It depends on your financial goals, career plans, concept of fairness, past experiences, expectations, desires, and so much more. The best way to decide if a prenup is right for you is to answer the following questions. It's a great exercise to do with your partner as it'll allow both of you to get to know each other better and hopefully reach an agreement.
(1) How do we see our financial future?
(2) Do we have the same financial goals?
(3) Do we want to have the same financial goals or should we have our own goals?
(4) What do we want to prioritize: travel, savings, investments, children, quality of life, hobbies?
(5) What commitments do we want to make to reach our goals?
(6) Do both of us want to commit to contributing 10% of our salaries towards our goal every month? What about 20%? What happens if one of us doesn't contribute?
(7) If we have different goals, should we financially support each other in reaching those goals or should each of us be solely responsible for our own goals?
(8) If we will financially support each other in our separate goals, should that support get compensated for at divorce or do we just call it even?
(9) How important is retirement planning for us? Does one of us care about it more than the other?
(10) What is our retirement plan? Are we contributing to an account, saving in a bank, buying real estate, trading stocks, a combination of all?
(11) Should we both contribute the same amount to our retirement plans or should we each contribute how much we want during marriage, and if we get divorce, each will keep what he/she invested?
How a prenup helps you with financial goals.
In a prenup, you can state that each spouse only reaps the benefit of his/her investment. This way, a spouse who likes to save can do so without worry of losing half of it. A spouse who likes to live in the present can enjoy the moment having accepted the risk that he/she would walk away with less. It's a great way to protect yourself if your spouse has a habit of bad investments.
(1) Where do we see ourselves 10 years from now? What about 20 years?
(2) Will both of us have a career? Will one of us be a stay-at-home parent? If one of us stays home to raise children, should that partner receive some type of alimony while he/she tries to regain employment after divorce?
(3) What if things don't go as planned?
(4) Are either of us planning to get more education?
(5) How will that education get paid for? Will we co-sign a loan? Will one of us work extra hard to support the both while the other is in school?
(6) Is one of us willing to sacrifice a career to help the other's career succeed?
(7) If any type of sacrifice is made, should the sacrificing partner get compensated during the marriage? What about at divorce? How does the sacrifice get calculated?
(8) Will one of us have a business?
(9) Will the other one work in the business to help build it? If so, should that be compensated? When? How?
How a prenup helps you with career plans.
In a prenup, you can encourage and compensate for the sort of sacrifice and support that is needed in a happy and healthy marriage. It's good to support your spouse in getting higher education, opening a business, advancing their career. It's great to be compensated for giving such support.
Without a prenup, assets will most likely just be split 50/50 with no consideration if one spouse worked harder to allow the other to go to school, if one spouse paid for the other's education, if one spouse worked for free in the other's business, and so on. Alimony is not awarded to compensate a spouse for his/her sacrifice. It's only awarded if a spouse cannot self-support to maintain the marital standard of living.
When you know you'll be compensated for your sacrifice and support, you're more likely to support your spouse, and that's a beautiful thing.
Roles & Responsibilities
(1) Who will be responsible for paying what during the marriage?
(2) Will one of us manage all the finances?
(3) Should we put all of our money into joint accounts? If we do, how should we split that at divorce: 50/50 or based on contribution?
(4) If we keep separate accounts, should we keep what is in our own name at divorce or combine total assets and divide in half?
(5) If one of us pays majority or possibly all of the bills, should that person get more at divorce?
(6) Who will be taking out the loans?
(7) Will those loans be benefiting both or just one parter?
(8) If only one partner benefits, should the benefiting partner pay back the partner that borrowed the money?
(9) If both of us will benefit from the loan, who should be responsible for paying those loans at divorce?
(10) If one of us pays for the mortgage but the other pays for all other home-related expenses (utilities, improvements, taxes, etc.), how should the home get divided at divorce?
(11) Is it fair for the person who paid the mortgage to keep all? Should it be split 50/50? Maybe split it 90/10 if other expenses weren't that expensive?
(12) What about paying income taxes? Will we file jointly or separately? If joint, how do we pay the tax liability and/or split the refund?
(13) If one of us is constantly failing to pay taxes, will there be a recourse for the other partner who makes all the payments? Should that amount be reimbursed at divorce?
How a prenup helps you with roles & responsibilities.
In a prenup, you can fairly compensate each other based on the financial responsibilities that each of you took on during the marriage. If one of you paid for all the bills, then maybe it's fair for that person to get more at divorce, maybe even get some of the other spouse's retirement savings since it was his/her bill payment that made the retirement saving possible for the other spouse. With a prenup, you can set up division of property, assignment of loans, and compensation however you see fit.
(1) Does either one of us currently owns any real estate?
(2) Should that real estate belong exclusively to the partner that owns it?
(3) What if the other partner helps pay for the mortgage on that real estate, should that get compensated? Should the compensation be a cash settlement equal to payments made or should the partner get a percent equity in the property?
(4) If the real estate is a rental and the mortgage is paid for by renters, should the property still get split between the partners or only belong to the partner that bought it?
(5) Should contributions towards major improvements create equity in the non-owning partner? What about reimbursement at divorce for the investment?
(6) During marriage, do we plan to buy real estate together?
(7) If we jointly own a home, should we split it 50/50 or based on contribution? Should the contribution be all contribution or only the amount paid towards the down payment?
(8) If only one of us is on the deed of a house we buy while married, should the property belong to the partner on the deed, both, or the one paying for it?
(9) Should the house be sold at divorce or should one of us get a chance to buy out the other?
(10) Who gets to live in the house while we are going through divorce?
How a prenup helps you with real estate.
In a prenup, you can split real estate in many ways. If you don't want to split real estate, you can set up a cash settlement to compensate for a spouse's contribution towards the payment on the house. Or you can keep the real estate all to yourself and not split or compensate at all. However you answered the above questions, you can create that outcome in a prenup.
(1) How much things do we own?
(2) Will we be buying all new things when we get married or are we combining our currently owned property to furnish the house?
(3) If buying new things, will we split all the costs in half, designate purchases between the two of us based on category, or will one of us do most of the paying?
(4) Will we be selling or donating our separately owned personal property before we get married? If so, will we be using the money to buy new items for the house once married or will that be cash to use for personal expenses?
(5) If one of us will pay for most of the furnishings, should that partner keep most of the items at divorce? Should some of that property be treated as a gift from one partner to the other?
(6) Speaking of gifts, do we want to document that somehow so that at divorce the person who received the gift gets to keep it even though the other partner paid for it?
(7) Do we want to create a joint account from which we will purchase all jointly used personal property? At divorce, should all property purchased that way be split 50/50 or in some other percentage?
(8) Do we want to be physically splitting property at divorce or sell it all and then split the cash? If selling, should we sell everything or only the big ticket items? Maybe only the jointly purchased items?
(9) If one of us gets the house, should the other one keep most of the personal property?
(10) If one has a much greater net worth than the other, should the partner with less assets keep most of the personal property as a way to make divorce more fair?
(11) If we can't agree on how to split personal property, how should we resolve those disputes?
How a prenup helps you with personal property.
In a prenup you can agree to all these little details so you don't have to worry about them at divorce. It's easier to reach agreements when you love each other then when you hate each other.
(1) Does either one of us own a pet? Is that pet a joint pet? Is one of us more attached to the pet?
(2) How should we split the pet at divorce? Should one of us keep the pet full time? Should we split custody 50/50? Would we do weekend visitation?
(3) What if only one of us takes care of the pet during marriage? Is it fair to split the pet then? Maybe the care taking partner should get to keep the pet all to him/herself.
(4) Do we plan to get more pets?
(5) What would happen to those pets if we got divorced?
(6) What if only one of us gets a pet during marriage, and the other partner hates the animal? Does the pet stay or go? Should the partner who doesn't like the pet have to contribute to taking care of the pet?
How a prenup helps you with pets.
Pets are not children. Technically, you cannot set up custody plans. A judge will not sign a divorce decree that has a pet custody order. You can, however, do that in a prenup. While pets are not children, to many they are family, and it's hard to reach an agreement about a beloved pet at divorce. It's much easier to do so when you're getting married.
Dying without a Will
(1) If one of us dies without a will, do we want the surviving spouse to keep everything?
(2) Does either of us have kids from a prior relationship?
(3) Do we want the kids to inherit everything?
(4) Would we rather our parents and siblings inherited everything instead of each other?
(5) Is there a reason why we wouldn't want each other to inherit everything?
How a prenup helps you.
If you do not want your spouse to automatically inherit, then you can limit your spouse's inheritance rights in a prenup. You can also leave the inheritance rights intact.
Dying with a Will
(1) Have we already executed our wills?
(2) Do the wills include gifts for each other?
(3) Do we want to modify the wills to include gifts for each other?
(4) Are there specific gifts we want to include in the wills? Should one of us leave the house to the other? Should we leave a certain sum of money to each other?
(5) Do we want to compel each other to make these changes in the wills or leave it up to whether we will feel like it in the future?
(6) Should one of us be able to override the will of the other and inherit more?
How a prenup helps you.
In a prenup, you can limit certain inheritance rights, such as a spouse's right to override a will. You can also prevent your spouse from disinheriting you by requiring the spouse to leave you specific assets or sums of money. You can also make no mention of inheritance if that's what you choose.
Estate Tax Planning & Divorce
(1) Do we have enough assets to worry about estate tax planning? ($3 million for Minnesota, $12 million for federal)
(2) If we will be doing estate tax planning, do we want to move around our property ownership to achieve the legally lowest possible estate tax?
(3) If we do modify property ownership for estate planning purposes, should that impact how we split property at divorce?
(4) Do we want to include in our prenup that if we "gift" each other property for estate planning purposes only, the property will count as belonging to the original owner at divorce?
(5) Would we rather worry about the impact of estate planning on divorce now or modify the prenup later?
How a prenup helps you.
In a prenup, you can add safeguards so that if you do move property around for estate tax purposes, that does not harm you at divorce.
(1) If we have financial disagreements, how should we resolve those disputes?
(2) Should we go to counseling? Mediation? Arbitration?
(3) Could it do us some good to have a private third party that decides which one of us is correct in a financial dispute? Maybe the arbitrator doesn't side with one of us but comes up with a binding solution that we must follow?
(4) What if one of us doesn't follow the reached agreement or the arbitrator's decision? Do we just live with it or do we want to enforce it in court?
(5) What about other disputes? Do we want to set up a dispute resolution process for those? Should we agree before hand to go to therapy?
(6) If we want therapy or counseling, should it be a pastor, priest, licensed professional, a trusted friend?
How a prenup helps you resolve problems during marriage.
In a prenup, you can include your preferred method of dispute resolution so that you have an already agreed to mechanism by which to solve problems.
(1) Do we want to have a private or public divorce?
(2) If there's disagreement on how to interpret or enforce our prenup, do we want to resolve those disputes via mediation, arbitration, or a court hearing?
(3) Should we agree to try and reach an agreement at the kitchen counter before involving lawyers?
(4) Should we attempt to reach a divorce agreement through mediation or a collaborative divorce process before either one of us files a petition in court?
(5) Should there be a penalty if one of us intentionally prolongs the divorce process? How would we define intentionally? What kind of penalty?
(6) How should we pay attorney fees? Should we each pay our own? Should one of us pay all the fees?
(7) What if one of us challenges the prenup's validity, should that impact who pays for legal fees? What about the division of property?
(8) Are there any circumstances under which we would want this prenup to be invalid and normal rules of divorce to apply? Why? What would those circumstances be?
How a prenup helps you resolve problems at divorce.
In a prenup, you can agree to a private divorce, a collaborative divorce, the number of mediation sessions you must attend before you take the divorce to court. You can set up penalties so that one of you doesn't get tempted to intentionally prolong divorce. You can set up preventative measures to reduce the chance of your divorce getting out-of-hand. Even if that's all you want to do. Even if you want to keep traditional rules of divorce, it may be worthwhile to agree in advance to a specific divorce process.
If in answering these questions you realize that you want to have more control and options in your marriage, divorce, and death, then a prenup is probably right for you.
This blog and the tips in it are general information and not legal advice. If you want legal advice, book a free consultation!