What Are the Benefits of a Prenuptial Agreement?

by Beverly Bird
Discussing financial issues ahead of time can eliminate a court's involvment later.

Discussing financial issues ahead of time can eliminate a court's involvment later.

Andrea Morini/Photodisc/Getty Images

Suggesting a prenuptial agreement with your intended spouse can drain the happy anticipation right out of your wedding plans. But if you're facing a divorce, it's a safe bet that you're glad you had your soon-to-be ex spouse sign one. As a result of your prenup, you enjoy a level of protection that some spouses don't have. If you haven't married yet and are dreading bringing up the subject, consider another advantage: a properly drafted prenuptial agreement can be a great estate-planning tool as well.

Overriding State Law

If the court must divide your property in a divorce because you can't reach a settlement agreement – and many spouses can't when their emotions are running high – the judge will rule according to state law. In the nine states that follow community property law, your spouse is entitled to half of everything the two of you acquired during the marriage. In the remaining equitable distribution states, judges weigh a variety of factors to try to come up with a division that seems fair. A prenuptial agreement overrides these laws. For example, if you live in a community property state, any income you earn during the marriage belongs to both you and your spouse. If you agree otherwise in a prenup, however, you don't have to share assets that you purchased with your money alone. You can also state that each of you is responsible for debts incurred in your individual names. Without a prenuptial agreement, it’s likely that the court would require both of you to contribute to any debts contracted for during the marriage.

Enforcing State Law

A prenuptial agreement can also enforce state laws when certain events cast the disposition of your assets into a gray area. Property you owned before you married is typically exempt from division in a divorce. Inherited property is usually exempt as well – it's a separate asset. If you make a mistake in how you handle this property, however, it could lose its immunity from distribution if your marriage ends. For example, if you inherit $50,000 and deposit it into a joint account for a period of time while you figure out how you want to invest it, it can become marital property by law, which means your spouse becomes entitled to a share of it. This wouldn't be the case if you placed it in an account in your sole name as soon as you received it. You can state in a prenuptial agreement that your separate property remains separate, as the law intended, no matter how it's treated during your marriage. You won't have the burden of proof to establish in court that it's your separate property and that you should not have to share it with your spouse.

Bolstering Your Estate Plan

A prenuptial agreement can also trump estate laws, whether you die with a will or without one. Most states give your spouse the lion's share of your estate if you should die without a will, while this may not be what you want if you have children from a previous relationship. If your spouse waives her right to a share of your estate in a prenup, the prenup will prevail. Many states also have elective share laws – if you disinherit your spouse or leave her only a token bequest, she can take against your will, effectively rejecting it, and accept a statutory percentage of your property instead. If you have a prenup that waives this right, it takes precedence over the law. For optimum protection, you should make sure your prenuptial agreement and other aspects of your estate plan express the same wishes and intentions.

Exceptions

The law is riddled with exceptions to rules, and a few exist for prenuptial agreements as well. Although a prenup can override many divorce and estate laws, it cannot trump laws or public policy regarding child support or custody. It can't dictate personal issues, such as who will clean your house while you're married, or enforce an agreement as to how you will vote in elections. Its major purpose is to determine in advance anything a court would otherwise decide for you – taking decisions out of your hands – if your marriage should end in divorce or death.