How a Prenup Can Protect the Less Wealthy Spouse, Too.

Mar 24, 2020 | Finances, Prenuptial Agreements, Uncategorized

Have you heard? Prenups are not just for the 1% and celebrities anymore. In fact, quite the opposite. While most people generally think of prenups as a way for an individual to protect exorbitant amounts of wealth from their spouse, prenups can actually be extremely effective at assisting the less wealthy partner in a relationship, too. There are a few prenup clauses in particular that can be especially helpful to someone in a relationship with a wealthier person. If you and your future spouse decide that a prenup is the right decision for you, you may want to consider adding in some of these clauses.

Sunset Clause

You can think of a sunset clause like an expiration date for your prenup. A basic sunset clause establishes a date that the prenup will expire, whether it is after being married for 5 years, 10 years, 20 years, or more – it’s completely up to you. The ideology is that after a certain amount of time spent being married, couples may be more confident that their marriage will last a lifetime, or that they would settle a divorce respectfully and civilly. If the marriage ends before the sunset clause timeframe is up, the wealthier partner may be in luck! They will be able to divorce with their assets remaining intact according to the prenup.

This sort of clause can provide comfort to a spouse who is comparatively less wealthy than their partner. Alternatively, if the marriage lasts past the listed “expiration date”, it will be as though a prenup never existed. In the case of a divorce, rather than having estates and assets divided up based on the stipulations of a prenup, they will instead be distributed according to the law of whatever state your case takes place in.

One of the most prolific sunset clauses was in the prenup between former General Electric CEO Jack Welch and his wife, Jane Beasley Welch. Their prenup included a sunset clause with a 10-year “expiration date” which Jane had mandated. Almost immediately after the 10 years were up, she divorced him and put up an extremely intensive legal battle to gain marital assets. She ended up with $150 million, so needless to say, sunset clauses can be strategic on the part of the lower earning spouse! Make sure you both really consider and agree on the expiration date, as per this last example, it does matter.

Choosing NOT to Include an Alimony/Spousal Support Waiver

In the event of a divorce, it is typical that a less-wealthy spouse will be awarded alimony or spousal support, dependent on specific state laws. Alimony or spousal support (the terminology is state specific) is a payment or payments to a spouse in need from a spouse with the ability to pay. A common clause within prenups is an alimony/spousal support waiver, in which the less wealthy spouse waives their future right to alimony or spousal support payments under the presiding state laws in the case of divorce. Including an alimony/spousal support waiver in a prenuptial agreement is often advantageous only to the wealthier spouse. Deciding not to include this waiver actually holds significant benefits for the less wealthy spouse in many instances, as it keeps the possibility of future alimony/support payments on the table. And if you are the wealthier spouse? This may be a good negotiating point.

With the rising costs of child care, it is common for one spouse to give up their career, at least temporarily, in order to stay at home and raise young children. By taking that time off of their career, the stay-at-home spouse may have a difficult time re-entering the workforce when a few years have passed. Often times, they may not have much higher than entry-level experience. Meanwhile, the other spouse has had plenty of time to build their career, and will likely continue grow their earning capacity as time goes on. Including a clause that outlines post-divorce alimony / support for a lower earning spouse can massively help to ease anxieties for anyone who plans to, or realizes they may need to, temporarily put their career on hold during the course of a marriage.

Joint Bank Account

Yes- you can include a clause into your prenup to agree that you and your spouse share a joint bank account, kept in the names of both parties- you can even state what bank you will use! Additionally, your prenup can also detail that a specific portion of one or both spouse’s income(s) be deposited into this account each month. Joint bank accounts have benefits that extend beyond just sharing the wealth, too. Working together to succeed in financial wellness not only promotes trust and transparency for couples but makes them stronger for it. In fact, couples who have regular discussions with and are open about money tend to be significantly happier, and more successful in their marriages.

Joint bank accounts can also help couples keep an accurate and clear read on their financial situation, how money is spent, and how it is saved. Keeping joint funds in a joint account makes it a bit easier to budget as a family unit and identify areas of improvement. Plus, in the case of an emergency, a joint bank account makes it easy for one of you to manage the household expenses and finances if the other falls sick, etc.

Handling Increases in Separate/Nonmarital Assets

It is important to generally understand the difference between marital and nonmarital assets, and that what will be categorized by a court as nonmarital or marital, will likely depend on the specific state laws. Marital assets are typically defined as debt, property, etc., that was acquired during a marriage. Again, this categorization is dependent on state laws and whether your state is an “equitable division” or “community property” state. During a divorce, property that is considered a marital asset can be divided between (not necessarily equally) or granted to either spouse, depending on state law or by determination of the court. On the other hand, “nonmarital assets” are debts, properties, etc., that were owned by an individual spouse prior to the marriage, and likely remain under the ownership of the individual throughout the marriage, subject to the length of marriage. For example, nonmarital assets and property are going to look a lot different for a couple who was married 5 years, versus a couple married 25 years. For example – depending on the state laws at play, a court may determine that ALL assets are marital after 25 years. A prenup can help define what property is marital property and what property is separate or nonmarital property – whether the marriage is 5 years, 15 years, or 20 years.

A prenup can even hold the power to make appreciation to otherwise separate property or investments a marital asset. For example, if one spouse owns shares in their company, the value of their stock at the time of marriage can be considered as a non-marital asset. If the stock happens to skyrocket in value over the course of the marriage, the stock’s increase in appreciation can be considered a marital asset. This same principle can be applied to real estate owned by one party prior to marriage, investments, etc, and can have a significant positive financial impact for the less wealthy spouse, in addition to acting as a tool for negotiation between the future spouses. A little financial security is important for everyone!

Financial Gifts

So maybe you or your spouse if a so-called “trust fund baby.” If one spouse in the marriage plans to receive regular monetary gifts from their family members or a trust, they may be inclined to share the wealth. But just because a financial gift is granted to an individual spouse does not mean it is automatically a non-marital asset. This is where the power of a prenup comes in- want to make sure those gifts remain separate property? A prenup can do that. Want to make those gifts joint to increase financial security of the less wealthy spouse? A prenup can do that. You and your future spouse can choose to specify that any financial gifts will be considered marital property, and can be kept in a joint account. Or, not. It’s up to you.

Protection from Bad Habits & Incurred Debts

A whopping 2.6% of the American population is estimated to suffer from some sort of gambling addiction. Now, in the digital age, it is easier than ever for gambling addicts to feed that urge with apps and online games, and get themselves into mountains of debt before they know it. The same thing can be said about compulsive shopping addictions. While these issues are often tied to legitimate issues, they can cause massive amounts of emotional and financial stress on the relationship and on your marriage. If your partner has shown tendencies of these sorts of behaviors, a prenup could protect your individual assets from being swallowed up by future debt repayments. Read a related blog on this topic about how you or your fiancé’s approach to life can parallel your views on money.

Preemptively Saving Possible Future Court Fees

Obviously, nobody enters a marriage with the intention of getting divorced. But, let’s just say that the possibility of a divorce is indeed a pricey one. Even when a case settles, the average cost of a divorce in the United States is $15,000 per person. This average is much higher on the east and west coasts, and can increase dramatically when property or support issues are involved. These costs can be an extremely burdensome financial hardship to take on, no matter where you are in life- and a prenup can help ensure you never have to experience this.

While Business Insider reports that the cost of a traditional prenup ranges from $2,500 to $10,000+ per partner (plus per-hour attorney fees), HelloPrenup offers a significantly more cost effective alternative. Our base price is just $599per couple. One party can make payment, or couples can choose to split the cost however they deem fit. If you do decide you’d like to bring an attorney into the process for advice or assistance prior to signing, you are free to bring your HelloPrenup generated document, in word format, to an attorney in your state. Having a prenup already drafted will save you significant funds as opposed to hiring an attorney prior to engaging in the negotiation and drafting process.

The prenup building process using the HelloPrenup platform is outfitted with questions hand-picked to help you build a legally sound, state-compliant prenup that matches your needs, and works in the best interest of your own unique relationship. We recognize that just like every relationship, every prenup needs to be a little different to best suit your life together.

While your wedding day is going to be the happiest day of your life, why not go into it feeling confident with the commitment that awaits you?Interested in learning more about a prenup? Read our FAQ section here, and watch our informational videos here.

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