Who Needs a Prenuptial Agreement?

My son got married recently and shortly before the wedding, a non-lawyer friend asked me if my son and his now wife had a prenuptial agreement, that I prepared, of course. My answer was no, because I didn’t see how two basically average people in their twenties needed a prenuptial agreement. That got me thinking as to who needs a prenuptial agreement? I came up with four groups of people who I believe would benefit from a prenup.

By way of background, in Pennsylvania a prenuptial agreement is an agreement two people enter into before marriage that in some way modifies the parties’ rights under either the Divorce Code or the Probate, Estates and Fiduciaries (PEF) Code. Without an agreement, in the event of a divorce, both of the parties to a marriage are entitled to equitable distribution of marital property and other forms of economic relief available under the Divorce Code, like alimony and spousal support. Marital property is defined as anything either party accumulates from the date of the marriage to the date of separation, with certain exceptions. Most significant among these exceptions are pre-marital assets, and assets acquired by gift, bequest or inheritance. While these assets themselves are removed from consideration in a divorce, the increase in value during the marriage, or from the date of acquisition, if after marriage, does constitute a marital asset. A common theme in prenuptial agreements is a limitation or a removal from equitable distribution of these non-marital assets and their increase in value.

Relative to a married person’s rights upon marriage under the PEF Code, we are talking about inheritance rights. With or without a will, a spouse is entitled to either an elective share or a widow’s share of the deceased spouse’s estate. Specifics on these concepts are beyond the scope of this post, but a prenuptial agreement can alter these rights as well.

So, with this background, what groups of people would benefit from a prenuptial agreement? The first group is people entering into a second or subsequent marriage, particularly where at least one side has children. I am assuming that people entering into a second or subsequent marriage have reached the age where they have accumulated some degree of wealth and possibly went through at least one prior divorce. I am also assuming that one or both spouses are interested in protecting what they received through the prior divorce or accumulated between the divorce and a subsequent marriage.

Relative to this situation, I have been involved in cases where after the death of one of the parties to a marriage, adult children face off against either their step-parent or step-siblings. An agreement clarifying what the deceased spouse’s intentions were can alleviate most of these potential problems. A prenuptial agreement becomes a logical part of an estate plan when considering a subsequent marriage.

The second group of people for whom a prenuptial agreement makes sense are people with a significant estate of his or her own prior to marriage. As I note above, while assets acquired before marriage are not subject to equitable distribution in a Pennsylvania divorce without an agreement, the increase in value of these assets is on the table to divide up. That business that was worth $1 million at the time of marriage and grew to a value of $10 million after a 15-year marriage creates a significant issue in divorce for the business owner. A prenuptial agreement can alleviate an issue like this.

While it is a much more limited situation, another potentially difficult situation is when one of the parties entering into a marriage has a significant negative estate, such as credit card debt, judgments, or similar obligations, or a business that is currently in the red. While credit card debt generally stays in the name of the cardholder, impediments like judgments can cause issues down the road and a party to a potential marriage may want as much insulation as possible from those types of obligations.

My final classification of people for whom I suggest a prenuptial agreement is people who come from wealthy families and are seeking protection for family assets that may pass to one of the parties to a potential marriage during that marriage. To an extent, the reasoning for a prenuptial agreement in this situation is very much like the situation I note above with one side seeking to protect a significant, separate estate. The complicating factor for the practitioner drafting the prenuptial agreement in this situation is that sometimes the parents of the individual engaged to be married want the protection of a prenuptial agreement, but the engaged individual, the actual client, does not want anything to do with a prenup. On most occasions, the family and the engaged party work through this issue and an agreement is prepared, but I did have an occasion where the marriage was delayed almost one year while everything was being resolved.

In closing, I remind anyone considering a prenuptial agreement that it is something to be approached with thought and effective representation. Prenuptial agreements are not necessary before every marriage, and they are not a “one size fits all” proposition. They are open to negotiation to arrive at a document that works effectively for both sides, not only in the short term, but 20, 40, or maybe 60 years down the road.