Is A Prenup Really Necessary?

Russell Brand stands to make an estimated $20 million from Katy Perry’s fortune because under California law, the community property clause splits money and property acquired during the union 50/50 when there isn’t a prenup.

While most of us can only hope to be in that kind of financial situation, a recent survey says that about 20% of those getting married have prenups.

A prenuptual agreement, or prenup, is a contract entered into prior to marriage or civil union, which commonly includes provisions for the division of property in the event of a breakup.

Related: Couples Money – Savers Vs. Spenders

Objections

This is a controversial topic and there are many who oppose prenups.  The objections include:

  • It’s not romantic.
  • Religious reasons – ‘Til death do you part.
  • Don’t trust each other.
  • Not really optimistic about the marriage
  • Not willing to commit and work at the marriage if there is an exit strategy in place.

No one goes into a marriage expecting it to fail, but the fact is that 50% of marriages end in divorce, especially second, third (and more) marriages.

Who would benefit from having a prenup drawn up?

  • Someone who is much wealthier than their partner.
  • Someone who earns much more (they can limit the amount of alimony payable).
  • Someone about to remarry.
  • Partner has a high debt load.
  • Someone who owns his or her own business.

Here are some prenup examples.

Prenup Example No. 1

Boris and Natasha met while attending university.  They get married before graduating.  With their financial situation becoming increasingly tight, Natasha postpones her studies and goes to work while Boris finishes his degree.

A couple of children later, Natasha’s education is put on indefinite hold as Boris graduates and becomes established in his career.  Boris meets someone more interesting and dumps Natasha.  He then argues that he made all the money.

Among other details, a prenup could have established provisions should one partner have to delay their studies so that they could be continued at a later date and ensure the financial burden of raising a family is shared fairly by both partners.

Prenup Example No. 2

Desmond and his friend start a new business.  With a lot of time and hard work the business is finally making money and some lucrative contracts are anticipated.  Desmond marries Molly who is established in her own career.

After several years, things don’t work out and Molly files for divorce.  In the divorce agreement she demands half the business.

Without a prenup Molly could end up with a share of the business or become an unwanted partner.

Prenup Example No. 3

Diane has a well paying job.  She is careful with her money and has accumulated a nice nest egg in her investment and retirement accounts and has no debt.   With an inheritance from her grandmother she purchased a nice condo and her car is paid off.

Diane met Jack and fell head over heels.  Jack is divorced.  He has $73,000 in credit card debt and no assets.  He lost the equity in his former house in the divorce settlement and pays $2,800 in child support for his pre-school children.

If Diane sells her condo after the marriage, the money becomes community property.  If this marriage breaks up, Jack will likely be entitled to half of Diane’s assets and may also be on the hook for part of his debts and child support.

Other clauses

Other non-financial clauses, such as the division of household chores and weekly date nights, can be included in the prenup agreement.  However they increase the likelihood of the agreement being invalidated by the courts.  They must be fair and equitable in the eyes of the law.

Here are some crazy (but true) clauses:

  • The right to perform random drug tests with financial penalties if the results are positive.
  • The husband cannot watch more than one football game on Sunday during football season.
  • A claim on all frequent flier miles should the spouse be unfaithful.
  • The husband cannot go on vacation with his mother-in-law.

In Conclusion

Today couples are getting married at a much later age and they can build up substantial assets while still single.

Related: How Young Adults Can Still Thrive Financially

People going in to a second marriage, especially when there are children, need to protect themselves.  A prenuptial agreement protects the assets and income streams that already exist so that they won’t be shared in the event of a separation.

Do you think a prenup is a good idea?


11 Responses to Is A Prenup Really Necessary?

  1. Shevonne says:

    If I ever get married, I’m definitely getting a prenup. I have my own business, real estate, and investments that is for my children and me. Great article!

  2. Dog Lover says:

    Unless I am misreading the statistics, the divorce rate is NOT 50% (table shows divorce rate per 1000 marriages): http://www5.statcan.gc.ca/cansim/a05?lang=eng&id=1016510

    A prenup wasn’t necessary in my relationship–we married young, with barely any assets. What other people do is none of my business!

    • Dog Lover says:

      Or perhaps that table is only showing the # of divorces that took place in 2004? I’m really not sure. Sorry!

      • Boomer says:

        @Dog Lover: Second and subsequent marriages have a greater rate of failure so that skews the numbers. 50% is an accepted average.
        People who marry young and have no assets to speak of likely would not benefit from having a prenup.

  3. krantcents says:

    I believe in prenups! I think every couple who marries should talk about these things even if you do not have a prenup. A prenup just makes a contract if or when the marriage breaks up.

    • Boomer says:

      @krantcents: Even if you don’t think a prenup is necessary, it’s amazing that many couples don’t have those important conversations about money and goals prior to marriage. It can be a shock to find out later that your money values are not compatible.

  4. Emma says:

    A prenup makes sense! It protects your own assets and saves you the headache of “giving away” money if or when the marriage fails. Of course it’s not romantic but marriage is a decision one really has to be careful and smart about.

  5. Jason says:

    I don’t like the idea of a prenup and I’m extremely glad that I am not wealthy enough to need one, but if somebody met a person after they had become wealthy then I think it’s a good idea.

    Frankly, with the world we live in, you can never really know somebody’s true motivation for “falling in love with you”…even if you’ve been with them for a few years.

    Of course you want to believe that somebody doesn’t love you solely for the money, but if you’re able to take the emotions out of the decision then I think it’s a good idea for some people.

  6. I think a pre-nup can be a wise choice for many different reasons.

    As you said, the validity of part of it may be questioned in certain jurisdictions, but most attorneys who deal with these are very good at wording it so one questionable clause doesn’t invalidate the entire agreement.

    There’s even been a recent increase in post-nup agreements being negotiated and drafted. Once people get married, combine finances and get real- they realize they didn’t talk about everything or plan for contingencies as they should have.

    Being clear about expectations before, during or even after a marriage makes it easier to deal with disagreements, resolve conflict and, in a lot of cases, keeps people from emotionally attacking their spouse at the end of the relationship.

  7. Leigh says:

    I think that I don’t know enough about prenups to know if I would want one or not and how it would help or not help me. I’m not sure what I would write or word or be able to predict would happen in the case of a divorce.

    If I don’t get married for another 5 years (I’m in my early twenties) and my savings go according to plan, I would have a mid-$300,000 condo paid off and six figures in retirement savings, cash, and stock index funds. I think I would want to make sure that what was before marriage was not community property and that my potential husband couldn’t get half of all of my assets, but isn’t that what is held up in court anyways? And how does the implementation work? Do you have to keep bank statements and property appraisals from just before the wedding in case you get divorced so you know what each person was worth before you were married?

Leave a reply