How A Prenup Can Protect Your Investments

Getting married is a major life milestone, but it can also be a big deal for your finances. Marriage can have financial advantages, such as tax benefits and sharing everyday expenses. But if you aren’t careful, things can go awry if the marriage ends prematurely. This is where a prenuptial agreement, or prenup, can help.

This is especially important if you have significant investments. You may have worked for years, or even decades, building out an investment portfolio, and you’re looking to protect it. Fortunately, a prenup can help protect your investments, and other assets. Here’s what a prenup is and how it can protect existing assets.

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What is a prenuptial agreement?

A prenup is a legally binding contract a couple typically enters before a marriage. This contract details how the couple’s assets would be divided if the marriage were to end due to separation, divorce or death.

The specific provisions of the prenup may vary based on the couple’s circumstances. However, they often include division of property, spousal support, debt protection, estate planning and financial responsibilities during marriage.

For instance, the prenup may determine which assets will remain individual property and which will become joint or shared assets. It might also include details about whether one spouse will provide financial support in the form of alimony to the other if the marriage ends.

However, some important items are not typically included in a prenup. For instance, child custody is usually not part of the prenup. These decisions are typically left for a court to decide.

Types of assets covered by a prenup

Married couples may own a wide variety of asset types, both tangible and intangible. Below are some examples of common asset types that might be included in a prenuptial agreement:

Personal property
Items like cars, jewelry and other valuable pieces of property may be included in a prenup.

Real estate
This might include homes, rental properties and land that was acquired before marriage.

Businesses
A prenup might protect one or both spouses if they have a business or professional practice. Specifically, it will detail how their interest in the business will be handled if the marriage ends.

Debt
If one or both partners has debt they acquired before and/or during the marriage, the prenup can help ensure the other partner does not become liable for debts they don’t own.
Future earnings and retirement benefits
The prenuptial agreement might stipulate how future earnings and retirement benefits will be divided between partners.

These are just a few of the most common assets a prenup might include. However, finances can be complex, and many other types may be part of the contract.

How prenups protect existing assets

Prenuptial agreements determine which assets are considered separate property, meaning only one partner can legally claim them. It also outlines which assets are jointly owned by both partners.

One of the most crucial aspects of a prenup is protecting existing assets, such as those listed in the previous section. Those assets that either party owns can be defined as separate in the prenup and will not be divided in the event of a divorce.

There are many examples of legal cases in which a prenuptial agreement protected individuals’ assets. For instance, in Facter v. Facter, a court case from 2013, a court upheld a prenup that protected the husband’s assets totaling about $3 million, which he acquired before marriage. According to the court decision, the wife had ample time to understand the agreement before signing.

Without a prenuptial agreement, state law will determine how assets are divided. Many states have an equitable distribution model, which divides assets fairly, but not necessarily equally. This is why a prenup is important, especially if you have significant investments or other assets.

What about future assets?

Handling future assets can be tricky, even with a prenup. For example, it can be difficult to predict one’s future earnings. In some jurisdictions, a prenuptial agreement may be able to specify if future earnings will be considered marital property or separate property. Similarly, some states and jurisdictions might allow you to determine how retirement accounts and pensions will be divided in a divorce. A postnup, which is drafted after the couple is married, is another good strategy that can protect future assets.

Another future asset might be an inheritance you receive later, which is typically considered separate property. However, a prenup can affirm its status as a separate asset and provide protection in case of a divorce.

Lastly, if one partner plans to purchase real estate or start a business after marriage, a prenup can specify how these will be handled after a divorce.

Bottom line

A prenup can provide protection by outlining which assets are separate, which are jointly owned, and how assets will be divided in the event of a divorce, separation or death. If you have significant assets, such as investment accounts, a prenup can ensure your individual assets won’t be divided in a divorce. Of course, you should seek the appropriate legal advice for help drafting the contract and determining how it should divide your assets.

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