When two people come together and get married, the air is filled with the promise of a long and happy life. You and your significant other probably spend your time dreaming on the home you will someday build and decorate together, the family you will have and the large network of friends you will enjoy until you fade off into the sunset of old age, hand in hand. It’s a beautiful dream that all too often turns into a nightmare. Speaking realistically around half of all marriages fail, and when it goes down it usually isn’t pretty. One of the ways people try to prepare for problems is by drawing up a prenuptial agreement. It’s not a guarantee of divorce, but rather a rational way to set expectations and draw monetary ground rules each party will follow during the legally binding partnership of marriage. But will a prenup decrease the financial risks of marriage?
It really depends on how your draw it up. Some people skip out of the time, expense and emotional stress of the prenuptial agreement because they don’t have a ton of assets. They share everything with their significant other, and simply don’t think it will be an issue. But the prenup also covers what would happen in the case new debts are accrued. Without a prenup determining anything else, whatever debt either party collects during the marriage would be split in half if the marriage were to dissolve. So if your spouse takes out a car loan, you would be held responsible for half of that debt, even if he gets to keep the car entirely to himself. If your significant other goes to school to further her career and chalks up a bunch of student loans you’ll be left paying the government half of that bill after a divorce. You are financially damaged, even though you’ve received none of the benefits of increased earning potential your ex has with that new degree. So the prenup doesn’t only protect your assets, but defends you from debts as well.
The prenup is also there to mitigate the risk of losing future earnings. Another reason people skip out on the prenuptial agreement is because they think these agreements are only for the rich. What they forget is that your financial situation is fluid and may not be the same five, ten or twenty years down the line. In many cases the hard work you put in now will pay off later in life, and you will be much wealthier at some future point. So what if you get divorced when you are finally reaping the benefits of all of that effort? Without a prenup at least half of that wealth can be taken away from you. This is almost always the ruling when the money was made during the marriage. So even though you might not have assets to protect now, that prenup will protect the risk of losing future assets.
Although you might never have considered it, there are financial elements of a prenuptial agreement that have nothing to do with the possibility of divorce. One of these issues is estate planning. You work your whole life in order to leave a nest egg to your children, and chances are you’ve got some very specific ideas about how you want that nest egg disseminated. Without a prenuptial agreement your spouse could change your plans based on some random statistics she read over at this site or that blog. If you want to guarantee that your estate plans are followed you can build them into your prenuptial agreement. You don’t even have to have the wealth you are referencing yet. But those future plans will be set, and you can rest assured your hard-earned money won’t be at risk.