As a family law practitioner, I am often asked about prenuptial agreements from family and friends. I use the word “asked” loosely, because the conversation frequently turns to an opinion based on misunderstandings of what these agreements do and who they benefit. Hollywood movies of the bride being asked to “sign away her rights” a mere 5 minutes before she’s about to walk down the aisle in her beautiful wedding dress have led to a belief that if someone asks for a prenuptial agreement, it means they anticipate a divorce. The other misconception is that a prenuptial agreement is only needed if you’re a celebrity or have large amounts of assets.
As beautiful as a wedding ceremony may be, a marriage is very much a contract; when you say “I do” you are not only agreeing to love each other until death do you part, you are agreeing to be bound by the Pennsylvania Divorce Code in the event the marriage ends. A marriage is a business partnership just as much as its “everlasting love.” Just as a well-structured business plan provides for what will happen in the event of a dissolution, a prenuptial agreement serves a similar purpose when entering a marriage. Having a written agreement concerning what the marital estate will consist of and how it will be divided can save literally thousands of dollars in legal fees if the marriage ends. This in turn, makes an amicable divorce much more likely, which ultimately benefits all parties. Prenuptial agreements are actually among the work I love the most, because it allows the couple a chance to mindfully discuss how their marriage will operate.
There are distinct categories of people who particularly benefit from a prenuptial agreement, which I will discuss in detail (and none of them are celebrities!).
You were already married and divorced once. If you were previously married and that marriage ended in divorce, you probably experienced a substantial loss of assets. You may have transferred a 401(k) to your spouse or given your spouse all of the equity in your former home, or your spouse may begin receiving a large part of your pension once you retire in several years. Even though you have already divided your assets once, any contributions to your existing 401(k) will once again be considered part of the marital estate. A prenuptial agreement excluding individually owned assets from the marital estate can preserve what you have an allow you to rebuild wealth.
For the spouse who received a large amount of funds or assets from a divorce, you may not want them to suddenly become marital. This is likely to happen if you received your former marital residence, your new spouse moves into it with you, and its value increases substantially during the marriage. You may not want to once again discuss how the value of that home will be divided.
You have children from a prior marriage or prior relationship. Even if you are not concerned about your own finances in the event of a divorce, it is worth considering whether you will have sufficient assets to protect your children in the future. Often in a divorce, both spouses lose money or security, and that means any children you have from a prior relationship have lost the same security. Defining assets that will strictly be “yours” rather than “ours” allows you to draft an estate plan in a way that will protect and provide for your children should you pass away.
You own a business. While you may assume your business isn’t worth much, think of the following scenario: you started a cleaning business back in 2019 and were doing well with only a handful of regular clients. Ordinarily, you may think an operation like this has minimal (if any) value because your revenue is based on goodwill and your relationships with your clients. Enter 2020 and 2021, where everybody wants high quality cleaning services, your clients keep giving out your name as someone who does excellent work, and now you’re purchasing more equipment and hiring staff and running an extremely lucrative business. In a divorce, the marital value of your business will be counted in the marital estate, even if you were the only one involved in its operation. This may ultimately mean that in a divorce, your spouse is awarded a substantially larger portion of your 401(k) to offset the value of your business. A prenuptial agreement allows you to exclude your business as a marital asset.
You have the potential for a substantial increase in wealth. Think of a situation where a newly minted doctor just graduates from medical school. Initially, that doctor will be under a mountain of student loan debt and working hours that seem impossible. After residency though, that doctor is now a world-class surgeon making half a million dollars a year. If the couple separates, the doctor spouse may be required to pay a substantial amount in support to the other using a formula calculated by Pennsylvania. There are numerous reasons why someone may not wish to do this, which include fear of having to suddenly change one’s own lifestyle to afford it, or because the other spouse is financially secure as well and does not have a “need” for such a large amount. Prenuptial agreements can lay out whether support will be paid, how much will be paid, and how that amount will be calculated. It can offer a more flexible arrangement than what is provided by Pennsylvania.
These are only a few of the scenarios where someone entering marriage may want to consider a prenuptial agreement. A well-drafted agreement can protect you and your assets in ways that may not be possible with standard equitable distribution.