What comes to mind when you think of prenuptial agreements? If you’re like most people, you might imagine wealthy celebrities trying to protect their wealth from a probable divorce. Prenups are important to have in place if you’re concerned about your assets in the event of divorce. But you don’t have to be famous, or wealthy, or even worried about divorce to benefit from a prenuptial agreement.
While most people associate prenups with divorce, they can also play an important role in an estate plan. Let’s take a look at how to use a prenup in estate planning. Keep in mind that prenups can protect your interests in both the event of a divorce and in the event that you pass away.
Benefits of Prenuptial Agreements
Even if you’re 100% certain you won’t divorce, you can still reap benefits from having a prenuptial agreement. To begin with, the very process of discussing finances and financial values, which is part of creating a prenup, gets you and your future spouse on the same page regarding finances. Let’s face it: it’s not uncommon for people to get so caught up in wedding planning that they wake up on the first full day of their marriage without having had these critical financial discussions.
Financial disagreements are one of the leading causes of divorce, so having done the work to negotiate a prenup puts you ahead of most people: you and your spouse have already discussed your assets, your debts, and how you plan to handle financial issues in your marriage. In that way, having a prenup creates a stronger foundation for your marriage than might exist otherwise.
That’s something of an intangible benefit to having a prenup. But a prenuptial agreement can also be an invaluable part of your estate plan. The purpose of an estate plan is to ensure that your wishes are carried out, including your wish to provide for your loved ones. A prenuptial agreement adds a layer of clarity to your estate plan. It can make sure your assets are distributed exactly as you intend, avoiding confusion and conflict among your survivors.
How a Prenup Can Work as Part of an Estate Plan
It might be easier to understand how valuable a prenup can be as a component of an estate plan with an illustration. Kurt is a 60 year old widower with three grown children from his first marriage. He owns his own home, has a business, and has contributed steadily to a retirement account. He is engaged to Lesley, a 52 year old social worker; she is a divorcée with two adult children and a vacation cottage she inherited from her parents.
It’s important to Kurt that the bulk of his estate go to his own children, but he also wants to ensure that Lesley will be financially secure in the event of his death. Kurt and Lesley have discussed their assets and debts and decided to create a prenuptial agreement that provides:
Kurt’s house will pass to his children after his death, but Lesley will have the right to remain in the house for up to two years after Kurt’s passing; this will give her time to adjust to the loss of her husband without also simultaneously losing her home.
Kurt’s business will go to his three children, and Lesley will not have any claim to the business.
Lesley will be beneficiary of 25% of Kurt’s retirement account, with the remainder going to his children.
Lesley’s personal assets and her vacation cottage will remain her separate property and will go to her children should she predecease Kurt.
Both Lesley and Kurt agree to waive any of their rights to the other’s estates under their state’s spousal rights laws. This means that neither will challenge the other’s will or attempt to claim a large share of their estate.
When Kurt dies several years later, his assets are distributed under his trust, which aligns with the prenuptial agreement. Lesley does not attempt to challenge the distribution because she agreed to it in the prenuptial agreement, and knew it was consistent with Kurt’s wishes.
Who Should Have a Prenuptial Agreement in Their Estate Plan?
As you can see from the illustration above, it’s especially important to have a prenup in your estate plan if you are entering a second or subsequent marriage with children from a prior relationship. Other reasons you might want a prenuptial agreement include:
You have significant assets
You own an interest in a business
You and your intended spouse have significantly different levels of wealth entering the marriage
You have reason to believe your intended spouse might seek a larger share of your estate under state law.
You are at the beginning of your career and are going to be accumulating a lot of wealth
The truth is, a prenuptial agreement is a good idea for anyone who values clear communication and planning, and a growing number of people are beginning to recognize that. BRMM Law attorney Danielle Mayoras talked with CBS News Detroit and shared that there is a significant upward trend in the use of prenups: 47% of engaged or married Millennials have a prenup, a significant uptick from previous generations.
Danielle also shared that just because people who are engaged do not have significant assets now, that doesn’t mean they won’t in the future. There could be an expected inheritance or increased earning
potential. It’s worth discussing with an estate planning attorney how executing a prenuptial agreement can protect you—and maybe your marriage, too.
What if you don’t have time to execute a prenup before your wedding, or circumstances arise after the wedding that make you wish you had one? You can still execute a postnuptial agreement. As the name suggests, the primary difference between a prenup and a postnup is that a postnuptial agreement is signed after the wedding, rather than before.
Learn if a Prenup or Postnup is Right for You
The knowledgeable estate planning attorneys at Barron, Rosenberg, Mayoras & Mayoras work with clients who need an estate plan customized to their needs, including prenuptial or postnuptial agreements. Schedule a consultation today by calling (248) 213-9514 in Michigan or (941) 222-2199 in Florida to learn how we can assist you. You can also use our simple online contact form.