People are weary of prenups, and for good reason. Hollywood has done nothing but misinform the public on what a prenup does, who buys one, and how it works.
Contrary to popular belief, prenups are not intended to impoverish or punish one spouse. Instead, they allow couples to create their own rules of divorce and inheritance, rules that serve their best interest and life goals by far better than the default state rules.
FUN FACT: A prenup can be all inclusive or it can focus just on a handful of things, such as the family cabin or retirement accounts. Prenups can apply at divorce or death or both—whichever you’d like. Prenups are meant to be as unique as your desires. Just because you purchase one, doesn’t mean you must include all possible terms.
Currently, the Minnesota rules state that everything earned or purchased during a marriage is marital property at divorce and can be claimed by either of the spouses regardless of title, who purchased the item, or who uses the item. Alimony is still very real and alive. At death, a spouse can override the other’s will and inherit more than what was given them regardless of the deceased spouse’s wishes.
If you are happy with these default rules, then a prenup might not be for you, but if you have any of the following concerns, then you should seriously consider getting a prenup.
We don’t want to spend a lot of money and time on getting a divorce.
Reaching a financial agreement is one of the most time and money consuming part of a divorce. Gathering all of the financial documents, analyzing in detail bank statements, tracing accounts opened prior to marriage, and fighting over forecasted monthly budgets—all can result in thousands of dollars in legal fees and an outcome that leaves you and your spouse unhappy. Simply keeping your finances separate while married will not reduce the cost or guarantee you that you’ll get to keep what’s titled in your name.
The best way to reduce the time and cost of a divorce is to agree in a prenup on the rules of ownership. For example, you can agree that each of you owns property titled solely in your name. If that’s in your prenup, then you will get to keep your separate bank accounts, investment accounts, cars, and so on. You can agree that anything titled in both names will be split 50/50 or split based on how much each person contributed to purchasing the property.
You can agree to waive alimony or set up conditions that would limit alimony to certain events and for a certain amount of time and amount. For example, you can limit alimony to be paid only if one of you stays home full time as a parent, for the number of years that the parent raised the children full time, in the amount of 10% of the other parent’s income.
By reaching all of these agreements beforehand and setting out clear rules of ownership, you’ll have one less thing to fight over during a divorce, saving yourselves thousands of dollars and guaranteeing an outcome that you had predicted and planned for.
One of us owns property with another person.
Imagine the following scenario. You own a house with your sibling. Your parents are living in this house rent free. Your partner doesn’t have the best relationship with your family. Overtime, that relationship erodes even more. In your will, you leave your share of the house to your sibling. However, when you die, your spouse decides to overrule your will by requesting an elective share of your estate, which results in your spouse getting ownership of this house. Because your spouse doesn’t get along with your family, your spouse goes to court to partition the home, resulting in a forced sale and your parents being evicted.
Now that would suck, but it is not out of the realm of possibility.
Or imagine same scenario but this time you are going through a divorce and a Judge awards your interest in that house to your spouse who, now out of spite, forces the home to be sold and your parents evicted. Neither scenario is pleasant.
So, if either of you own any property with another person, you may want to limit each other's ability to inherit or receive the property at death or divorce. You could do so in a prenup.
One or both of us own our own businesses.
For many, a business is more than a stream of revenue. It’s their baby. Divorce rules, however, don’t care about that. To divorce, a business is yet another financial asset to be split between the spouse regardless of who owns it and who put in all the work and sweat and love.
For example, if you own a business, during a divorce, you will have to go through the cumbersome and expensive process of valuing your business, proving all revenue and costs, determining how the business and its profits get split, and potentially having to pay your spouse the equivalent to half of your company’s net worth regardless if that cash is actually available to you. All this even if your spouse had never once lifted a finger to help you start or grow your business.
If you have business partners, dividing your interest in the business will be even harder and will end up costing you an arm and a leg.
By excluding all current and future businesses owned solely by you from being split during divorce, a prenup can help you avoid the cost and heartache of losing all or part of your company. It can protect you from needing to split your company’s profits or needing to pay your spouse half of your business’s net worth. On top of it, you won’t waste all that time and money fighting over just how much your company is worth.
Even if you include no other protections or separation of property in your prenup, merely excluding your business from counting as marital property will be worth your time as it will save you an extraordinary amount of money in the future.
Do any of these concerns apply to you? If so, let's talk and see how a prenup can make your marriage, life, divorce, and death better.