The Foundational Investor
Prenuptial Agreements: Understanding the Options
Historically, prenuptial agreements have carried a bit of cultural baggage. They’ve often been associated with solutions to problems only the ultra-wealthy face. And there are plenty of TV shows and movies that paint prenups as a clear sign that one partner doesn’t trust the other or isn’t fully committed to the marriage. Even outside of scripted dramas, discussing the possibility of divorce while planning a wedding could feel unnecessarily pessimistic and decidedly unromantic.
That perception appears to be changing, and perhaps for good reason.
Recent reporting suggests that younger couples—particularly millennials and Gen Z—are embracing prenups at higher rates than previous generations. Several factors are driving the trend. Divorce no longer carries the stigma it once did, people are marrying later in life with more established careers and assets, and many couples value the transparency and clearly defined expectations that a written agreement can provide.
Prenuptial agreements aren't necessary for everyone, but they offer several benefits worth considering. Whether you're getting married for the first time or tying the knot again, it's worth considering how a prenup might fit into your broader financial plan.
What is a Prenuptial Agreement and How Does it Work?
A prenuptial agreement is a legal contract couples sign before getting married. It spells out how certain financial matters will be handled during the marriage and what happens to assets and debts if the marriage ends in divorce or death.
A prenup can address issues such as:
- Which assets will remain separate property
- How property acquired during the marriage will be treated
- Whether either spouse is entitled to spousal support
- How the couple will manage existing or future debts
- How ownership interests in a business will be handled
For example, someone who founded a business before getting married might want to clarify that ownership of the company remains separate property, while establishing how future growth in its value would be treated.
Prenups are not a free-for-all, however, and rules about what can be included in a prenup vary by state. They typically can’t determine child custody of children or set child support parameters. Courts prefer to base those decisions on the child’s best interests at the time of divorce. Courts may also refuse to enforce provisions that violate public policy or are deemed grossly unfair.
For a prenup to be enforceable, each person needs to enter into it voluntarily, make full financial disclosures and have sufficient time to review the agreement before the wedding. Prenups signed under pressure, or without the opportunity to get independent legal advice, are vulnerable to challenges later.
Benefits Beyond Divorce
It's easy to think of a prenup as something that only matters if a marriage ends. Popular culture has reinforced that perception for years. In reality, many of its benefits can be felt throughout a successful marriage.
One of the biggest advantages is clarity. Couples often enter marriage with different financial circumstances, and a prenup can establish expectations before misunderstandings arise.
For example:
- One or both partners may have accumulated significant personal or business assets before the marriage and want to distinguish them from marital assets.
- Someone expecting a substantial inheritance may wish to preserve those assets as separate property.
- A partner with significant student loan debt may want to clarify responsibility for those obligations.
Rather than assuming how these situations might be handled later, a prenup allows couples to make those decisions together while relationships are strong.
Prenups can be especially valuable for blended families. Someone entering a second marriage, for instance, may want to leave certain assets to children from a previous relationship while ensuring newer family members are financially secure. When coordinated with an estate plan, a prenup can help clarify those intentions and reduce the potential for family disputes later.
Sparking Conversation
The conversations that go into creating a prenup may be more valuable than the document itself. In fact, some younger couples view prenups less as a contingency plan for divorce and more as an opportunity to discuss money openly before marriage.
Creating a prenup typically requires both partners to disclose their assets, debts, income and financial expectations. That provides the transparency necessary to think through questions like: How will household expenses be divided? Will one spouse pause a career to raise children? How should inheritances be handled? What financial goals matter most? These are important discussions to have whether you plan to sign a prenup or not.
While financial matters remain the primary driver of prenups, attorneys report that people are getting creative with what they include. Some couples include provisions about pet ownership, the handling of frozen embryos and confidentiality or nondisclosure expectations. Not all of these provisions may be enforceable, but the trend reflects a broader shift toward viewing marriage as a partnership where expectations can be discussed explicitly rather than assumed.
Is a Prenup Right for You?
A prenuptial agreement isn’t necessary for every couple. But it’s more than an exclusive tool for the ultra-wealthy. It’s a powerful planning tool to help navigate potentially complex financial situations, including student debt, blended family arrangements, entrepreneurial ventures and later-in-life marriages. Used appropriately, a prenup can provide clarity, protect both spouses and encourage honest conversations about money before they become more difficult.
If you’re wondering whether a prenuptial agreement may be right for you, please reach out. We’re happy to go into more depth about its capabilities and limitations and help you figure out what it can—and can’t—do for you.
Let’s get back to basics!
Learn more about Kimberly Hamlin
Hello! I’m Kim, a wealth advisor at Allodium Investment Consultants, located in Minneapolis, MN. I strive to provide an amazing experience for clients and help them find financial freedom so they can live their lives to the fullest. My passion is to simplify complicated financial concepts through clarifying the fundamentals. In my free time, you will find me spending time with my husband, Tyler, and son, Luke. We love underwater scuba diving, watching our son play sports, and tending to our flower garden.
The information provided is for educational purposes only and is not intended to be, and should not be construed as, investment, legal or tax advice. Allodium makes no warranties with regard to the information or results obtained by its use and disclaim any liability arising out of your use of or reliance on the information. It should not be construed as an offer, solicitation or recommendation to make an investment. The information is subject to change and, although based upon information that Allodium considers reliable, is not guaranteed as to accuracy or completeness. Past performance is not a guarantee or a predictor of future results of either the indices or any particular investment.