What exactly does a prenup do?

Updated: Oct 17, 2020

Myths about prenups, their power and purpose abound. Ever wondered what a prenup actually does for you?

what is a prenup in simple terms?

Changes the Rules of Divorce and Inheritance

When a couple marries without a prenup, the state automatically applies default rules to the marriage, subsequent death, and potential divorce. It’s the same rules for everyone:

  • at divorce, equitable division of property earned, purchased, appreciated, or acquired during the marriage (regardless of title, possession, contribution, or ownership);

  • potential alimony payments if one of the spouse’s cannot sufficiently meet their reasonable monthly needs on their own;

  • guaranteed inheritance of at least the homestead, automobile, $15,000 worth of property, and money to support the surviving spouse during the estate administration process regardless of the deceased spouse’s will;

  • possibility to override the deceased spouse’s will and elect to inherit up to 50% of their assets; and

  • inheritance of potentially all (or at a minimum $225,000) of the spouse’s assets if the spouse failed to prepare a will.

Some are perfectly happy with these rules. Others, don’t like them. Equitable division might sound fair as a theory, but in practice it means that everything gets split (almost always) 50/50 regardless of who earned more, contributed more, risked more.

Imagine you and your spouse both work full time. You have a more demanding job that requires you to travel often and put in 60-80 hour weeks. Your spouse does what they love and clock-in at most 40 hours per week. Naturally, you earn substantially more than your spouse. You pay for the bills on the house, including the mortgage almost entirely on your own. You purchase the big expenses for the family: TV, cars, furniture. Your spouse uses their income for groceries and discretionary, personal spending, such as shopping and going out to eat with friends. You invest in the stock market, engage in occasional day trading, and are considering doing a startup with a couple friends. Your spouse does none of that because they don’t want to risk their money.

While married, this is all fine and dandy, but when divorce comes knocking, it will demand that you share equally with your spouse all that hard work, all those hours, all those purchases, all those risky investments that you made with your money and labor. Your spouse, who had enjoyed their income during the marriage and not bothered to accumulate anything of value won’t have to share anything of theirs with you.

Can that honestly be called fair? No, and that is why signing a prenup before marriage is so important. With a prenup, you get to decide the rules of the game. You can decide that what’s fair is each spouse keeping what they purchased during the marriage. Thus, you would keep the cars, and the furniture, and the house, and the startup. You can decide that what’s fair is each spouse keeps ownership of anything titled solely in their name, so you can benefit from the investments you made in your accounts and your spouse can keep any earnings they chose to save in their accounts.

How you determine fairness will depend on your and your spouse’s worldview, relationship, expectations for the future, and goals. The beauty of a prenup is that it allows you to apply your understanding of fairness to your life instead of being stuck with default rules.

Allows You to Plan

Because a prenup lets you decide the rules of the game, you can now plan for your future with greater assurance.

For example: using the hypothetical above, if your prenup states that each spouse keeps what they purchased, then your spouse will know that to keep the house, they will have to contribute to paying for the mortgage, and so instead of spending all of their money on personal needs that only benefit them, your spouse might decide to contribute to paying for the house. Your spouse might even take some financial risks and invest with you or your spouse might pass on the risk but save elsewhere, knowing any losses you experience will come out of your pocket at divorce, and they won’t have to cover for them.

By knowing what the rules are and who will get to keep what, you and your spouse can plan better for the future and make financial decisions that are beneficial not only in the short term but also in the long, whether you stay married or get a divorce.

For individuals who want to keep separate finances during marriage, a prenup is a phenomenal tool that allows for true financial independence during marriage.

Saves You Money in the Future

If you do end up getting divorced, a prenup will save you thousands of dollars. By dividing the property and defining the rules of the game before a marriage starts, you are removing one less thing to dispute during a divorce.

For example: if your prenup states that each spouse keeps property held solely in their name, then at divorce, you can eliminate all accounts, cars, and houses held solely in either one of your names from the divorce discussion. Thus, at mediation, you’ll only need to discuss how to divide property held jointly rather than negotiating the division of all property.

Legal fees rack up fast, so the less you have to negotiate and dispute, the less your divorce will cost.

Do you want to change the rules of divorce and inheritance? Do you want true financial independence during your marriage? Do you want to save money on future legal fees? If so, let us make your prenup for you.