You Get the Tesla, I’ll Take the Beach House

Times have changed and prenuptial agreements are becoming more popular for everyday couples and not just the wealthy. When people do decide to take the plunge, they are doing it when they are older and more established in their careers. This translates into more assets to potentially protect when they get married. Broaching a prenuptial agreement with one’s partner was once thought to be verboten, but increasingly today’s couples are more than okay with the idea. 

A New York prenuptial agreement is a signed contract between future spouses. Beforehand, each sets out in detail everything they have that is worth something financially. Then together and ideally with the help of respective attorneys, they decide how the property and finances will be distributed during the marriage and how they will be divided up in the case of divorce or if one or both of them dies. 

To be seen as legitimate, the prenuptial agreement has to be fair and equitable. It’s also essential that  both parties be totally honest with their disclosures. If the agreement tilts too heavily in favor of one party over the other, the court could choose not to enforce it. Springing an agreement on someone or exerting pressure to sign it could also doom the prenup’s validity.

It’s smart for each future spouse to have their own attorney. Even though it may feel more adversarial to do so, each party wants to be sure that their short-term and long-term interests are protected. 

What’s Mine is Yours? Well, it Depends

There are myriad reasons that people would seek a prenup. They make good sense for those who have serious wealth, are part of a family business or own their own business. 

Let’s say John and Mary get engaged. Mary is an investment banker and John is a school guidance counselor. John has a grown child from a previous relationship. Mary also has a $3 million dollar trust fund from which she receives payments. She also anticipates inheriting a considerable amount of money from her parents after they die. 

John has amassed a bit of student debt from his undergraduate and graduate education. He inherited the house that the couple live in from a grandparent and the title is in his name. The couple hopes to have children right away and have decided that when that happens John will quit his job to care for them. 

Both of their parents had tumultuous marriages that ended in divorce and John and Mary have a healthy cynicism about marriage. Mary broached the subject of getting a prenuptial agreement and John was on board. 

Separate Property

Where to begin? The first step is to set aside the property and assets that one wants to keep separate.  Mary wanted to make sure that the trust fund, the appreciation of the fund, and all payments she received and will continue to receive from the trust remained separate and didn’t become marital property. 

Mary also wanted to keep the money she was due to inherit separate as well. Under New York law, inheritances are considered separate property but the money must always be held in Mary’s name alone. Including this provision in the prenuptial agreement would make doubly sure that this separation was intended on Mary’s part.  

By keeping the trust fund and future inheritance separate, Mary could be assured that those funds would remain in her control alone. She could set that money aside for whatever future children she might have and not be concerned that John’s son could eventually have access to it after John’s death. 

It was also Mary’s wish that the school loans that John was bringing to the marriage should stay with him. John wanted the house that they lived in to remain as separate property and in his name only. 

Marital Property

In New York, marital property refers to all property and debt that were acquired by either spouse or both spouses during the marriage. When a couple divorces, only the marital property is divided. Typical marital assets of New York couples are the bank accounts, stocks, retirement accounts, property, art, and jewelry among others. 

But just as you take out property from the marital assets and designate them as separate, you can add separate property into the marital mix. In this case, Mary included her 401(k) and pension as marital property. The two also included the individual bank accounts they brought to the marriage. Usually any money deposited into a joint bank account will be  considered marital property.  

Maintenance or Spousal support 

Prenups can also set out maintenance or spousal support payments in case of a divorce. This is important in situations where one of the spouses stayed home or downshifted their career to take care of the kids.  In our scenario, if John eventually gave up his job and stayed home to take care of the kids, the agreement could provide that Mary would pay John a set amount of spousal support for a certain period of time in the event they divorced. 

When Blended Families Unblend

In this modern era where remarrying and having more children is more common, many choose to use a prenup to protect the interests of their children from previous relationships. In this context, they are seeking to protect the children’s interests in the event of their parent’s death. 

All states protect the property rights of the surviving spouse in the case of the other spouse’s death.  The prenup can state that your children from the previous relationship are entitled to inherit their share of your assets instead of the surviving spouse. This is commonly used in second marriages later in life. When adding these provisions to the agreement, it’s smart to consult with a trust and estates attorney as well. 

Expect the Unexpected

For the pragmatic and practical, prenuptial agreements can act as an insurance policy of sorts on your marriage. Insurance isn’t romantic or exciting, but everyone is happy that they have it when things go wrong.