuptial agreements is people tend to only talk about them within the context of a divorce. And usually only when there is a lot of money involved. The media buzz about the divorce of Katie Holmes and Tom Cruise is a recent example. As a result, people tend to form a conclusion that creating a prenuptial agreement presumes you will be divorced or that they are only necessary if there is significant money involved. This conclusion is not accurate.
As a wise colleague once said to me, “You don’t put Fix-a-Flat in your trunk because you presume you will get a flat tire on the way to the store.” A prenuptial agreement should be viewed as a tool to help you plan your financial life together as a married couple in addition to providing a level of security if (not when!) you and your spouse decide to part ways.
Prenuptial agreements offer many benefits. Here are a few:
- An Understanding of the Financial Picture: In order for a prenuptial agreement to be properly prepared, each party must share information about his/her finances (such as income, assets, and debts). Sharing this information will help each party understand more about each other and communicate about future financial matters. Often times this will help strengthen the relationship between the parties.
- Future Planning: The beginning of the marriage is the best time to address expectations for both individuals and the plans you both have for the future. For example, will both spouses work during the marriage? If one spouse plans to stay home to care for children, then the agreement should discuss how the family will be financially supported.
- Handling Debts: People may have debt when they enter into a marriage. For example, with the rising cost of higher education it is not uncommon anymore for two young people to have student loans in the six-figures. A prenuptial agreement can address how these and other debts will be paid during the marriage or upon a divorce.
- Protection of Current Assets: Pre-nuptial agreements can be used to ensure that separate property (e.g. property you owned prior to your marriage) remains the separate property of the person that owns it.
- Estate Planning: New York State law does not allow one spouse to disinherit the other (this law is known as the Elective Share Statute). However, each party to a prenuptial agreement can waive the application of that law, so that in the event of your passing you will be able to distribute your assets according to your wishes. This is often extremely important to someone who is remarrying and has children and/or support obligations from a prior marriage.