Save Yourself, Get a Prenup
There is a common misconception that prenups are just for the rich and famous. However, the current financial crisis and rising rate of divorce make prenups something every couple should agree to make as a way to protect the assets they each have.
A prenuptial agreement, aka “prenup”, is a legally binding contract formed by a couple prior to marriage which details how their property will be divvied up if they get a divorce. Ideally, the prenup should be entered into at least 30 days before the marriage to avoid any claims of coercion-a common reason why prenups are deemed invalid. Also, each party should be represented by their own lawyer so there is no conflict of interest.
Without a prenup, a couple is subject to state law which in most cases results in a division of assets neither party expected or wanted. State courts consider two types of property in divorce proceedings: marital and separate. Marital property includes all income and property acquired during the marriage by either spouse. All income and property includes salaries and bonuses, real estate, business income, and even benefits accrued in 401(k), IRA, and pension plans. Separate property includes assets owned by each spouse prior to marriage and any inheritances received during the marriage.
How marital property is divided depends on the where the couple gets divorced. Most states are “separate property” states which utilize “equitable distribution”, a method by which the property is divided based on fairness, taking into consideration factors such as the length of the marriage and the existence of children. Nine states, including Texas and California, are “community property” states. These states usually split the property fifty-fifty without consideration into the totality of the circumstances. This can have devastating results, especially for the spouse who earned the primary income for the family. Of the two methods, the separate property method is the most equitable method, but it is also more difficult to apply since the court’s have to “trace” back the income and purchases and each spouse.
Understandably, no one wants to imagine getting divorced, but now more than ever, people should protect what they have and get a prenup. The minimal cost of executing such an agreement definitely outweighs the potential losses you may suffer without one, especially if you live in one of the nine community property states. For more information about forming a prenuptial agreement you should contact a family law/divorce attorney.