When late-night comedian David Letterman was asked why it took him so long to marry his girlfriend of 23 years, he joked, “We wanted to make sure we had the prenup just right.” The quip alludes to the sometimes-prickly process of entering a marriage while simultaneously creating a plan for its potential demise.
A prenuptial agreement (often simply called a “prenup”) is a legally-binding contract entered into by two people before they marry. The contract dictates how assets will be distributed in case of death or divorce. A 2013 study by the American Academy of Matrimonial Lawyers indicates that the use of prenups is on the rise and also that there’s been an increase in women initiating such agreements.
Though our news reports and gossip rags are full of juicy details about big-buck celebrity prenups, these premarital contracts aren’t just for the 1 percent.
Who needs one?
Fortunes change. Business success, an inheritance, or other events can alter your financial profile. “No matter the number in your portfolio now, it’s important to plan and protect your future,” says Danielle Mayoris, attorney and author of “Trial & Heirs: Famous Fortune Fights!” “In fact, whenever there’s a life event, it’s time to take a look at and update estate plans.”
In addition, a prenuptial agreement should be strongly considered if:
- There’s an uneven distribution of assets or debt going into a marriage
- One member of the couple is an entrepreneur or engaged in a family business
- It’s a second marriage
- There are children from a previous union
How to bring up a prenup
Which flowers? Where to honeymoon? Oh, and would you mind signing this legally binding agreement outlining your rights if our marriage should end? There are better, more respectful ways to start the conversation.
“If couples are talking openly and honestly about their finances, how they each approach saving and how to meet their goals, then there’s a natural bridge,” says Liz Digani, UBS financial advisor. “A prenuptial agreement discussion is part of a financial planning process.”
If you’re wondering how to approach a conversation about a prenup, Mayoris says your fiancé might be thinking the exact same thing. Remember, a prenup doesn’t have to be looked at negatively.
“Remind your partner that you don’t want anything to get in the way of your future together, that you want to maintain a good relationship,” Mayoris says.
To that end, avoid pulling a “Tony Romo” – the quarterback reportedly asked for a so-called “porker clause” to be added to his prenup with Jessica Simpson. It stipulated that if her weight exceeded 135 pounds, he would get a payout. The two never married.
What can be included?
A prenup can protect one spouse from the other’s debts, detail the allocation of assets in the event of divorce or death (including property acquired prior to the marriage) and clarify financial rights and responsibilities during and after the marriage. Other potential inclusions are custody and care of pets, compensation for a spouse who isn’t working during the marriage and return of family jewelry.
“Many prenuptial agreements also include a provision for attorney’s fees, stating that if one party unsuccessfully challenges the validity of the contract, then he or she will cover the legal fees for both sides,” says Chicago attorney Mitchell Gordon.
We need look no further than Hollywood for examples of unconventional prenuptial arrangements, like Keith Urban’s forfeiture of Nicole Kidman’s fortune if he uses illegal drugs and Catherine Zeta Jones’ $5 million payout if Michael Douglas cheats on her. But, such inclusions can get complicated, especially infidelity clauses.
“First, you have to define what is cheating then litigate through what happened and what it means,” Gordon says.
Gordon also discourages more specific lifestyle-type provisions. “A prenuptial agreement shouldn’t be about who’s going to do the laundry or make dinner,” he says. “The courts aren’t interested in micromanaging in a divorce.”
Though creating a prenup can foster discussion and planning, some inclusions are off-limits. Pre-determining custody or support of children of the marriage cannot be dictated in the document; neither can provisions that would require a spouse to engage in an illegal activity.
Golden rules of enforceable prenups
A prenuptial agreement can be deemed invalid if it was signed under duress, if the financial terms are grossly unfair, or if one spouse failed to fully disclose his or her assets or debts and the other spouse didn’t waive rights to that information. The practices below – and the assistance of a knowledgeable attorney – will help avoid these complications.
1. Plan for completion of the prenup well in advance of the wedding.
Currently making Chicago headlines is the divorce case of billionaire Ken Griffin and his wife Anne Dias Griffin, who claims that she didn’t receive her husband-to-be’s full financial information (60 pages long) until two days before the wedding, which left little time for a full review. Diagani says to allow a few months before the wedding to complete a prenup. “As soon as you are buying a ring and starting to plan a wedding, it’s time to begin joint financial planning discussions, including the need for a prenuptial agreement,” he says.
2. Both sides should have representation.
Gordon recommends that each party have separate and independent counsel. “One attorney cannot fairly represent the needs of opposite sides in a contract negotiation,” he says. Baseball player Barry Bonds was dragged into court during his divorce from wife Sun, who tried to overturn their prenup because she didn’t have an attorney present at the signing. Sun was unsuccessful, but her charges led to a lengthy and costly ordeal.
3. Have a witness.
When director Steven Spielberg and actress Amy Irving got divorced in 2005, Irving had their prenup nullified as it was written on a cocktail napkin without representation or witnesses. Ideally, both attorneys and a notary are present (and it’s not completed in a bar!). Gordon even has a court reporter in the room at signings to document that both parties understand the document and are signing voluntarily.
4. Disclose all financial information.
Complete financial disclosure is necessary. “The courts will want to make sure that both parties are aware of the full picture,” Mayoris says. “Make sure your spouse-to-be knows everything. If not, it can come back to bite you later. You’re not doing yourself any favors by withholding information if your prenup is thrown out by the courts.”
Though the word “prenup” often brings forth a barrage of unsolicited opinions from those outside the marriage, the reality is that learning early to openly discuss finances and possible eventualities is a healthy way to begin a union.
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