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What is a prenup?

Updated: Dec 30, 2021

Prenups are legal contracts that you sign before getting married that change the rules of divorce and inheritance. They allow you to do accomplish 5 goals: protect existing property, protect future property, protect relationships, reduce conflict, and ensure fairness.



Protect Existing Property


At a bare minimum, a prenup can protect the property you currently own. You can choose to protect just the equity you currently have, protect all future equity, and even protect any increase in value of the property.


For example, if you own a $300,000 home with a $100,000 mortgage, you can choose to protect either $200,000 of your existing equity or protect the full $300,000 or protect the full $300,000 plus any future increase in value.


Tip: Communicate to your lawyer which option you prefer and verify that the lawyer properly labeled it as non-marital. How a lawyer labels property in the prenup will determine the type of protection your property gets.


Protect Future Property


Prenups can also protect any future income earned and property purchased. You might not own much right now, but what if you start a successful business or become a talented investor or get lucky and win the lottery. That might be property you'd like to protect, so that you're not splitting or losing any of it during a divorce.


For example, you can exclude all interest in all future business that are titled solely in your name as your non-marital property. That way, you won't need to split the business, liquidate it, or "buy-out" your spouse.


Tip: Compensating your spouse for their support is a great way to show your spouse that you love and appreciate them. You can compensate your spouse during marriage by paying a salary or granting your spouse limited equity. You can also compensate at divorce by offering a cash settlement.


Protect Relationships


Second marriages, especially later in life, can be hard on children. Even if your spouse gets along with your children, you may want to eliminate any conflict that they would have over your estate when you die. A prenup lets you limit your spouse's inheritance rights, so that you can have full control over who inherits what.


For example, even if you die with a will, a spouse is entitled to inherit at a minimum (1) the homestead, (2) a car of any value, (3) up to $15,000 of property, (4) monthly income during the probate process, and (5) up to a certain percentage of your total estate depending on how many years you were married. Thus, even if you leave 90% of your estate to your children, your spouse can override your wishes and inherit more--causing strife between your children and your spouse. In a prenup, your spouse can waive their inheritance rights so that they cannot override your will and inherit more than you give them.


Tip: Set up or update your will as soon as possible. If your spouse waives their inheritance rights and you pass away before writing or updating a will, your spouse can end up with nothing, and that too can cause strife between your children and your spouse.


Reduce Conflict


By agreeing on how to split individually and jointly owned property in a prenup, you reduce future conflict during a divorce. The less there is to divide, the less reasons and opportunities for you two to quarrel. A break up is hard no matter how much you love or hate your spouse. Having one less thing to worry about can make the process less miserable.


For example, if you agree that anything held jointly will be split 50/50 and anything held solely in one spouse's name will belong 100% to that spouse, then at divorce, you'll only need to split the joint accounts, and you won't be wasting time calculating contribution or fighting over who should get the account since the split will be a clear 50/50.


Tip: Be careful how you title property during the marriage because that will impact whether you'll need to split it during a divorce. Do not jointly title any property that is sentimental to you that you would not want to split in the future.


Ensure Fairness


Fairness is in the eye of the beholder. It's not always 50/50. Although Minnesota grants equitable division of property, most divorce lawyers push their clients into a 50/50 property division because it's easier regardless if it's fair. Most judges decide cases based on their personal views of relationships and responsibilities. The outcome of any divorce is rarely a fair one. A prenup allows you to change the rules of the game and define what you believe is fair.


For example, a traditional judge who believes mothers must be compensated for raising children may order the husband to pay permanent alimony; a modernist judge who believes that adults should take care of themselves may order no alimony even if the mother was out of work for 20 years. There's no way to know who your judge will be.


Tip: Consider all possible life outcomes and include in the prenup several options so that regardless of what happens, the outcome remains fair. If one of you does stay home to raise the children, provide for a fair outcome. If no one stays home, provide for a different, yet also fair, outcome.

 

This blog and the tips in it are general information and not legal advice. If you want legal advice, book a free consultation!