You have likely been told it is smart business to enter into a prenuptial agreement before getting married. Any person bringing business or personal assets into a marriage stands to benefit from planning ahead. Without proper planning all of your assets can be divided up by a divorce court without you receiving any say in the matter.
With over 50% of marriages ending in divorce it is sensible to be worried. What you're probably not told is a prenup doesn't solve everything and there is a better solution.
What is a Prenuptial Agreement?
In short, a prenuptial agreement is a contract entered into before marriage. It is meant to carefully delineate what is and is not marital property. That is, what personal property is and is not subject to future divorce claims?
Who Needs a Prenup?
There are many good reasons to desire a prenuptial agreement. They avoid fighting at the end of the marriage and show the marriage is about more than just money. Some of our clients include those who have already experienced a failed marriage, have significant assets, are marrying young, marrying on a whim, or are choosing partners who are younger or from overseas. In each of these cases it is wise to protect yourself.
Problems With Prenups
There are, unfortunately, few natural segues into a conversation about prenups. Merely broaching the subject frequently invites disagreement and unpleasant questions from your significant other. Further complicating matters are the differences between states and even judges within the same state. As a result, prenuptial agreements have been invalidated on a variety of grounds.
For example, Elizabeth Petrakis was able to invalidate her prenup on the grounds her husband made a verbal agreement not to enforce it. She now has a practice which assists others looking to get divorced.
Due to the uncertain outcome and potentially unpleasant conversation, not everyone who would benefit from a prenuptial agreement enters into one. This is unfortunate as it needlessly exposes assets earned prior to marriage to future divorce claims.
Using a Trust as a Prenup Alternative
A popular belief is that a prenup will adequately protect you from divorce claims on your current assets. The reality is slightly different, however, as we can see from the number of agreements which have been ripped up.
There is, fortunately, an easier method to achieve the same aims without requiring signing a prenup. This is done through setting up a self-settled trust. This type of trust removes assets from your marital estate by removing them from your name altogether. When you enter into your marriage the assets in question are held in trust rather than in your name.
Removing assets from your marital estate prior to marriage provides more protections than a prenuptial agreement. With a prenup, the assets are still in your name and an overly zealous judge may either partially or wholly invalidate the prenup.
With a trust owning the assets there is no comparable way to force a transfer to your ex-spouse.Such an arrangement often deters divorce attorneys who are accustomed to going after low hanging fruit. The trust continues owning the assets while you negotiate a fair divorce settlement on your terms.
Frequently Asked Questions
The best way to protect assets is not a prenuptial agreement, but via an irrevocable trust. This helps to keep the assets outside your marital estate and is more difficult to contest in court.
The different between the two agreements is when they take place, i.e. whether they were drafted and signed prior to or after marriage took place.
A trust can be used as effective alternative to a prenup because it holds assets outside your marital estate. We generally advise an irrevocable self-settled trust in these cases.
You can write your own prenuptial agreement, but any mistake will make the potential savings look small in comparison. We recommend an attorney, or better yet an irrevocable trust to keep assets outside your marital estate.