Do I Need a Prenuptial Agreement?

Once you decide to get married, you begin a long list of things to do. You need to find a date, a venue, a photographer, a cake. An item that is becoming more common to include on the “to do” list is a prenuptial agreement. Creating a prenuptial agreement may not seem like a romantic thing to do, but in this age of people choosing to get married at a later age or getting married for the second or third time, it can be an important document for your financial future.

What is a Prenuptial Agreement?

A prenuptial agreement is a contract signed by a couple before they enter into marriage with one another. While there are many specific items California prenuptial agreements can and cannot include, this agreement primarily focuses on financial rights and obligations. Typically, it 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.

Pros and Cons of a Prenuptial Agreement

Although prenuptial agreements are becoming more customary, some couples may be hesitant to create one. It may be helpful to consider the pros and cons of a prenuptial agreement.

Some advantages can include:

  • Defines which items or properties each partner will be entitled to in the event of a divorce or separation.
  • Protects the financial stability of your children. Without a prenuptial agreement, your spouse may receive assets you intended your children to have.
  • Help avoid costly litigation costs.
  • Includes special provisions for matters that may be unique to their situation.
  • Addresses how financial debts will be distributed between the couple.

The disadvantages may be:

  • Brings up issues of distrust. A common feeling is that a prenuptial agreement indicates a lack of trust and the possibility of separation or divorce.
  • Creates burdens if circumstances change. People cannot predict everything that will occur in their lives or marriage. Should situations change, the prenuptial agreement can complicate what could have been very simple. Agreements should be updated as your marriage progresses.

Things to Remember

We typically recommend our clients get a prenuptial agreement before marrying. If entering into a financial agreement prior to your marriage, please keep the following in mind:

  1. Start early. Negotiating a prenuptial agreement takes time. California requires that there be at least seven days between when a party is first presented with an agreement and when the agreement is signed.
  2. Step out of your emotions. Think of a prenuptial agreement as being another insurance policy. People buy insurance for their homes although they don’t expect them to burn down.
  3. Discuss both assets and liabilities. Sometimes when couples are getting married at a younger age and haven’t accumulated many assets, they assume there is no need for a prenuptial agreement. A prenuptial agreement can still be important given the amount of student debt many young people have.
  4. Allow for future changes. Marriages can change over time. A good legal document will be able to adapt to these changes. As with estate planning documents, it would be good practice to revisit the prenuptial agreement at different intervals during your marriage to see if any changes should be made.
  5. Non-financial considerations. Many prenuptials now include a social media clause which addresses what’s acceptable to share online about each other.
  6. Each person should have their own attorney. Besides being required by law in many states, each person should have their own attorney. This can improve feelings that they each were properly represented.
  7. Disclose all assets and liabilities. Hiding assets and liabilities and not full disclosing all information can make prenuptial agreements void.
  8. Be reasonable. Avoid adding lifestyle clauses which may be unreasonable and/or unenforceable. Lifestyle clauses address non-financial aspects of the marriage such as frequency of vacations, who is responsible for what housework and some even have weight requirements. Celebrities have been making headlines with another kind of lifestyle clause – the infidelity clause which compensates the spouse who was cheated upon. Lifestyle causes can be problematic as they are generally held to be unenforceable in California.

Prenuptial agreements are becoming a common aspect of marital arrangements today, and an important part of your financial planning. If you are thinking of marrying, let us help you decide if a prenuptial agreement makes sense for you.

About Teresa Kakadelas

Teresa Kakadelas, CFP®, CDFA™ is a lead advisor and a member of the firm’s Executive Committee. Teresa heads up the firm’s Financial Planning Team, continually identifying and helping solve financial planning issues for clients. Teresa started the firm’s “Wise Women” luncheons, designed to help clients with financial education. Teresa and her family live in Carlsbad. She enjoys traveling, cooking and spending time with her family.

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