Prenups aren't just for the rich or famous - more millennials are signing them before getting married, and you probably should too
- Prenups are shedding their stigma and becoming increasingly popular among Americans, especially millennials.
- Prenups set expectations for a division of assets and finances in the event of divorce. They may not be romantic to bring up, but most couples will benefit from having one.
- Two main factors are driving an uptick in prenups: Americans are getting married later, accumulating more assets and debt before marriage, and many millennials are children of divorce, making them predisposed to protect their interests.
It's time to talk about the "P word": Prenup.
Short for prenuptial agreement, a prenup is a legally binding contract two people sign before marrying that covers financial issues and the future of assets in the event of a divorce, Kelly Frawley, partner in the Matrimonial and Family Law Department at Kasowitz Benson Torres LLP, told Business Insider.
Because of its delicate nature, prenup has long been a dirty word among couples.
Just consider this New York Times opinion article from 2013: "If you're thinking about a prenup, or - worse yet - your intended is pushing a prenup on you, you might as well go ahead and just cancel the wedding," writes W. Bradford Wilcox, director of the National Marriage Project. "There's an easier way to keep your assets and income separate: it's called cohabitation."
"Many people are still hesitant to ask for [a prenup] - fearing blowback from one's partner or family members, embarrassing financial revelations, disclosures to an attorney, even unresolved relationship issues," Leanna Johannes, senior wealth strategist at PNC Wealth Management, told Business Insider.
But prenups might slowly be shedding their stigma.
The number of millennials requesting prenuptial agreements has jumped, according to Johannes, citing the American Academy of Matrimonial Lawyers. More than half of lawyers surveyed saw an increase in prenups among millennials, and 62% saw a rise in prenups overall from 2013 to 2016.
As Frawley puts it: "There has been an uptick in prenuptial agreements with younger individuals who do not have family wealth to protect and individuals who are embarking on their first marriage."
Americans are marrying later in life and millennials, specifically, fear divorce
A main driver behind this uptick is a delay in marriage. Since 2005, the median age at which men and women married has jumped from 27 to 29.9 and 25.5 to 28.1 respectively, according to the US Census. Millennials are also dating longer before heading to the alter - the average couple waits 4.9 years to marry, Business Insider previously reported, citing a Bridebook study.
And the longer millennials wait to marry, the more time they have to accumulate assets that need protection.
"Millennials have been on their own, accumulated some wealth, either from a 401(k) or a stock program provided by their employer or some real estate, and they want to make sure that the property remains theirs if there are problems down the road," Johannes said. "Millennials are creating wealth through their own business startups, intellectual property (apps, software, etc.), and they want to make sure those pursuits will not lose ground in a divorce."
Shayanne Gal/Business Insider
This may be especially true for female millennials, who have evolved into more independent roles than that of their mothers.
"The role of women in relationships and family structures is shifting," Theresa Viera, family law attorney at Sodoma Law, told Business Insider. "With women attaining college degrees at higher rates, accessing higher wages than ever before, and single women purchasing homes more often than single men, we may be seeing the effect of female millennials who want to protect their financial interests when entering into marriage."
But it's not just assets millennials are bringing to a marriage, Johannes said - they're also saddled with outstanding student loan debt, which prenups can cover. Without a prenup, you may be left responsible for half of your spouse's outstanding debt after a divorce.
Taking that into consideration when signing a prenup may not be a bad idea, considering that more than 10% of divorced borrowers blame their divorce on student loan debt, according to a report by Student Loan Hero.
The notion of divorce also hovers in the back of many millennials' minds - one-third are children of divorce, which Viera says "informs their desire to do everything possible to create a successful marriage."
Johannes added that as children of divorce, millennials may be coached by their own parents or predisposed to protect their interests.
"There is an understanding of marriage as a legal status," she said. "Marriage is a legal act with legal consequences should the marriage end in divorce. Millennials have a better understanding of those consequences, and are taking the appropriate steps to create a mutually beneficial prenuptial agreement."
Not your parents' prenup
Prenups have evolved beyond a legal document utilized by the rich and famous or those marrying multiple times. Back then, spouses wanted to protect any family money or business interests they brought with them into a marriage, Viera said.
"In comparison, the current trend is shifting for prenups in any and all relationships involving dreamers and world changers," she said. "Creating a start-up company or spurring a new trend to change the world, while making money doing so, is a growing trend of the millennial mindset."
A prenup protects against the potential for divorce that threatens that dream, she said.
In a nutshell, a prenup manages expectations of what will happen in a divorce and post-divorce, Frawley said.
"Without a prenup, the laws of the state determine what will happen to your future should you and your spouse split," Viera said. "The largest advantage of a prenup is that the couple, not the court, decides what happens in the event of a divorce."
By allowing couples to determine what makes sense for them, a prenup makes those state laws inapplicable, according to Johannes. One of the primary purposes for a prenup, she says, is to determine financial payments for property settlement and alimony.
"For example, if neither you nor your future spouse wants to pay alimony, you can waive alimony under the prenup," she said. "Conversely, the prenup can set alimony in advance if you know that one spouse wants to be a stay-at-home parent and raise children, giving up an independent income."
Johannes added: "If you own a business, a prenup can ensure that your ownership is protected, but spell out a sum of money to be given to your spouse in lieu of any ownership stake. Interests in any gifts or inheritances received can also be waived in return for other assets - or without promise of other assets, for that matter."
This, said Johannes, will hopefully make for a less contentious split while forcing couples to think ahead to a leading stressor in marriages: finances. By focusing on your financial relationship, a prenup can help you avoid future arguments over finances by forcing you to fully disclose all financial information - like income, debt, assets, and inheritances - up front, she said. Plus, it can help couples learn communication and compromise.
Viera adds that prenups are created during "a time of love and teamwork" to figure out what's best for the couple - which is better, and less costly, than figuring everything out during a highly contested divorce.
But Frawley points out: "Prenuptial agreements can be difficult because you are addressing the 'unknown' and it is being negotiated during what should be a happy time of wedding planning."
But a prenup doesn't mean you'll avoid litigation if you divorce
Yet, despite a promise for protection and numerous advantages, a prenup doesn't mean that couples will avoid total litigation in the event of a divorce.
While prenups can minimize unresolved issues, couples will still need to exchange financial information, a process known as discovery, Frawley said. Child support can be another issue and determined at the time of divorce since child support isn't an enforceable term in a prenup.
And while a prenup identifies what assets will be separate property or marital property, disputes can arise over whether an asset is separate property or has been mixed with marital property, Frawley said.
Should you get a prenup?
So, should you add a prenup to your wedding checklist? It depends what you want to protect.
Frawley said that if you decide to move forward with a prenup, you should start the process as early as possible.
"In order for a prenuptial agreement to be valid, you and your future spouse will each need to be represented by separate (independent) legal counsel," Johannes said. "I've drafted several prenups and I can say that the process goes smoothest when couples communicate openly with each other about the issues being raised, the terms of the agreement, and the reasoning behind them."
You'll also need to fully disclose all assets and liabilities, including business interests. Future interest, such as an expected inheritance and interests in trusts, don't need to be disclosed in most states, Johannes said.
"In today's culture, getting a prenuptial agreement can often be a wise move," she said. "Talking to an experienced attorney can help smooth the decision process to reach a prenuptial agreement agreeable to both parties."
When approaching your future spouse about it, you should consider their feelings and be straightforward about why you want the agreement, Frawley advised.
And, whatever you do, don't present a prenup right before the wedding.
"Doing so would make signing the agreement appear to be a 'condition' of the marriage, and most folks would feel pressured to sign it so the marriage can move forward, regardless of the content," Johannes said. "Last minute and/or pressured signings are more easily overthrown if and when it comes time to enforce the agreement."
Viera said engaged couples should always have the prenup conversation. "Talking about prenups may not seem easy, but if you are not ready to have difficult conversations before the wedding day, can you trust that the two of you can handle the inevitable challenges that marriage will bring?"
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