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Prenuptial Agreements and Financial Planning

Emily Koochel May 20, 2022

Prenup Agreement with financial planner assisting
Updated on: November 3, 2023

As the scope of financial planning and advice continually expands, financial planners are likely to come across topics they may not have much familiarity with. One of these topics is prenuptial agreements.

Prenuptial agreements have changed significantly since their advent and they are quickly growing in popularity. In fact, they can be a useful tool for planners to help clients manage assets in the event of divorce or death.

To effectively implement prenuptial agreements for clients, it’s important to understand how they’ve changed, how they can be used, and how you can navigate the emotions of this potentially sensitive topic.

The Evolution of Prenuptial Agreements

Emerging from a union that was largely based on an exchange of property during colonial times to marrying for love in the 20th century, these changes have created lasting effects on our views of courtship and marriage.

As marrying for love came into vogue, traditional rhetoric suggested that when partners marry, they are “becoming one.” But how does this apply to money? Prenuptial agreements, while they may not be seen as romantic, are a highly practical way of helping two partners come together financially.

Contrary to popular belief, prenuptial agreements have been used for centuries. During the 19th century in America, before the Married Women’s Property Act of 1848, a prenuptial agreement was a necessity for women. Prior to it becoming practiced law, everything a women owned or inherited was transferred to her husband, making her vulnerable to losing everything if he died or they divorced—even if children were involved.

Today, some view prenups as preparing for divorce before ever saying “I do”, or a document that is only for the wealthy, but these perceptions are not reality. As they have continued to change over time, they are now more diverse than ever, ranging in length and complexity. Instead of being used to exclusively protect the interests of the wife, as it was originated, prenuptial agreements are now used to create and maintain an equitable division of assets for both partners.

Prenuptial Agreements Are Increasing in Popularity

While it is certainly true that prenuptial agreements are important for high-net-worth relationships, almost anyone can benefit from this negotiated agreement.

As the prenuptial agreement has grown in flexibility, coverage, and popularity, a study by the American Academy of Matrimonial Lawyers reported 62 percent of divorce attorneys said they saw an increase in clients requesting a prenup, with a significant uptick in Millennials, according to their 2019 study.1 Nonetheless, still only 6 percent of partners have one.1

Despite bad publicity, use of prenuptial agreements has increased in modern times.2 Modern marriage laws often fail to meet the needs of many couples, which makes the idea of a marital agreement seem more positive.2

While a relatively small percent of the current population has a prenuptial agreement, it’s likely you’ll see more and more clients requesting one, especially among younger generations.

What Can Be Covered with a Prenuptial Agreement?

A prenuptial agreement can help reduce much of the uncertainty that comes along with setting up a household together. It can offer security, arrangement of property, assets, and more.

According to the Uniform Premarital Agreement Act, which many states have adopted in some form, the prenuptial agreement typically includes the following:

  • Divorce or separation: Division of assets owned prior to marriage
  • Divorce or separation: Division of assets acquired during marriage
  • Death: Division of assets among the surviving spouse and other heirs

Alimony is another important consideration. If a prenuptial agreement is not in place, alimony is decided by the state at the judge’s discretion. If a prenuptial agreement is in place, alimony is decided prior to divorce or separation and can be waived, lump summed, or may have built-in stipulations such as length of marriage, offering each party transparency, greater control in the decision, and a more orderly process.

In addition to these commonly covered agreements, prenuptial agreements can be personalized to reflect the unique interests of the couple. For example, the prenup may include visitation of pets, or expectations for the marriage, such as including a cheating clause where the cheating party receives less or even nothing.

It is also important to note what they do not include. Prenuptial agreements do not include a plan for child custody or child support. Nor do they address more personal preferences such as division of household tasks, child-rearing, etc. They are generally intended to address monetary issues.

A prenuptial agreement will also not cover assets or financial obligations that were not disclosed. However, this can lead to the agreement being invalidated.

How Can Financial Planners Help Couples?

Assess each couple’s planning considerations within the context of their current state and proposed agreement. Partners should talk about how their finances will evolve after marriage—this should be a mutual exploration.

To help begin the process of having an open and transparent conversation, here are some questions you can pose to clients:

  • How do you intend to manage your finances? Will they be combined, kept separate, or some combination of both?
  • What are each of your financial aspirations? Short- and long-term, and individually and joint?
  • What are your financial values and priorities for your household?
  • How do your attitudes and perspectives toward money align, and how do they differ?
  • How can you work together to be partners in this financial journey?

Be sure to obtain information of each partner’s distinct assets, debts, properties, etc. Concurrently, the financial planner may refer to, or work in collaboration with, legal counsel coordinating additional considerations for estate planning strategies to avoid contestable situations.3

Financial planning for partners can present unique opportunities and challenges, but it is important these are addressed prior to entering the marriage, and prior to merging potential assets, to improve financial transparency in marriage.

Talking About Prenuptial Agreements with Couples

Prenuptial agreements can bring up a lot of emotions for couples, which can make these conversations difficult.

When navigating these potentially sensitive conversations with a couple, be sure to be respectful of their feelings, reactions, and thoughts. Help provide a safe and open environment for sharing these vulnerabilities to help ensure honest conversations about what these decisions mean for both parties. It’s essential both parties feel heard, valued, and respected.

To learn more about how to work with couples and prenuptial agreements, watch our recent webinar below, presented by Dr. Meghaan Lurtz, Ph.D. FBS™, Dr. Megan McCoy, Ph.D., LMFT, AFC®, CFT-I™, and eMoney Advisor’s Emily Koochel, Ph.D., AFC®, CFT-I™. (On-demand version not eligible for CE credits).

 

Sources:

DISCLAIMER: The eMoney Advisor Blog is meant as an educational and informative resource for financial professionals and individuals alike. It is not meant to be, and should not be taken as financial, legal, tax or other professional advice. Those seeking professional advice may do so by consulting with a professional advisor. eMoney Advisor will not be liable for any actions you may take based on the content of this blog.

Image of Emily Koochel
About the Author

Dr. Emily Koochel is an experienced financial professional, academic, and researcher. She currently serves as a leader for eMoney Advisor’s Financial Education and Wellness initiatives in her role as Manager of Financial Wellness. Dr. Koochel’s PhD in Applied Family Science and Master’s in Financial Planning provide a multidisciplinary lens to inform her work where she focuses on understanding the effect of financial behaviors and financial decision making on personal and financial wellness. She serves as a subject matter expert in the field, reviewing and authoring peer-reviewed journal articles, book chapters, and contributing to public scholarship. Most notably, she served as a co-author for the CFP Board’s book – The Psychology of Financial Planning - and was awarded 2020 Outstanding Research Journal Article of the Year by the Association for Financial Counseling and Planning Education. She holds the Certified Financial Therapist – I designation and is an Accredited Financial Counselor and Behavioral Financial Advisor.

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