Do I Need a Pre-nuptial Agreement?
Everyone in Hollywood has one so should you? Nearly every celebrity who gets married enters into a “pre-nup” or prenuptial agreement to help protect their assets in the event that their marriage ends in divorce. Clearly, the Donald Trumps of the world need these types of agreements, but what about the average person who has some assets (or potential assets), but is not likely to make Forbes’ magazines annual 100 wealthiest people list?
The truth of the matter is that there are no hard and fast rules. But before you get married, you should consider entering into a prenuptial agreement if you fall into one or more of the following categories.
#1: You Have Substantial Assets or Own a Business:
If you have substantial assets, you should consider entering into a pre-nuptial agreement before you get married. What constitutes substantial assets? Think Toyota vs. Toyota dealership. If you are entering into marriage right after college and your only asset is your 1995 Corolla, you probably do not need a pre-nuptial agreement. However, if you own a Toyota dealership or two, it would be wise to consider a pre-nup before you walk down the aisle. Ditto if you own real estate, or have other considerable assets like stocks, CDs, bonds, cash, or retirement accounts. Why? In most states, the property that one has before marriage is considered the separate property of that individual and does not transform into marital or community property simply because one ties the knot. Since there are many exceptions to this basic rule, it is usually smart to enter into a pre-nuptial agreement, which sets forth a list of all of one’s separate property, and states that both parties agree that these assets are to remain separate property.
#2: The Sam Walton Rule:
What if you personally don’t have a lot of wealth, but your very old parents do? Yes, inheritances are typically understood to be the separate property of the recipient, but again, there are exceptions to this general rule. For example, what if you take the separate property that you inherited and buy a house, take title in both your name and your spouse’s name, and then get divorced ten years later? Or what if your spouse goes to Las Vegas and runs up a million dollars in debt playing blackjack? Could the casino come after the money that you just inherited from your parents to pay off your wife’s gambling debt? For these reasons, you should consider entering into a pre-nuptial agreement if you believe that you might inherit a lot of money or property.
#3: The Major Debt Rule:
Sometimes the reason to enter into a pre-nup has more to do with debt than with assets. If you are marrying someone who has substantial debts (and yes a mortgage is a substantial debt), you might want to consider a pre-nup to clarify that the debt is pre-marital and that you are in no way liable for that debt in the event of divorce.
#4: You Have Children:
If at the time of your marriage you have children, you definitely want to have a will before you get married, and you also might want to have a pre-nuptial agreement. Many people who have children and are entering into second (or third, or fourth) marriages are concerned that in the event of death or divorce that their children will not be taken care of. A will and a pre-nuptial agreement can help alleviate these concerns.
So should you or shouldn’t you enter into a pre-nuptial agreement? If you are still not sure, talk to a family law attorney about it. Where pre-nuptial agreements are concerned, it is always better to be safe than sorry.
By Wendy Jaffe