We Are Getting Engaged! Should We Sign a Prenup?

The holiday season can lead to wedding bells for a lot of Maryland couples. Christmas, New Year, and Valentine’s Day are some of the most popular times of year for couples to get engaged. If your fiance “popped the question” or you have decided to take your relationship to the next level, you may have questions about how this can affect your financial future, including the question -should we sign a prenup?

What is a Prenup?

“Prenup” is short for prenuptial agreement (also called a premarital agreement or antenuptial agreement). It is a contract entered into by an engaged couple “in consideration of” their future marriage. The terms of a prenup can:

• Lay out a plan for family finances, including household assets and liabilities during the marriage
• Resolve issues of alimony and property division in the event of divorce
• Guide estate planning and administration of either spouse’s affairs after their death

Most often, a prenup will describe the assets and liabilities each spouse will bring to the marriage, and determine whether those assets will be considered marital or separate property going forward. Marital property can be divided by the courts during divorce, and often passes to the surviving spouse upon death. Separate property is held individually, and will generally be excluded from any property division as a result of divorce. Separate property, as determined by a prenup, can also be left to children or other beneficiaries free of any claim from a surviving spouse.

Is a Prenup Necessary?

The romantic rush following a marriage proposal doesn’t easily lend itself to legal questions and property discussions, which can often feel like “divorce planning.” Many couples get married without giving any consideration to whether or not they should sign a prenup. If you and your partner are young adults without many assets, that may be appropriate, since it is likely that your wealth accumulation will be a result of shared effort during the marriage. However, there are several reasons why a prenup can serve as a useful financial planning tool, including to:

• Shield assets owned individually, prior to the marriage
• Protect shares in a closely-held business or family trust
• Provide for children from prior relationships
• Guide future estate planning
• Opt out of certain Maryland divorce and intestate succession laws that would otherwise apply by default upon marriage

The more complicated your family history or financial portfolio is at the time of your marriage, the more likely it is that both you and your spouse would benefit from entering into a prenuptial agreement and having the planning discussions that entering into such an agreement entails - before you walk down the aisle.

Who Should Sign a Prenuptial Agreement?

Many people don’t like the idea of entering into a prenup, because they think it will increase the likelihood of divorce and also sends a message to their future partner that they don’t want to work together as a financial unit in the future. Obviously, a long and happy marriage is always the goal. The process of creating a prenuptial agreement and the open and honest financial disclosures that the negotiation of a prenuptial agreement will require, can actually establish a helpful pattern of open financial communication early in your relationship. To prepare and sign a prenup is not a divorce backup plan, instead it is a planning tool that will require you to make affirmative decisions to share assets and wealth that is accumulated in the future. If you want to share, a creative prenuptial agreement can describe the exact way that finances (assets and debts) will occur during your marriage and in the event of death or divorce. In the absence of a prenuptial agreement, there is uncertainty as to sharing and default state laws will apply.

A lot of people assume that prenuptial agreements are only beneficial for wealthy people with considerable assets. It’s true that high-net-worth couples have more assets to protect and may get more benefit from a carefully negotiated premarital agreement. However, many couples can benefit and you may have much more in the future than you have now, including:

• Parents of children from prior relationships
• Future homemakers and stay-at-home parents giving up careers to support a family
• Business owners whose partnership agreements contain forced buy-back provisions
• People with difficult family histories or estranged relatives
• Individuals who want to reduce conflict and keep control over their assets during the marriage, but also in the event of death or divorce

If you or your spouse fit into any of these categories, it’s a good idea to talk to a Maryland family law attorney now to see if you could benefit from signing a prenuptial agreement.

What to Know Before You Sign a Prenup

One thing most people don’t realize about premarital agreements is that there must be certain advance asset disclosures and the creation of a thoughtful, future looking financial planning document takes time. There are many stories of last-minute prenups signed on the church steps in the hours before the wedding. This is not the way to go. If a person does not have time to consider and negotiate the terms of a prenuptial agreement, that lack of time could serve as a basis to challenge the validity of the agreement once signed.

In Maryland, in order for a premarital agreement to be enforceable, it must avoid “overreaching” and can not be unfair or inequitable in either its terms or how the contract was signed. Both parties must sign the document “freely and understandingly.” The best way to ensure your prenup will be honored is to:

• Have frank discussions with your fiance about financial expectations and the reasons why a prenup can serve this purpose (these conversations can be had with the help of a marital counselor or religious leader)
• Hire separate attorneys to represent each party, explain their rights under Maryland divorce and estate law, and negotiate the terms of the agreement
• Disclose and document the estimated value of each party’s real, personal, and business property, earnings, and pre-marital debts
• Make sure the benefit either party receives from the Agreement is reasonable consideration for the rights each party is waiving
• Account for the unexpected, including either spouse’s future inability to work
• Make additional information about assets available when asked
• Provide the document to your fiance and their attorney as far in advance of the wedding as possible, so there is time for negotiations and revisions (months, not weeks)
• Consider your agreement to be a “living” document and active financial planning tool for your marriage. Don’t put it in the filing cabinet and forget about it.

It can, and often should, take multiple drafts of a prenuptial agreement to make sure everything is covered, all the appropriate information has been disclosed, and both spouses’ interests are honored. If you are wondering if you are a good candidate for a prenup, you should speak with a Maryland family law attorney soon after you are engaged to gather information and start the process - long before the other stressors of wedding planning might otherwise interfere.

At the Law Office of Shelly M. Ingram, our family law attorneys want to help you decide whether you should sign a prenup, and ensure your interests are protected if you do. We treat prenuptial agreements as a tool to build better relationships now and an opportunity to protect our clients’ interests and those of their children now and in the future. We can help you negotiate the terms of your prenuptial agreement and go through all the appropriate steps to make sure that the contract will be honored in the future. If you are getting married, or have received a draft prenuptial agreement from your fiance, call (301) 658-7354 or contact us online to schedule a consultation with an attorney.