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4 Guidelines to Draft a Harmonious Prenuptial Agreement

4 Guidelines to Draft a Harmonious Prenuptial Agreement
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By    |   Friday, 03 August 2018 05:35 AM EDT

Not every couple needs a prenuptial agreement, but some do.

I recommend a prenup when:

  • One or both partners already have a child.
  • One fiancé or both have a business, or have or expect to get shares of a family business.
  • One or both enter the marriage with a professional license or advanced degree(s).
  • One enters the marriage with a lot more assets or debt than the other.
  • One is significantly older than the other.
  • One or both fiancés are or expect to become public figures, for whom a contested divorce could be professionally damaging.

Here are the guidelines for drafting a successful agreement.

Full disclosure. Both partners need access to all relevant information when they are discussing the agreement’s terms. Failing to fully disclose everything could invalidate the contract if it’s later discovered that a spouse hid assets or debts during the negotiation.

Separate lawyers. Each fiancé needs legal advice from an experienced attorney who is loyal solely to that individual.  If both partners use the same lawyer, a court might not enforce such an agreement--especially in favor of the party who paid the lawyer.  

Don’t attempt to write the agreement yourself. That’s a recipe for trouble.

Keep it simple. Some people think a prenuptial agreement is the place to decide how many children they want to have, in what faith those children will be raised, how custody will be structured in case of divorce or separation, and even what sports or musical instruments their kids will or won’t play. Some people specify where they will live, how they will celebrate holidays, and so on.

Avoid this morass.  You should limit the agreement to basic financial and legal issues that would come up in case the marriage ultimately fails. Not only will this be easier on you, but it makes it more likely that your agreement will be enforced as you intend.

Be fair. The goal is not to try to extract everything possible from your partner. The goal should be for the couple to enter into married life knowing that they expect everything to work out well, but that if it doesn’t, both parties will exit the marriage with their finances and self-esteem as intact as possible.

With these guidelines in mind, you can get started.

First, take stock of all your individual assets, projected income, trust distributions, and any major gifts or inheritances you expect to receive. You should also discuss your student loans or any other significant debt you will bring to the marriage. This may require you to go to your parents or other family elders, and possibly their financial advisers, to get a full sense of the big picture, if possible. You may also want to agree to pull a credit report on one another.

For most young couples, their major assets are likely to be their personal earning power. In light of this, consider the question of alimony as dispassionately as possible. Some states don’t allow spouses to waive the right to alimony, so if you plan to include that provision in your contract, check state law first.

If you have an advanced degree or a professional license, you may also want to specify that the other partner has no claim against a share of its value. Absent such an agreement, in some states a professional license such as a medical or CPA license is considered an asset that is subject to division in the case of a divorce. This is appropriate where one party helped pay for the training of the other, but if that is not the case, you might agree to treat each partner’s professional credentials as separate property that is not subject to division.

Most couples should not waste time and legal fees hashing out the details of potential future child support. Instead, it’s generally better to specify that child support will be determined by mutual agreement or by the court in the event it becomes an issue.

You should discuss whether and to what extent you plan to keep separate bank accounts. One possible solution: Specify that spouses may maintain separate accounts not subject to division in case of divorce. All assets placed in a joint account will be considered joint property. (If you live in one of the nine community property states, this may complicate your plans.)

The exact mix of joint and separate assets will look different for different couples. But every couple should discuss their expectations and agree on a system that works for both people, especially as it applies to assets brought to the marriage.

Your agreement should also address claims against the other spouse’s retirement accounts, separate property brought into the marriage, or gifts given to one spouse by parents or another third party. Both spouses should agree in advance what constitutes individual property and joint property to prevent messy disputes. The same goes for liabilities incurred prior to the marriage.

Some states invalidate prenups after a certain number of years or once a child is born. If such sunset provisions exist in your state, you may want to discuss other financial planning avenues, such as trusts, to make sure both partners are protected.

Sign the agreement at least 30 days before the wedding. You want to make sure you both have time to approach these decisions thoughtfully without the stress of wedding-day plans. Additionally, some courts have refused to enforce last-minute agreements on grounds that at least one of the parties was put under undue pressure. 

Few people look forward to the prenuptial agreement process, but it can trigger some very productive conversations about your shared finances and values. When done right, a premarital agreement is a pretty straightforward piece of paperwork, not much more complex – and no less necessary – than the marriage license itself.

Larry Elkin, Certified Financial Planner (CFP®), CPA, is president of Palisades Hudson Financial Group. Palisades Hudson is a fee-only financial planning firm and investment manager based in Fort Lauderdale, Florida, with more than $1.4 billion under management. It offers financial planning, wealth management, and tax services.

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Personal-Finance
Here are the guidelines for drafting a successful agreement.
harmonious, prenuptial, agreement
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2018-35-03
Friday, 03 August 2018 05:35 AM
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