Source: A Prenup Can Protect Your Investments, U.S. News and World Report, By Jeff Brown, 10/18/2017.
Pre- and postnuptial agreements are sometimes seen as a troubling sign of distrust in what should be a loving relationship. But advocates say they can be essential for protecting investments, especially if one partner has children from a previous relationship, even if the kids are grown.
“For clients getting married for a second time, protecting their children from the first marriage is very important to them and to their adult children,” Peter Walzer, of Walzer Melcher family law in Woodland Hills, California, says. “The young and wealthy are looking to protect themselves and their business interests. For the mid-lifers getting married for a second time, they want to protect themselves, but they also want to protect their children’s inheritance.”
While many people think such agreements are for the well-to-do, that’s not necessarily so, according to Lawrence A. Garvey and Brittany C. Patane of Garvey Cushner & Associates law firm, in a written response to questions.
“For example, if one spouse has full ownership of a home as a result of a prior spouse’s death, then it may be his or her intention to have the children from the first marriage receive the benefit of the home,” they say. “This can be accomplished by executing a prenuptial agreement.”
Traditionally, a prenuptial agreement is a contract describing how assets will be divided if the couple breaks up. This has often been seen as a way for a wealthy person to deal with a potential gold digger. A postnuptial agreement is the same but is signed after the couple is together, perhaps because the relationship or finances have changed. Unmarried couples in committed relationships can have these agreements, too.
In a classic example, a spouse bringing substantial assets to the marriage would ask for an agreement to provide for children from a previous relationship if the spouse dies or the couple splits. After a death, for example, the surviving spouse might marry someone else, then die, leaving assets with someone who feels no obligation to the children or can’t handle investments responsibly.
But an agreement can also protect the spouse or partner who comes into the relationship with very little, Walzer says.
“The spouse marrying a wealthy person with premarital wealth can be left penniless if the marriage ends if they do not have a protective agreement,” he says.
Though brokerage and mutual fund accounts generally ask the investor to designate a beneficiary, that doesn’t always a guarantee the deceased investor’s wishes will be followed, and a prenuptial agreement can make sure they are.
Many couples who would benefit from an agreement don’t get around to it because the topic is so sensitive, says Lydia Vercelli, tax director at accounting firm Anchin, Block & Anchin in New York.
Short of writing an official prenuptial agreement, one or both spouses can get some protection by keeping separate financial accounts, keeping property in their name, maintaining good records and even putting separate assets into an irrevocable trust, she adds.
“The most common provision is to waive marital rights,” Walzer says, referring to state laws on community property or how assets will be divided. “The second most common provision is a limitation on alimony.”
Agreements also will waive a state’s directive on how to handle property left by a person who did not have a will, “along with a well thought out plan as to how the estate will be shared,” Walzer says.
Even seniors well beyond child bearing and rearing years can find a prenuptial agreement useful, says Jessica Markham, of Markham Law Firm in Bethesda, Maryland.
“Frequently older couples who are marrying and have children of a prior union choose to execute a prenuptial agreement to ensure that their assets will pass to their children, and not their new spouse, in the event of death,” she says.
These agreements will be undermined if investments or other assets are not identified as the accord is drafted.
“The most important feature to ensure a prenuptial agreement be enforceable is that both parties must disclose all of their assets in that agreement,” Garvey and Patane say.
“If a spouse hides assets, the court will likely determine the agreement unenforceable, finding that the challenging spouse entered into the agreement without receiving a full disclosure of all of the assets.”