Should You Get a Prenup?

Nearly 20 years ago, only 5-10% of U.S. marriages had a prenuptial (prenup) agreement. Today, that number has jumped to 40%. 

Prenups aren’t just for the rich or celebrities anymore. One of the reasons for the prenup uptick is due to the trend of couples waiting longer to get married. As a result, folks are more established in life when it comes to building wealth. They’re earning higher salaries and have had more time to build up their net worth by accumulating assets such as rental properties or by saving up meaningful sums in their retirement accounts. In addition to physical assets, some prenups are being created for intellectual property and future businesses too.

The mindset of a prenup has morphed so that the agreement serves as an “investment” or even “insurance” which can help reduce potential financial disasters in the future. Basically, if the marriage doesn’t work out, people don’t want to lose what they’ve worked hard to build.

Experts agree a prenuptial agreement can actually be a smart investment, not only because it maps out a couple’s finances, but because it can circumvent a costly and contentious divorce if the marriage ends.

Fun fact: MacKenzie Bezos received $38.3 billion in her divorce settlement from Amazon founder Jeff Bezos. It’s the largest divorce settlement in history. 

What is a Prenup?

A prenuptial (or antenuptial) agreement is a contract between two people who plan to wed each other. It’s a legal document that couples secure prior to tying the knot that determines the division of property in case the marriage ends in divorce or death of one of the parties. It can also be used to protect one spouse from another’s debts.

For centuries prenups have been used by couples who desire to establish the terms of a potential divorce before they walk down the aisle.

In most cases, a prenup doesn’t include assets acquired during a marriage. You’ve willingly entered into a union and what is yours legally becomes your spouses. As a result, the concept of millennials to include ideas (or assets) they may invent in the future has presented a challenge for lawyers.

The laws regarding what you can and can’t include and what happens to the assets you accumulate during marriage differs based on what country you live in. Additionally, the rules can differ in the U.S. based on the laws of each state.

Fun fact: Marital contracts date back to ancient Egypt. One of the earliest known prenups is over 2,000 years old.

Pros and Cons of a Prenup

PROS:

Hopefully if you draw up a prenup it never gets used because you stayed together for the next 1000 years (that’s the plan I have with my wife). But if that doesn’t turn out to be the case, you’ll be glad that you carved out some of those important things beforehand. Here are some potential pros to agreeing to a prenup:

• Creates a division of assets
• Protects you from taking on your soon to be spouse’s debt 
• Becomes more potentially helpful when getting married later in life as you’ve most likely generated more wealth and assets
• Makes the divorce process a little less stressful 
• Can give you protection and peace of mind 

CONS:

When you get married, you are committing to a lifelong relationship. Granted, that clearly doesn’t always work out. Nearly half of relationships end in divorce. That’s sobering. Here are some potential cons to signing a prenup: 

• Can create distrust and lead to hurt feelings. 
• Can feel transactional 
• Can kill the romance of a marriage 
• They can be quite expensive to create
• Terms may favor one spouse 

When a Prenup Makes Sense

If you are contemplating a prenup there are several scenarios that can prove the decision beneficial. Below are some situations when it might make sense to sign on the dotted line: 

• Existing kids or past marriages
• Big wealth on one side
• Big debt on one side
• One or both parties own a business
• Protect a big, expected inheritance
• Live in a state that doesn’t recognize split assets
• Keeping personal lives private
• One party plans on being a stay-at-home parent

There are several other reasons to consider a prenup. Getting divorced without a prenup can damage your credit. For example, if you’re burdened with alimony, your spouse’s debt, and have to pay child support (in addition to your own living expenses), how much money you have to pony up each month can add up quickly. If you are unable to pay, your credit score will ultimately get dinged.

When a Prenup Doesn’t Make Sense

Although signing a prenup could prove valuable for some couples, it might not be beneficial for others. Here are some circumstances when it might not make sense to obtain a prenup: 

• No current wealth/debts (everything made in new marriage will be split anyway)
• If it’ll ruin the relationship
• Costs too much (and protects nothing)
• If you and your partner don’t intend to add assets
• If it only benefits one side
• Makes you think less of your spouse 
• If you and your partner don’t believe in prenups
• You can always get one later – see postnup below

What is a Postnup?

While postnuptial (postnup or post-marital) agreements are less common than prenuptial agreements, they are becoming more popular as people’s views of marriage have evolved. The obvious difference between the two agreements is that postnups occur during the marriage.

Additionally, a postnup defines the responsibilities surrounding any children or other obligations for the duration of the marriage. Postnups are equally as enforceable as prenups.

When a Postnup Makes Sense

There are several situations when considering a postnup might make sense. Below are a few to consider: 

• Regret not signing a prenup
• One spouse plans to start a business
• Financial circumstances have changed
• Protecting an inheritance
• One spouse stopped working during the marriage
• When spouses have children from a previous marriage
• Can help with estate planning 

How Much Do Prenups Cost?

The average prenup nationally costs $650. But, it can vary widely depending on the state you live in, and how detailed the contract is. For California, the average price is $950. And in some circumstances where there is significant wealth on one side, it can cost up to $10,000 or more to draw and solidify contracts.

In any case, the price of a prenup is usually significantly lower than what you would have to pay lawyers in a lengthy divorce case. If you want to go cheap you can find a prenup form on a site like Rocket Lawyer and create your own. 

HelloPrenup.com is an interesting site that helps you create a state-compliant legal document and seems like a solid middle-of-the-road choice, but it will set you back almost $600. Still, for protection and peace of mind, plus the fact that they seem to have a helpful process that seeks to protect both parties, this could be a great solution.

The Bottom Line: Should You Get a Prenup?

In some instances signing a prenup isn’t a bad idea. However, prenups certainly aren’t a necessity for everybody.

In cases of couples who possess significant financial assets on either or both sides, a prenup might be in their best interest. Without one, if there is a divorce, one party could lose what was theirs to begin with. A general rule of thumb is that if you have $100,000+ in assets you should at least consider a prenup.

Student loan debt, or significant amounts of consumer debt, are reasons to strongly consider a prenup. Since millennials have incurred more student loan debt than previous generations, any couple with high debt levels or who believes they will take on additional debt should also consider a prenup.

Whether or not you opt for a prenup, it’s important to be generous with one another inside of marriage. Even if you create hard boundaries inside the prenup, those rigid financial divisions inside of marriage don’t engender trust and it’s not the best recipe for a healthy relationship. 

It’s important both financially and relationally to work together to achieve debt payoff and future investing goals! Merging finances can strengthen a partnership, and keep you on the same page.

And more than anything, we hope you find these conversations about money prior to marriage to be a chance to strengthen what you have been building. Go in with that positive mindset and a prenup might actually end up being a healthy endeavor!

**Feature pic by Peter John Manlapig on Unsplash