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Prenups: Not just for the rich and famous

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En español | Before you say your vows, you may want to say “I do” to a prenup. Not just for A-listers and the wealthy, a prenuptial agreement is especially helpful for older couples who are entering the marriage with grown children, as well as established careers and bank accounts.

What is a prenup?

Tips for planning a prenup—without ending the engagement

Engagements are all about romance—flowers, champagne, chocolate... and legal contracts? At first glance, prenuptial agreements might seem like a romantic buzzkill, but they can be part of a broader conversation about your future together. In fact, making sure you’re on the same page when it comes to money matters can strengthen your marriage. Here are some prenup conversation starters:

  • How will we handle income that one or both of us earns over the course of our marriage?
  • Should we file joint or separate tax returns?
  • What will we do about debt?
  • If one of us goes back to school, how will we pay for it?
  • Do we have a plan for retirement?
  • Should we get life insurance?

A prenuptial agreement (commonly referred to as a "prenup") is a legal contract that defines a couple’s financial rights and responsibilities during marriage, and clarifies how property will be distributed in the event of a divorce. For many, it’s used to ensure that premarital assets remain the property of their original owner in the event of a divorce, or to ensure that children from a previous relationship receive their intended inheritance.

A prenup is also practical way to protect your partner. If you own a business, a prenup can be used to separate business from personal accounts. That way, if the company goes belly up, your loved one won’t be on the hook for unpaid debts.

Remember, a prenuptial agreement isn’t an exit strategy in the event of divorce; rather, it’s a way to protect your newly joined finances. Besides, without one, your state laws will govern who gets what in the event of a split.

Is a prenup right for you?

Every couple is different, and you’ll have to decide together if you need a prenup. While there are no hard-and-fast rules, the following guidelines may help you decide. A prenuptual agreement might be right for you if you:

  • Have children from a previous marriage – If you’re planning on leaving part of your estate to someone other than your spouse, a prenup can keep it separate from your marital finances.
  • Own a business – Have ownership in a business? If so, a prenup can protect both the company and your loved one. For example, if your spouse declares bankruptcy, your business is safe from creditors; and, if your business fails, your loved one won’t have to foot the bill.
  • Have significant retirement savings – In many states, retirement accounts are considered joint property--even though you alone have accumulated them over the course of your career. Check to see if your estate plan calls for keeping your retirement savings separate.
  • Are the trustee of family property – Have a lakeside cabin or priceless painting that’s been in the family for generations? If you want family property to pass to your niece (rather than your spouse’s son), a prenup can ensure that it stays on your branch of the family tree.

Skip the lawyers, head for the chapel

While prenups can serve a valuable role, they aren’t right for everyone. In fact, a marriage contract, domestic partnership, or civil union is in itself a legal document that includes terms governing how assets will be handled in the event of a split. For younger couples and those without significant assets, the legal protections included within their marriage contract may be good enough. Remember that every state has different laws, so it’s a smart idea to check your state’s specifics when it comes to marriage. Some states, for example, have “common property” laws, which dictate that everything will be split 50/50. In other states, it’s left up to a judge’s discretion.

Even if you decide to forgo a prenup, you and your spouse-to-be should still have a discussion. Merging your finances—or not—is a big decision. As with any important discussion, don't wait until the last minute when the wedding bells are ringing. Well before you speak with a lawyer or financial planner, talk with your partner about how you'll handle money as a happily married couple.

Learn more and take action

  • If you've already created an estate plan, check with your lawyer or a financial professional to see how your upcoming marriage may affect it.
  • Explore Merrill Lynch insights and resources on how changes in family dynamics can play a role in your financial life.

 
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