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Do You Need a Prenup?

Find out how to discuss prenuptial agreements before you propose

spinner image A second marriage may need a prenup to protect kids and savings- hands with wedding rings

Nothing I had ever written about prenuptial agreements — and I’ve written plenty — prepared me for doing my own. I knew the rules; top lawyers had taught me, in interviews. But to understand the emotions, you gotta be there yourself.

See also: Marriage and Money: Talk before taking the leap.
Prenups aren’t for sissies. What seems to one of you like a perfectly logical financial choice might feel like a snub to the other. Feelings can easily be hurt. Nevertheless, money talk is critical if you have any savings or assets at all — especially in later marriages like mine where adult children are involved.

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If you’re at the prenup moment, it means that you’ve decided to marry rather than simply live together, a choice I discussed in my column of June 2011. Marriage brings financial rights and responsibilities. If you divorce, you can be required to share marital property and perhaps pay alimony. If you die, your spouse might be able to claim one-third to one-half of certain of your assets, depending on your state.

A prenuptial agreement frees you from these general rules. It’s a legal contract, between you and your spouse-to-be, setting forth what will happen to the money when you die or divorce. You can divide it (or not divide it) in any way you want. Prenups make sense if you have assets you want to preserve for children from a previous marriage, own a business that you want to keep in the family or have endured a costly divorce that you don’t want to risk again.

Prenups aren’t necessarily set in stone. If the marriage is going well and circumstances change, you can write a postnuptial agreement with different terms. For example, you might begin by deciding that, at divorce or death, you’ll each keep the assets you brought to the marriage. That way, your entire estate would pass to your own family, not to the family of your spouse.

Then, maybe a few years later, if you’re financially strong, you might decide to leave your spouse some extra money in your will. Or you might leave money in trust for your children, with the income going to your spouse for life.

The emotional problems arise when you’re not in similar economic circumstances. An implicit part of the marriage bond is that you’ll take care of each other, meaning that one spouse shouldn’t be left to struggle if the other one dies. To address this, your prenup might create two plans — one financial agreement in case of divorce and another one in case of death.

A particular point of contention might be the family house, especially if it’s your major asset. You might want your spouse to continue living there if you die, with the property eventually passing to your kids. But what if your surviving spouse wants to sell and live somewhere else? What if you’re marrying someone younger, potentially forcing your kids to wait many more years to inherit the property?

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In other words, the subject is delicate. Talk to the lawyers who did your wills (you have wills, right?). They’ve seen lots of prenups, and will have ideas that help resolve conflicts. As a general rule, you and your soon-to-be spouse should use separate lawyers, to be sure that you’re getting independent advice. I confess, however, that I broke this rule. My husband and I share a lawyer we both trust. We negotiated our prenup in consultation only with her, and think we each got fair representation.

Whatever you do, be sure the agreement meets your state’s legal requirements. You must disclose all your income, assets and debts. You might need two witnesses. A signature can’t be coerced. If you meet all these tests, the prenup is virtually impossible to break in court. Note that the law doesn’t care if the deal is unfair, as long as you signed freely. If you’re presented with a grossly unfair, take-it-or-leave-it deal, put your plans on “pause.” It might be smarter not to get married.

Some financial issues can’t be resolved in a prenup. For example, take nursing-home expenses. If the ill spouse applies for Medicaid, the state will count certain income and assets held by both of you when determining whether to pay. The spouse at home might end up shouldering some of the nursing-home bill, no matter what the prenup says. You might also be responsible for each other’s medical bills and certain other essential expenses, even if you hold your money in separate accounts.

The money in your Individual Retirement Account goes to your named beneficiary, no matter what it says in the prenup or will. If you want your new spouse to get some of this money, you have to change the legal-beneficiary document.

It’s different with your 401(k) or the money accumulating in your company pension plan. If you die, the entire value goes to your spouse automatically, even if you’ve been married only for one day. If you want to leave part or all of this money to your kids, your spouse has to file a waiver with the plan trustee, giving up his or her rights. The waiver has to be signed and witnessed after the marriage, not before, and on forms provided by the plan. So get to it quickly! You can include an agreement to sign the waiver, as part of the pre-nup. (State law might differ, if the spouse claims the money during a divorce.)

Think carefully about your spouse-to-be’s moral as well as financial obligations. Are there children or parents to support? Might any of your income have to be tapped to help? The prenup might say “no,” but real life is something else.

So, there’s a lot to consider. Start the prenup discussion well before the wedding day. It will take longer than you think — not because of the paperwork, but because of the emotional issues that arise. You’ll need time to absorb each other’s ideas and reflect on what’s most important to you.

Also, I recommend sharing your thoughts with your adult children. Kids have a funny way of thinking that their parents’ money is already theirs and can’t help feeling suspicious about a new spouse horning in. It’s better for the family that they know what’s happening rather than living with question marks. In my case, my kids raised a good question that I hadn’t considered. By the time the papers were signed, everyone had bought in. Result: Last June, I went from being a widow to a wife again. It’s nice.

Jane Bryant Quinn is a personal finance expert and author of  Making the Most of Your Money NOW.

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