What is a prenup and how can it help protect your finances?

Helping you plan with care for the people and moments that matter

If you and your future spouse are considering a prenup, don’t be scared off by the many misconceptions. Wells Fargo specialists say the stigma of these agreements is not only unwarranted, but causes people to overlook their opportunities.

A prenup, or prenuptial agreement, is simply a financial planning tool in the form of a voluntary legal agreement between spouses on what will happen to their money, assets, and liabilities in the event of divorce or one of them dying.

Nuptial agreements address these worst-case scenarios, but that shouldn’t cloud the fact they protect you or your spouse and bring up critically important financial topics before you marry, legally intertwining your financial lives.

“A prenup is about much more than planning for a possible divorce,” said Melissa Sidor, a Private Wealth Strategist with Wealth & Investment Management. “It gives couples an opportunity to talk openly about their finances, expectations, and priorities before they get married.”

Are you and your fiancé considering a nuptial agreement? Here’s what you should know about nuptial agreements.

Financial protection

Prenups are designed to help provide that your money, assets, and debt are handled according to you and your partner’s joint wishes if your marriage ends, beyond what’s stipulated in your state’s divorce laws and inheritance laws.

What does a prenup protect? Some of the most common components address what to do with real estate or other things you own, spousal support or alimony, and family assets, inheritances, and businesses.

Who needs a prenup? Planning how to handle these assets in a divorce may be particularly important for people getting remarried, those with children from a past relationship, or families with wealth or heirlooms to protect.

“A prenup gives couples a reason to openly discuss money and agree on how they want to handle their finances,” Sidor said. “In that sense, it can serve as a financial roadmap for the marriage.”

Couples that include a business owner or someone who takes on debt or financial risks may also benefit from a prenup. Nuptial agreements can specify how spouses will allocate responsibility for premarital and marital debt between themselves.  Without a prenup, responsibility for certain debts may be determined under applicable state law.

Prenups may even be standard for every newlywed in some families, no matter who their future spouse is.

Peace of mind

Because prenups also answer the what ifs of divorce or death, they offer both parties financial stability during what could be a difficult or chaotic time in their lives.

“It is natural to hope for the best when you are getting married, but couples still need to have honest conversations about money and what they expect from each other,” Sidor said.

Nuptial agreements may offer both parties peace of mind, as each person will know how their finances and their family will be affected in the case of divorce. These contracts are highly customizable to your relationship or your goals.

For example, prenups may include provisions relating to matters such as life insurance obligations and spousal support, subject to applicable state law and enforceability standards.

Potential for discomfort or conflict

Because negotiating a nuptial agreement deals with sensitive topics like divorce and death, it may be difficult or emotional for some couples, especially when finances come into play.

If the process sounds hard, try shifting your perspective. Instead of thinking of a prenup as being about conflict or disagreement, think about it as an opportunity to bring you and your spouse together around shared financial goals. Those could include protecting each other, respecting the wishes or legacy of loved ones, or continuing a treasured family business.

It’s a possibility that in-depth discussions during the prenup process could uncover differences between would-be spouses on important values or goals and, as a result, they decide not to get married.

If that’s the case, the silver lining is that the couple doesn’t have to go through the complex legal process of ending their marriage in addition to ending their relationship.

“Here’s the reality: If you can’t talk about this stuff and come together as a couple in the beginning, it’s probably not a good sign. It may not be a good overall thing in the long run,” said Sylvia Guinan, a financial advisor with Wells Fargo Advisors.

Financial costs

Drafting a nuptial agreement typically isn’t free. While couples may opt to write their own prenup, that contract will have to comply with state and other laws. Many turn to an attorney for legal help.

The cost of hiring a legal professional will vary between hundreds or thousands of dollars depending on several factors. The primary cost of a prenup is often lawyer fees, but other costs may come from court fees and fees for other professionals you tap, such as a financial advisor.

Here are a few questions to ask yourself:

• How complex are you and your spouse’s finances? More complications in your prenup will require more time — and thus a higher fee — of you and your spouse’s attorneys.
• How long will you and your spouse need to negotiate? If you know you and your future spouse need to work through differing or conflicting viewpoints, that could require more attorney time and raise the total cost of getting the prenup drafted.
• Will others need to be involved in negotiations? Including representation from loved ones or a family business may also add complexity.

Prenuptial agreements are voluntary, so, as long as you and your future spouse aren’t legally married yet, there isn’t an exact time you’ll need to complete it by.

However, one rule of thumb is to plan to have your nuptial agreement completed and signed at least two or three months prior to your wedding day, Guinan said. That way, any big conversations are resolved by the time wedding planning is typically in full swing.

“The concern is if you’re a month out [from the wedding], there may be duress. There [might be] pressure for people to agree to things that maybe they wouldn’t have normally agreed to, or something could be overlooked,” she said.

To get started, you and your spouse should consider hiring attorneys with a background in family law, estate planning, or estate administration depending on you or your family’s financial needs. Finding attorneys that work well together can make the prenup process even smoother, Guinan said.

If you have a financial advisor, they may be able to refer you to the right representation based on your financial picture.

If you and your partner choose not to get a prenup, you’re far from alone — at least for now.

Many reports suggest a vast majority of couples in the U.S. opt out of getting nuptial agreements, but the number who do are on the rise. While data on prenups is very limited, 15% of U.S. adults surveyed in 2022 by the Harris Poll said they’ve signed a prenup, which is five times the amount who did in a similar 2010 poll. There could be a few reasons behind a potential rise of nuptial agreements.

People may have more to protect

American couples are marrying later in life, which may mean they’re not only more likely to have more complex finances but also to have more assets, businesses, or children to protect by the time they tie the knot.

According to U.S. Census figures (PDF), first-time grooms are around 30 and first-time brides are about 28 on average today. Just 20 years ago, men and women getting married for the first time were roughly 27 and 25 going to the altar, respectively.

The Great Wealth Transfer may also be playing a role as trillions of dollars have started to shift from one generation to the next.

People have more debt on average

Spouses in the U.S. may have more to protect each other from given the fact that consumer debt has increased. Both housing and non-housing debt in the U.S. have more than doubled in the past two decades, according to Federal Reserve Bank of New York and Equifax data.

More couples are entering relationships as financial partners

More heterosexual married couples in America are now earning similar incomes compared to the past, according to the Pew Research Center. While the husband was the sole or primary breadwinner in 85% of these marriages in 1972, that number fell to 55% by 2022. With more couples sharing responsibility with money, both spouses may have finances they’d like to protect.

Be aware of the risks of online nuptial agreement services or handling the process yourself without representation. “Each person should consider having their own attorney review the agreement so both partners understand its terms and receive advice based on their individual circumstances,” Sidor said. In some states, a witness or notary may also need to sign off on the agreement.

Even if you and your partner largely agree on the terms of your prenup agreement, it’s important that both you and your partner have your own representation. Not only will it make the agreement more defensible in court, Guinan said, it will mean both of you will have your wishes represented in negotiations.

Failure to follow applicable legal requirements, including adequate disclosure and other procedural safeguards, may increase the risk that a prenup could be challenged or found unenforceable. Your prenup could also be thrown out if it’s found to be unenforceable, signed by a party under coercion, or if a judge finds that you or your partner were unable to consult an attorney prior to signing the contract.

Prenups address many questions that will need to be answered when a couple ends their marriage or a partner dies. However, there are several limitations to these contracts.

Nuptial agreements can’t address things like the amount a partner must pay in child support for existing or future children. It also can’t cover who will get custody of children. These depend on factors during the time of the divorce proceedings.

Prenups also shouldn’t replace or be misconstrued with other important pieces of your estate plan. They may set the minimum spouses must leave for each other, but your actual estate plan can leave more.

Just because nuptial agreements and wills both deal with death doesn’t mean that you’re covered by just one document. Wills are different from prenups because they don’t require an agreement among both parties in the marriage. Prenups provide guard rails or minimums for spousal provisions in a will or estate plan.