Written By: Susanne Frie

Financial Counselor’s Responsibility 

Our responsibility is to help our clients uncover potential threats to their financial well-being. This article can help equip financial counselors with knowledge to guide their clients in discovering the purpose of a prenuptial agreement, evaluating the pros and cons, and the considerations of what to include.  

50% of Americans Support the Idea of a Prenup but Only 1 in 5 Married Couples Have One 

Americans are waiting until later in life to marry, which means they are accumulating more assets as individuals prior to becoming a couple. These assets include real estate and businesses, along with significant savings and retirement accounts which could all be subject to a financial loss. Financial counselors must impress upon their clients that entering into a marriage is a legal contract and they may need asset protection. Disclaimer: Financial Counselors do not provide legal advice.  This point cannot be stressed enough; unless the financial counselor has current legal credentials, an AFC is not acting in the scope of practice to offer legal advice.  

Hope for the Best, Prepare for the Worst 

As a legal contract made between individuals before marriage, a prenup outlines the division of assets, debts, and other financial matters in the event of divorce or death. It allows couples to have control over their financial futures and protect their assets, addressing potential conflicts and uncertainties, and providing clarity and peace of mind for both parties.  

Pay attention if you have clients in the following nine states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. These states have community property laws, meaning any assets acquired during the marriage are split equally, making a significant difference if the existing or potential future assets are high-value or complex. Although not romantic, think of the expression, “Hope for the best, prepare for the worst.” Remind your clients that although marriage is a beautiful union, it is a legal contract, and if they were to divorce, they could be risking their financial future.  

Does the Following Pertain to Your Clients? 

• Have arguments with their partner due to differing financial views. 

• One or both have significant debt or expect to incur debt during the marriage. 

• One of them owns a business or will be inheriting one. 

• Have children or plan to, with potentially one to be a stay-at-home parent. 

• Have pets together or plan to have them. 

• Own real estate or will acquire property through an inheritance.  

Knowing the Pros and Cons of a Prenup 

A prenup offers several benefits, but also comes with its own set of challenges.  

Benefits 

Asset Protection: Protects assets that each spouse brings into the marriage, including property, investments, businesses and inheritances. 

Clarity and Certainty: Provides clarity and certainty about how assets will be divided in the event of divorce, potentially reducing conflict and legal expenses. 

Debt Protection: Can specify how pre-existing debts are managed, protecting each spouse from being responsible for the other’s debts. 

Preserving Family Wealth: Helps preserve family wealth and assets for future generations by ensuring that they remain within the family in the event of divorce (think blended family). 

Spousal Support Control: Set spousal support (alimony) terms, including the amount and duration of payments, reducing uncertainty and potential conflict in the event of divorce. 

Challenges 

Unromantic Perception: Viewed as unromantic or distrustful, which can create tension or hurt feelings in the relationship. 

Complexity and Legal Costs: Requires careful consideration of legal and financial matters, which can be complex and may incur legal fees for both parties with costs averaging $4000.  

Potential Conflict: Negotiating and discussing a prenup can lead to conflict or disagreements between partners, especially if there are significant disparities in wealth or assets. 

Enforceability Challenges: May face challenges to enforceability in court if they are deemed unfair or if there is evidence of coercion or lack of full disclosure at the time of signing. 

Future Changes in Circumstances: May not account for certain situations, such as career advancements, changes in financial status, or the birth of children, which could render the agreement outdated or inequitable. 

What Should Be Included in a Prenup 

Asset Division: Clearly outline how assets acquired before and during the marriage will be divided. This includes property, investments, businesses, and other valuable assets. 

Debt Responsibility: Specify how debts incurred before or during the marriage will be handled. This can protect one spouse from being held responsible for the other’s debts. 

Spousal Support: Determine whether alimony will be paid, including amounts and duration. This can help avoid lengthy disputes over support payments. 

Inheritance Rights: How inheritances will be handled, whether inheritances received during the marriage will be separate property or marital property subject to division. 

Future Earnings: Consider whether future earnings or potential income from businesses or investments will be included in the marital estate subject to division. 

Custody and Support of Children: A prenup cannot determine child custody or child support, it can address how financial matters related to children will be managed in the event of divorce. 

Pets: Determine who will retain custody of any pets and how expenses related to their care will be handled. 

Dispute Resolution: Include provisions for how disputes regarding the prenup will be resolved, such as through mediation or arbitration. 

Financial Responsibilities: Specify each spouse’s financial responsibilities during the marriage, including how household expenses will be divided. 

Miscellaneous Provisions: Address other issues specific to the situation, such as intellectual property rights, business interests, or special agreements between the spouses. 

Consider the Circumstances 

Couples should discuss their expectations, concerns, and goals openly before deciding to create a prenup. As reported by Axios on 09/24/23, according to the American Psychological Association, the divorce rate for a first marriage is 40-50% and for a second marriage is 60-67%. Consulting with separate legal counsel can help ensure that both parties fully understand the implications of the agreement. Have your clients ask themselves if they would rather pay an average of $4000 for a prenup, or an average of $15,000 for a divorce?