When a couple is thinking about getting married, it may seem unromantic to contemplate the eventual end of the relationship through divorce or death by discussing a prenuptial agreement. However, prenuptial agreements offer many benefits and protections for spouses who sign them. A prenuptial agreement is a legally binding contract that couples draft to delineate the rights and responsibilities of each party upon the end of the marriage, whether it be in divorce or death. According to California law, a prenuptial agreement must be in writing and can address any financial issue in the marriage except child support. There are several situations where a prenuptial agreement can make difficult times a little bit easier.
One or Both Parties Have Been Married Before
Often people entering second marriages have assets that they want to preserve for children from the first marriage. A prenuptial agreement can help support an estate plan that distributes one spouse's assets upon his or her death. Even if the spouse writes a will leaving certain things to a child, the surviving spouse is allowed under the law to take an "elective share" of the deceased spouse's assets. Each spouse can waive the right to an elective share in a prenuptial agreement so that the children may inherit in accordance with the parents' wishes.
One of the Parties is a Business Owner
When one of the spouses owns a business with other parties, a prenuptial agreement addressing the other spouse's rights to the shares of the business can be helpful. If a premarital agreement signifies where the business-owning spouse's shares of the business go upon his or her death, it can help prevent the other spouse from unwittingly becoming a partner in the business when the business owning spouse dies.
One of the Parties Has Disproportionate Wealth or Earning Power
If one of the parties enters the marriage with substantially more assets or earns a great deal more, both parties can benefit from a prenuptial agreement. The spouse with more assets or income may include provisions to protect what he or she brings to the union. Alternatively, the spouse with fewer resources may include clauses in the agreement that ensure that he or she will have financial security, should the marriage end.
Similarly, if one of the spouses brings significant debt to the marriage or contemplates incurring a lot of debt during the marriage, a prenup may absolve the other spouse of responsibility for the debt.
Stay-At-Home Parents
A prenuptial agreement can help in situations where one of the spouses anticipates leaving the workforce to raise the couple's children. The couple can decide what kind of financial settlement the stay-at-home parent will receive to ensure that he or she is financially secure in exchange for sacrificing career advancement and earning power from being out of the workforce while parenting.
Couples sign prenuptial agreements for a variety of reasons and signing such an agreement does not imply that the couple is betting that the marriage will fail. As unromantic as it may seem to spell out where the money will go when the marriage is over, doing so before the marriage begins is often a wise decision in the long run.
