What Is a Prenuptial Agreement and Is It Right for You?
A prenuptial agreement, commonly referred to as a prenup, has become more of the norm amongst Americans, as more couples wait until later in life to marry. A survey conducted by the American Academy of Matrimonial Lawyers in 2016 found that 62% of family law attorneys saw an increase in demand for prenuptial agreements over a 3-year period. These documents are called "premarital agreements" under the applicable Uniform Statute.
What Is a Prenup?
The Illinois Uniform Premarital Agreement Act provides the prenup definition as "an agreement between prospective spouses made in contemplation of marriage and to be effective upon marriage" and states that "must be in writing and signed by both parties."
More specifically, the meaning of prenuptial agreement is that it establishes the financial and property rights of each spouse in case the marriage ends. It's often misconstrued as a tool only for the wealthy, as prenups have been historically drawn up to protect assets of affluent spouses, but in reality the provisions can protect any type of property or financial worth.
What Does A Prenup Do?
A prenup is first and foremost a financial agreement created before marriage that resolves issues regarding the division of property and payment of alimony between the spouses in the event of divorce. The agreement may be amended or revoked after marriage, but it requires a written agreement signed by the parties.
A prenuptial agreement typically defines how the couple will handle assets, debts, and other financial issues during their marriage and if they decide to split up, with the intent of reducing the uncertainty, stress and costs of protracted divorce proceedings. It is important to note however that a premarital agreement cannot bargain away child support or set out a parenting schedule or custodial parent.
How Much Money Should You Have to Get A Prenup?
"Everybody should get a premarital agreement because it sets out a clear agenda for how finances will be organized and communicated during your marriage", says Kunz. "It doesn't have to be used as a divorce tool, it can be used as an estate planning tool, a financial tool, or general guidelines… [and] it does not have to be more favorable to any one party", she adds.
A general rule of thumb will say that if you have a few hundred thousands dollars in assets, then you should consider it. Popular belief has many people thinking that prenups are only for the super rich, but the matter of fact is that anyone can benefit from a premarital agreement, especially if there is an unequal balance between the assets or worth of the spouses.
"There's a funny prenup sketch performed by comedian Chris Rock that I like to share with my clients. He points out that it's only middle class folks who need a prenuptial agreement because they're the only ones who can't afford to get a divorce, and there's a lot of truth to that joke", says Ms. Kunz.
There are other financial reasons for which getting a prenup is a good idea, and you can more easily figure out if a premarital agreement is right for you by answering a few questions at the time you are entering into the marriage or at least at the time of your engagement. If the answer to one or more of these questions is Yes, then a prenuptial agreement is a good idea for you and your future spouse.
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Q: Do You Own Real Estate?
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Q: Do You Own a Business or Part of a Business?
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Q: Do You Have Over $100,000 in Assets?
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Q: Is Your Income Over $100,000?
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Q: Do You Get Stock Options or Profit Shares?
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Q: Does One of You Plan on Going to School for an Advanced Degree While the Other Works?
Do You Need A Lawyer For a Prenuptial Agreement?
The short answer is Yes. If you're wondering how to get a prenup and worry that it might be expensive or complicated, the first step is to talk to a family lawyer. While many people already have business attorneys or estate planning attorneys and resort to their services for their prenuptial agreements as well, the best practice is to have a family law attorney draw up the contract and not your routine, general counsel.
A prenup lawyer will help and make recommendations or changes once the process starts, and will make sure the agreement is fair, in line with the state laws, and that nothing has been overlooked. They also know the actual divorce laws, if applicable.
Not only is it recommended to seek the advice of an attorney, but it's of utmost importance that spouses retain separate representation. In the state of Illinois, this is not a prerequisite, but the court will invalidate the contract if it is proven that the agreement is unconscionable.
A party seeking to invalidate a prenup agreement will also need proof that, before execution of the agreement, the following requirements were not met:
- One party was not provided a fair and reasonable disclosure of the property or financial obligations of the other party; AND
- Said party didn't expressly waive, in writing, any right to disclosure of the property or financial obligations of the other party, nor did they do so voluntarily; AND
- Said party did not have, or reasonably could not have had, an adequate knowledge of the property or financial obligations of the other party.
Note the above bulleted points are ANDS and not ors. Having separate attorneys will significantly help in making sure that each party is being equally and fairly represented, and having a family law attorney draw up the premarital agreement will make an important difference. There are nuances to family law that can easily be missed and should definitely be included in a valid prenup.
"It's important to make sure your legal rights are covered", explains Kunz, "and sometimes, if one party doesn't have legal representation, they might agree to grossly unfair provisions, which puts the agreement in jeopardy of possibly being declared invalid by the court. You want a family law attorney assisting you, because they understand the future value of the contract and what turns your situation can take in case of a divorce," she adds.
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Reasons For Getting a Prenup
Prenuptial agreements may be appropriate in a variety of situations, including spouses who have acquired substantial assets before marriage (either through their own earnings or inheritance), spouses who have previously been divorced and want to reduce the financial uncertainty another divorce may bring and spouses with children from prior relationships.
Generally, some of the reasons to enter into a prenuptial agreement are:
- To protect one spouse from taking on debt from the other spouse - if your spouse just started a new business and took on a considerable loan to get it off the ground, then you might not want that debt divided in case of divorce.
- To protect certain assets (including inheritance) that belong to one party - these are also called "pre-marital property" and, in most cases, the assets remain in the possession of the spouse who brought them into the marriage.
- To protect income and/or avoid paying alimony (also known as spousal support or maintenance) in the event of divorce.
- To simplify, and control, the division of property in case of legal separation or divorce.
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What Can and Cannot Be Included in a Prenup
As mentioned above, a premarital agreement is a financial contract more than anything else, so it deals mainly with the division of money and assets in the event of a divorce or legal separation. To that effect, even before finding a prenup lawyer, it is prudent to know the basics of what can and cannot be included in the agreement.
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CAN Be Included
- Division of Property: This is applicable in case of separation, divorce, or death and makes the distinction between marital and premarital property. The term property is defined by the Illinois Uniform Premarital Act as "an interest, present or future, legal or equitable, vested or contingent, in real or personal property, including income and earnings".
- Rights to Property: The prenuptial agreement may include provisions for the right to "buy, sell, use, transfer, exchange, abandon, lease, consume, expend, assign, create a security interest in, mortgage, encumber, dispose of, or otherwise manage and control property".
- Modification or Elimination of Spousal Support: A prenup can remove or limit the amount of alimony one spouse can get upon divorce.
- Children from Previous Relationships: A prenup can have provisions that ensure your children from previous relationships still inherit some of your property.
- Family Property & Estate Plans: You can decide to keep family heirlooms or inheritance within the birth family, or make provisions for the estate plan to be carried out as you wish (although other documents are necessary in this case as well, such as wills or living trusts).
- Financial Responsibilities of Spouses: There's many financial aspects you can include, such as:
- income, deductions, and claims tax returns
- retirement benefits
- separate businesses
- management of joint bank accounts
- savings contributions
- investment arrangements
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CANNOT Be Included
- Child Support or Custody: No matter what you would like to put in a prenup, a child will always be considered a ward of the courts and a judge will always look to protect them.
- Financial Incentive for Divorce: Any provision that can be read as encouraging divorce will be set aside by a judge.
- Personal Matters: Premarital agreements are designed to deal with financial matters, so issues like what name to use, how to raise a child, or where to spend the holidays cannot be included
- Anything Illegal: The prenup cannot include anything that is in violation of public policy or a statute imposing a criminal penalty.
