Introduction

"Prenup" is an informal term for "prenuptial agreement," a written contract created by two people before they are married. A prenup typically lists all of the property each person owns (as well as any debts) and specifies what each person's property rights will be after they are married.

In this chapter, we'll show you how prenups work and what you can accomplish by preparing one. We'll also explain the steps involved in making a prenup—from deciding whether or not you really need one to finalizing a binding contract.

How Prenups Work

People have been making prenuptial agreements for thousands of years. Scholars tell us that the practice dates back to the ancient Egyptians, and that prenups have existed for many centuries in Anglo-American tradition. In previous times, the parents of the bride and groom negotiated the agreement on the new couple's behalf. These days, engaged couples do their own negotiating, although family members often exert influence behind the scenes (especially if family money is involved).

Contrary to popular opinion, prenups are not just for the rich. While prenups are often used to protect the assets of a wealthy fiancé, couples of more modest means are increasingly turning to them for their own purposes. For example, a marrying couple with children from prior marriages may use a prenup to spell out what will happen to their property when they die, so that they can pass on separate property to their children and still provide for each other, if necessary. Without a prenup, a surviving spouse might have the right to claim a large chunk of the other spouse's property, leaving much less for the kids.

Couples with or without children, wealthy or not, may simply want to clarify their financial rights and responsibilities during their marriage. Or they may want to avoid potential arguments if they ever divorce by specifying in advance how their property will be divided. Prenups can also be used to protect spouses from each other's debts, and they may address a multitude of other issues as well.

Exactly what you decide to do with your prenuptial agreement depends on your particular circumstances and wishes. But before getting into the specifics of what you want to accomplish with a prenup, it's wise to have a basic understanding of what you're doing when you make this type of contract. To put it briefly, you're deciding how you each want your property to be treated—during your marriage, when you divorce, or when one of you dies—rather than letting your state's law make these decisions for you.

1. Making Your Own Rules

If you don't make a prenuptial agreement, your state's laws will determine who owns the property that you acquire during your marriage, as well as what happens to that property at divorce or death. (This property is known as either marital or community property, depending on the state. We explain these terms in more detail in Chapter 4 and on the CD-ROM at the back of the book.) State law may even have a say in what happens to some of the property you owned before you were married.

Under the law, marriage is considered a contract between bride and groom, and with that contract comes certain automatic property rights for each spouse. For example, in the absence of a prenup stating otherwise, a spouse usually has the right to:

• shared ownership of property acquired during marriage, with the expectation that the property will be divided between the spouses in the event of a divorce or at death
• incur debts during marriage that the other spouse may have to pay for, and
• share in the management and control of any marital or community property, sometimes including the right to sell it or give it away.

So what do you do if some of these laws—called marital property, divorce, and probate laws—aren't to your liking? Enter the prenup, which in most cases lets you decide for yourselves how your property should be handled.

As part of making your prenup, you'll review your state's laws to see how your own preferences for property ownership, division, and distribution compare with the state's rules. If you find that state law already provides the type of property treatment you wish, there may be no need to make a prenup. But if you find that the state's plan won't meet your needs, you'll probably want to go ahead and craft your own agreement. (In Chapter 4 and on the CD-ROM, we discuss state laws in more detail and tell you how to find the laws for your state.)

Head off disputes by making a prenup if your state's law is unclear. When you familiarize yourself with the laws of your state, you might feel that they'll work just fine for you. But keep in mind that the law isn't always clear or predictable. Going without a prenup can increase the likelihood that there will be contentious and expensive court battles at the time of a divorce or even after death. Often, the law says something that seems straightforward enough at first glance, but it turns out that there's room for argument on the finer points. If you agree in advance on a fair approach to things like separate vs. shared ownership of property and inheritance rights of the surviving spouse, you can save yourselves and your inheritors the risk of legal expense, uncertainty, and acrimony by making a prenup.

2. What a Typical Prenup Covers

Every prenup is unique to the couple that signs it. However, to introduce you to what a prenup can include—and what you might accomplish with yours—this section offers a list of typical prenup provisions.

Most prenups begin with a brief description of each party's circumstances—such as age, occupation, any children, and maybe even intentions for future employment or education. And prenups almost always include disclosures of both parties' finances—that is, assets, liabilities, and incomes. (These disclosures are usually attached to the end of the prenup as separate lists.)

Beyond that, what appears in the contract depends on your preferences. Here are some provisions that couples commonly include:

• A provision that each spouse's separately owned property will remain his or her sole and separate property during the marriage. (Sometimes this refers only to assets owned before the marriage, but it can also include property acquired during the marriage, especially gifts and inheritances.)
• A provision confirming that each person is responsible for his or her own premarital debts.
• A waiver of the surviving spouse's legal right to claim a share of the other spouse's separate property at death.

Here are some other typical but less common provisions:

• A provision that all property acquired by a spouse during marriage will be his or her separate property, and that there will be no marital or community property to be divided in a divorce or upon death.
• An exchange of property for the waiver of property rights, sometimes including one or more of the following:

1. payment of a certain amount of money (either right away or according to a specified timetable)
2. life insurance coverage, or
3. establishment of a trust for the spouse who is giving up his or her rights.

• A provision spelling out how property will be divided in the event of a divorce.
• A provision requiring each party to sign documents after the marriage reaffirming any waivers contained in the prenup. (This usually applies to waivers of rights to retirement benefits or an interest in real estate.)
• A provision specifying how household expenses will be paid.
• A provision that the agreement will automatically terminate on a certain date in the future, often called a "sunset clause."

Some prenups also include provisions that are enforceable in some states, but not in others. The most notable examples are provisions waiving alimony if there is a divorce or legal separation, and the so-called "bad-boy" (or bad-girl) clause requiring financial compensation if one party is caught cheating on the other.

In addition to the typical provisions, many prenups contain terms that are tailor-made to the couple's circumstances. For example, there might be an agreement that the couple will own a home in certain percentages, or perhaps the couple will promise to take turns supporting each other while obtaining an education.

Finally, every prenup contains standard clauses that go into all agreements of this kind. Lawyers often call these clauses "boilerplate" (a newspaper term referring to preset or syndicated features). The boilerplate in a prenup would most likely include clauses naming the lawyers who represented each party, a statement about who prepared the agreement, the agreement's binding effect on the couple and their inheritors, which state's law will apply in any legal dispute over the agreement, and other terms relating to the legal interpretation or enforcement of the agreement.

This material is just to get you started thinking about the issues that might be involved when you set out to make a prenup. In Chapter 2, we discuss in much more detail what a prenup can—and can't—do. And in Chapters 5 and 6, we provide plenty of sample clauses that you can include in your contract.

How to Make a Prenup

From getting started to getting married, there are eight basic steps to making a prenup. Here, we introduce you to each in turn, and explain how this book helps you along the way.

1. Start Early

Begin planning for your prenup as soon as possible—at least three months before the wedding. If you wait until the last minute, you may not have time to decide what you want and get it done in time. (An agreement signed after the wedding is not a prenup. It is a post-nuptial—or postmarital—agreement, and is covered by more stringent legal rules. See Chapter 9, Section F.)

Plan to sign your prenup about a month before the wedding. The closer you get to that all-important day, the more likely it becomes that your agreement won't stand up in court later.

Before signing, you should allow a couple of months—or longer, if you can—for talking together and figuring out the details of your agreement, getting it reviewed, and putting it into final form for signing.

Although it's possible to plan and finalize a prenup in less than three months, moving too fast will add unneeded stress and could doom your efforts to create a clear and fair agreement.

A premarital agreement is a binding legal document. It's true that some prenups get thrown out of court because they were signed at the last minute, but that doesn't mean yours will be. If you have reservations about a proposed agreement, don't sign it with the hope that you can get out of it later. You never know exactly what a particular court or judge might do.

2. Decide Whether You Need a Prenup

If you're reading this book, you've probably already decided that a prenup is what you want. Even so, it doesn't hurt to take a little time to examine your situation (together, if possible) to figure out if a prenup is what you need. Chapter 2 is devoted to helping you decide whether a prenup is right for your situation.

3. Agree on the Specifics

Once you've decided to go forward, the next step is to figure out exactly what your agreement should say. This involves doing some list making and some soul searching, both separately and together. Clear communication is essential to success in this endeavor, and it doesn't hurt to know a little about constructive negotiating, too. Chapter 3 explains how to decide on the specifics of your agreement, and Chapter 8 offers tips on communicating and negotiating.

4. Create a Draft Agreement

As Chapter 3 explains in detail, you'll almost certainly be better off if you have your final prenuptial agreement written up by a lawyer. A good lawyer can ensure that you put together a contract that meets the requirements of your state and says exactly what you want it to say. In fact, as we explain later, you will greatly improve the odds that your prenup will stand up in court if each of you has a separate lawyer review and sign off on the agreement.

Even if you take our advice and work with lawyers, you'll save expense—and wear and tear on your nerves—by taking the time to write down what you've agreed on. That way, you'll both be in sync on the fine points before you ask a lawyer to prepare the final agreement. You'll also minimize the risk of having a lawyer put together a one-sided agreement that doesn't reflect what either of you wants. You can use your draft to check the lawyer's work, making sure nothing's been missed or misunderstood. Of course, if you elect not to use a lawyer to write up the final agreement, then your draft will eventually become the document you sign.

Chapters 5 and 6 provide a format for your prenup, with sample clauses covering the most common situations and suggestions for customizing your agreement.

5. Write Up the Final Agreement

After you've made a draft agreement, each of you should read it carefully to see whether you need to make changes to it. Once that's done, you'll either prepare the final document yourselves or hire a lawyer to help you; the best way to proceed is to hire separate lawyers for each of you. Chapter 7 takes you through the process of finalizing your prenup, including suggestions for finding good lawyers and tips on how to work with them.

6. Ask Your Lawyers to Review the Agreement

Whether you've prepared the final agreement yourselves or with the help of a lawyer (or two), the next step is to have your separate lawyers review the agreement to confirm that it's legally sound. (We discuss the importance of having separate lawyers review your agreement in the Introduction to this book and in Chapter 7, Section B.)

7. Sign the Agreement

Signing the agreement should be something you remember without regret. Plan to sign at a time when you can pay attention to the moment. If the agreement will be notarized, you'll need to arrange to sign when a notary is available. You may also have to contend with your lawyers' schedules, so it's important to plan ahead. You may even want to make a ceremony out of the event, or you might plan a little celebration afterward—just the two of you. Whatever you do, after the hard work you've done getting to this point, do what you can to make signing the agreement a relaxed and positive experience for both of you. (Chapter 7 provides more details about signing your prenup.)

8. Enjoy Your Wedding

Your wedding day promises to be one of the happiest moments of your life. When you get there, put away this book, file away your prenup, and enjoy the day. Our best wishes will be with you.