The Modern Prenup
On a recent episode of “Shark Tank,” two entrepreneurs pitched an investment in their online business called “HelloPrenup.” Engaged couples can create their own agreement “together” on this cheerfully designed website. They complete a questionnaire; pay about $600 to obtain the completed contract; and can then make their agreement official by signing it without consulting an attorney.
My anxiety escalated just at the thought of couples who rely on preprogrammed questions—without legal advice—to create legally binding prenups. I waited for the Sharks to start pointing out all the problems I saw with this process. To my surprise, not one but two Sharks ultimately invested in the business.
Approximately 2.7 million marriages will take place in the United States in 2022. Of those, an estimated 5% of couples will have executed a premarital agreement before walking down the aisle—a surprisingly low percentage considering the U.S. divorce rate consistently drifts between 40% and 50%. Many lawyers see a specific uptick in the number of millennial couples requesting a prenuptial agreement. One factor is that the average age of those in first marriages has risen, which means that each spouse has had more years to work and build wealth they wish to protect.
The website “HelloPrenup” promises a “frictionless prenup for modern couples.” But who are these “modern couples?” If they are two healthy individuals with similar incomes, who do not plan to have kids, I could envision this “frictionless” prenup working. But this is not the typical prenup client. More commonly, one spouse has (or expects to have) substantially more wealth than the other. And the other spouse signs the agreement — without due diligence or understanding what is being surrendered—to prove it’s not about the money.
Consider the following scenario: Jack and Jill plan to get married. In their early 30s, both have good jobs and retirement accounts with similar balances. As a “modern couple,” they decide to create an online prenup. Because they earn similar incomes, each agrees to waive maintenance. They agree to keep their own retirement accounts and any other accounts in their sole names. They agree that any joint assets should be split 50/50. Easy, right?
Now jump ahead 13 years or so. Jill stopped making retirement account contributions since quitting her job four years into the marriage to care for their three children— one with special needs. Conversely, Jack now earns five times more than when they married; has received a large inheritance; and has a million-dollar retirement account.
Many would say that due to these changed circumstances, enforcing the terms of this prenup would be unfair: a court would never uphold that prenup. They would be wrong. In fact, the court will most likely find the agreement fully enforceable.
Premarital agreements should not be taken lightly. They are powerful contracts that can effectively and efficiently protect both spouses in the event of divorce. That’s why both parties need their own attorney to review the agreement prior to signing it. Just as no two divorces are exactly the same, no two marriages are exactly the same—and no two prenups should be the same.
Lawyers can ensure the terms are legally fair for both spouses. And keep in mind that as circumstances change, your prenup can be supplemented, modified or voided by agreement during the marriage. Knowledge is power.
There are several reasons for each party to hire an attorney to review and advise you about a prenup:
- Divorce laws vary from state to state. If you don’t know what the law entitles you to have, you won’t know what you are giving up.
- Devastating outcomes can result from poorly drafted prenups, and not just for the spouse with less money. A spouse who is wealthy on wedding day may have agreed to pay a lump sum to the other in the event of divorce, but later experiences a financial catastrophe. That spouse may still be required to pay that substantial lump sum.
- A prenup is nearly impossible to invalidate, and many include clauses that penalize a spouse for challenging the validity of the prenup. For example, if someone challenges the prenup and loses, they could be ordered to pay the other’s attorney fees in addition to their own.
- Plans change. Couples who don’t plan to have kids change their minds. People change careers. What might have seemed fair at the time of the marriage may be completely inequitable 10 years later.
- Having lawyers review a prenup provides an added layer of validity. The presence of attorneys makes it much harder for someone to claim they didn’t know what they were signing.
Over the years, many divorce clients have told me they wish they had entered into a premarital agreement before tying the knot. But that desire was ultimately outweighed by the fear of offending their partner or creating conflict during this joyous time in their lives. So, what is the best way to broach the topic with your future spouse without derailing the entire engagement?
Negotiating a prenup is not something you should do the week before the wedding. Raise the idea of a prenup as soon as possible, even though you may be uncomfortable doing so. If diving right into the topic is intimidating, start a conversation about how you would like to handle finances during your marriage. Do you know what assets and debts your spouse has? Will either’s home become the marital residence, and if so, how will the expenses be paid? Will bank accounts be kept separate?
As these conversations unfold, you can easily pivot toward the possibility of a prenup. And if you agree to create one, schedule a time to consult with attorneys to understand the process.
People don’t get divorced without an attorney, so why would they create a prenup—which will dictate what happens in a divorce—without an attorney? The divorce rate approaches 50%. If you booked a vacation and knew there was a 50% chance you would have to cancel, wouldn’t you pay for travel insurance? You can apply the same risk management principle here.