I got the oddest request today. A couple came in and wanted me to notarize their prenuptial agreement. It was drafted by them with no help from an attorney and it was only a page and a half long. As a general rule, I don’t read documents I notarize because a notary is only saying they witnessed your signature. I didn’t read this one, though I was kind of curious about it. Perhaps they didn’t have a lot of money and assets, but prenups are also supposed to cover any future plans of wealth, as well.

But, since it came up, I thought I’d discuss it with you guys to see where you stand. Most people I talk to about prenups don’t think they need one. They believe that they and their respective partner will never break up. While I think that’s a naive way to look at things, I do believe that some people feel it’s more a matter of trust in the person that you want to spend the rest of your life with then it is that they’ll never split up. Still, a prenup protects a lot more then you think.

What does a prenup cover?

A prenup can cover pretty much anything you want it to cover, both present and future. You’ll want to adhere to state laws and ensure that the agreement is fair to both parties or you may find that the courts will rule against it in the event of a divorce. You also need to understand that you can’t opt out of child support, and in most cases, alimony with a prenup, so don’t try. Here’s but a few things a prenup can protect for each party.

# 1 – Property

This is pretty standard. Generally speaking, property refers to land and/or homes. The prenup states how the asset(s) are to be divided amongst the divorcees, or if it is to be sold, how much goes to each respective party. This is a particularly important clause if you wish to keep a family home within the family, or if you have property that you wish to have passed to children from a previous marriage. This clause can also go into personal property such as cars and household goods.

# 2 – Debts

Many a person’s credit has been ruined because they’ve failed to plan for the amount of debt one spouse has at the time of divorce. A prenup can ensure that if one spouse racks up a ton of debt the other is not responsible for it after a divorce. This gets tricky with cards and loans that are jointly held, so it’s important to be very clear about the debt loan expectation during discussions before marriage, as well as, in the prenup.

# 3 – Assets for Children

In today’s society divorce is a common and acceptable practice. If two people cannot genuinely make their marriage work, divorce is the order of the day. However, in many cases, there are kids involved and getting remarried can seriously affect them and what they may be entitled to if something happens to their parent. A prenup can specifically carve out certain assets for children from a previous marriage and ensure they are provided for if something were to happen to the parent.

# 4 – Businesses

If there are family businesses or partnerships involved, then a prenup can keep those intact. Each party would need to list their percentage of ownership and what it is that they expect to receive out of it if they were to split, or it can simply be that one person signs the rights over to the other. Whatever the decision, it has to be fair to both parties.

# 5 – Future Assets

Maybe your portfolio isn’t very big right now, but you have plans to grow your income. Well, you can include a clause within the prenup to protect that as well. This can cover anything from planning to be a doctor to making it big in Hollywood. If it’s something that could bring you an asset and would need to be divvied up in the event of divorce, then you’ll want to include it. This also covers unexpected windfalls and/or inheritances.

How to go about a prenup?

If after talking it over with your intended, you decide that a prenup is for you, the best thing to do is for each party to begin making a list of their current assets. You don’t have to list things like dishes and towels – just list them as household goods – but you do want to be as accurate as possible. Also include the value of each asset you list.

The next step is to discuss with your intended what you think would be a fair way to divide the assets up. Discuss what’s being left to kids, what goes to other relatives, and what goes to each other. Once you have an idea of how you’d like to divvy the assets up, it is recommended that you each hire separate attorneys to finalize the discussion and draft the actual document.

Some key points to note, try to do this about three months out from the wedding to make sure each party has enough time to reflect and consider the decision carefully. Judges do not look favorably on prenups when they’re done right before the wedding because it could be an indication that it was signed under duress. Additionally, if one party cheats, judges are less favorable to holding up the prenup agreement. You may want a clause that states the agreement is not null and void in the event of cheating, or you may wish to include that it is. It’s a tough topic to bring up, but when there’s a lot of money involved you really want to protect yourself.

Finally, it’s recommended that there be a severability clause within the agreement. This basically means that if one clause within the agreement is stricken, the rest remain intact. This keeps the contract as a whole valid, even if one section is deemed unsuitable by the courts.

Should you DIY?

It depends on the situation and the couple, I suppose. But, if you decide to do it yourself, you should definitely do your homework. You have to understand state law regarding prenups. Again, certain states won’t allow certain clauses, so the more you know the better off you’ll be. Also, lawyers are more liable to be impartial to the task. You may think you’re being fair, but sometimes your view is biased. Even if you draft the document yourself, I’d still recommend a lawyer consultation to review the document.

My thoughts…

I’ve told you guys before that I’ve seen a lot of bad things happen to people and their finances over the years. Perhaps this has negatively colored my view of how I would handle my finances in a joint situation; however, I believe in protecting yourself, no matter how much you trust the individual involved. To my way of thinking, this isn’t an issue of trust so much as it is being prepared for every eventuality. We have insurance for health, life, cars, homes, etc. We do this not because we expect bad things to happen, but because we want to be prepared just in case. Well, I sort of look at a prenup as insurance against divorce. It may not happen, but if it does, you’re covered.

What do you think? Are prenups important, or does it only matter if you have a lot of money? If you feel like sharing your prenuptial stories, I’d love to hear them!

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