Prenuptial Agreements -- An Overview

What you need to know if you're considering a prenuptial, or premarital, agreement.

A prenuptial agreement ("prenup" for short) is a written contract created by two people before they are married. A prenup typically lists all of the property each person owns (as well as any debts) and specifies what each person's property rights will be after the marriage.

Who Needs a Prenup?

Contrary to popular opinion, prenups are not just for the rich. While prenups are often used to protect the assets of a wealthy fiancé, couples of more modest means are increasingly turning to them for their own purposes. For example, a marrying couple with children from prior marriages may use a prenup to spell out what will happen to their property when they die, so that they can pass on separate property to their children and still provide for each other, if necessary. Without a prenup, a surviving spouse might have the right to claim a large portion of the other spouse's property, leaving much less for the kids.

Couples with or without children, wealthy or not, may simply want to clarify their financial rights and responsibilities during marriage. Or they may want to avoid potential arguments if they ever divorce, by specifying in advance how their property will be divided and whether or not either spouse will receive alimony. (A few states won't allow a spouse to give up the right to alimony, however.) Prenups can also be used to protect spouses from each other's debts, and they may address a multitude of other issues as well.

If You Don't Make a Prenup

If you don't make a prenuptial agreement, your state's laws determine who owns the property that you acquire during your marriage, as well as what happens to that property at divorce or death. (Property acquired during your marriage is known as either marital or community property, depending on your state.) State law may even have a say in what happens to some of the property you owned before you were married.

Under the law, marriage is considered a contract between bride and groom, and with that contract comes certain automatic property rights for each spouse. For example, in the absence of a prenup stating otherwise, a spouse usually has the right to:

• share ownership of property acquired during marriage, with the expectation that the property will be divided between the spouses in the event of a divorce or at death
• incur debts during marriage that the other spouse may have to pay for, and
• share in the management and control of any marital or community property, sometimes including the right to sell it or give it away.

If these laws -- called marital property, divorce, and probate laws -- aren't to your liking, it's time to think about a prenup, which in most cases lets you decide for yourselves how your property should be handled.

Making a Valid Prenup

As prenuptial agreements become more common, the law is becoming friendlier toward them. Traditionally, courts scrutinized prenups with a suspicious eye, because they almost always involved a waiver of legal and financial benefits by a less wealthy spouse and they were thought to encourage breakups.

As divorce and remarriage have become more prevalent, and with more equality between the sexes, courts and legislatures are increasingly willing to uphold premarital agreements. Today, every state permits them, although a prenup that is judged unfair or otherwise fails to meet state requirements will still be set aside.