Why Having a Prenup Can Actually Be GOOD for Your Marriage.

Why Having a Prenup Can A…

We know the title of this blog will initially confuse some of you. People tend to associate the word “prenup” (formally known as “prenuptial agreement” or “premarital agreement”) with the idea of planning for a divorce before the marriage even begins. Doing anything that feels like planning for divorce before a marriage even begins cannot possibly be good for a marriage? Right? Well actually, in many cases it certainly can be.

Despite the fact that we are divorce attorneys, we actually do believe people should go into a marriage expecting that it will be for life. We also think they should make their best efforts to make their marriages work as they grow older and naturally change as people, especially if they have children depending on them. Our firm does not “promote” divorce or encourage divorces when the couples involved still love each other, are not facing “deal-breaker” issues and may benefit further from marriage counseling to improve their communication before resorting to divorce.

Our respect for marriages is exactly why we tell our prenup clients at the conclusion of their matters to put their prenup away for safekeeping, enjoy their wedding, have a wonderful life with their new spouse and forget about the entire uncomfortable prenup experience.

Common Misconceptions about Prenuptial Agreements

In order to understand why the very idea of a prenuptial agreement makes so many people unnecessarily uneasy, we need to clear up two common misconceptions people tend to have about them.

First, most people assume that entering into a prenup means you are contemplating a future divorce. That is not necessarily true at all. As your family law or estates and trusts attorney can explain to you, many people enter into a prenuptial agreement for a reason having absolutely nothing to do with divorce. Rather, they do it to secure a certain provision of their will from being overturned if someone chooses to contest it after their death. Without getting into too much detail here, almost every state requires married people to leave a minimum fraction of their estate to their surviving spouse in their will. That fraction is called an “elective share.” At the time of this writing, the elective share in New Jersey is one-third. This means every married person in New Jersey is generally entitled to receive a minimum of one-third of their deceased spouse’s assets even if a smaller percentage was provided to them through their spouse’s will.

You may feel this seems fair and you may be wondering what the problem with that would be. Well, if two people have been married for fifty years and everything they have acquired through their lives has been acquired together, then it may be understandable to assume that the surviving spouse should receive 100% of the deceases spouse’s estate, let alone one-third of it.

However, think about this example: two people were married at age fifty. Most of Wife’s assets were acquired over her thirty-year work history before this marriage. Those would be premarital assets when it comes to this new marriage and that may protect them from her new husband’s claims in the event of divorce. However, those assets may absolutely be subject to her new husband’s claims if the total of any assets she does leave to him in her will do not add up to at least one-third of her total assets altogether. Wife’s wishes to leave those premarital assets to her children or other family members may not be honored if Husband decides to contest her will.

Now think about this potential situation: Two people get married at age twenty-five. Husband’s family owns a very popular restaurant that has been in his family for generations. His grandparents opened it when they immigrated to this country and worked there until they were too old to keep up with it any longer, which is when Husband’s father took over. Husband’s father then spent his entire life working nights, weekends and holidays to take this restaurant to the next level and make it the hotspot it is today. Thanks to generations of this family’s efforts over many decades and the delicious family recipes filling the menu, reservations to this restaurant are the most coveted in New York City.

Now two years after the wedding, Husband and his brother are going to take over the restaurant from their father upon his retirement. The father is not selling the restaurant to his sons. Instead, he is gifting it to them with pride because he trusts them to lead the next generation in this beloved family business. However, Husband is receiving this gift under the condition that if he dies, the entire restaurant will stay with his brother and vice versa. No one outside the family is to have an ownership interest or “piece of the pie.” None of this is a surprise. The family has been talking about the future of the restaurant since Husband and his brother were teenagers playing PlayStation 3.

Now imagine that Husband dies in a car accident at age thirty, five years after his father passed down the family restaurant to him and his brother. In his will, he has left his share of the restaurant to his brother, just like his father wanted. However, the only other assets he has acquired so far in his young adulthood has been a used Honda Civic, miscellaneous household items, a PlayStation 13 and $10,000 in a retirement account. (He spent most of his earnings paying off his student loans.) Husband’s assets aside from his interest in the restaurant do not equal at least one-third of his total assts. Does this mean Wife can fight to contest his will and claim an interest in a family business that generations of Husband’s family worked their fingers to the bone to make it what it is today? Can she demand payment from Husband’s family in order to walk away? Yes.

These problems with elective shares can be avoided if the couple signs a simple prenuptial agreement that states that the person with those premarital assets or that family business can leave them to whomever they choose in their will, regardless those assets’ percentages of their total assets. If desired, the prenup can be super short and address that issue and only that issue. That is how you get around the elective share issue.

Most of you non-lawyers reading this will recall a highly publicized elective share case in our country’s history. Remember that long, drawn out Anna Nicole Smith case in Texas when she was fighting her late husband’s grown sons for a share of his estate? She was fighting for her elective share. She won.

Another common misunderstanding people have about prenuptial agreements is that they need to cover every possible financial issue that would be addressed in a potential divorce. This is not true at all. A prenup can address as many or as few issues as you want. As I just explained above, many people enter into a prenuptial agreement solely to secure specific anticipated provisions in their will. That wife could have secured a provision in her will leaving her $400,000 in retirement accounts to her children instead of to her second husband. That husband could have secured his family’s (then anticipated) desire to keep the restaurant that has been in his family for generations in his family and not go to his new wife in the event of his death. Those two people in our examples above can enter into simple prenuptial agreements that address nothing else exempt that one thing each of those people have that they wish to leave to a family member other than their spouse in their will – and for good reason, wouldn’t you say?

How Prenups Can Be Good for Marriages

Now that we have explained two common misconceptions regarding the purposes of entering into prenuptial agreements, you can hopefully better understand our explanations of why entering a prenup can actually be a really good thing for your marriage. Rather than considering the entering a prenup to be synonymous with planning for a divorce before one even gets married, lets think about some ways prenups can actually help you have a healthy and successful marriage by relieving a ton of tension, anxiety, stress, misunderstanding and miscommunication.

1. It can prevent or alleviate unnecessary stress with your new in-laws.

We are not implying that your in-laws should concern themselves with the personal or financial issues within your marriage. No, that’s none of their business. However, if your future spouse is part of a family business, his family may understandably worry about the impact a divorce would have on that family business. Also, if they plan to leave your spouse an inheritance or gift a significant amount of money, they may worry about that money going to their adult child’s ex-spouse someday rather than remaining with their child and grandchildren. Can you really blame them? You really shouldn’t. It’s their money.

Additionally, think about what we explained above regarding the elective share in each state. Your in-laws may worry about not being able to keep the family business or an inheritance in their family (meaning their children and grandchildren) if you do not have a prenup specifically allowing this to happen.

Before you jump into any negative feelings about in-laws who would worry about such things, think again. We are talking about money/assets they or their family worked incredibly hard for, perhaps for generations. You were not there earning that money and/or building it up through years and years hard work and sacrifice. Rather than enjoying this money solely for their own enjoyment during their lifetimes, they are choosing to pass it on to their children, grandchildren, etc. This is incredibly generous. It is only natural for them to feel concerned about the money their family worked hard for and want it to stay within the family in whichever manner they choose. This is not selfish. This is human nature and they have the right to feel that way.

If you have a prenup that protects your spouse’s family’s money in the way we are suggesting here, you and your in-laws can develop and enjoy your relationship without either side feeling anxiety or uneasy about this. And a smoother relationship with your in-laws is absolutely a good thing for your marriage.

2. It can prevent or alleviate tension with your children from a previous marriage or future stepchildren.

We firmly believe that how a parent desires to handle their estate after a lifetime of working hard to earn it is none of their adult children’s business. (Barring any undue influences, fraud or other funny business, of course.) However, in the following example, lets assume that it is the parent’s intention and true desire to leave most all of his estate to his grown children and/or grandchildren rather than to his new spouse.

Example: You are about to marry a sixty-year-old man who has two adult children from his previous marriage. He accumulated substantial assets before deciding to marry you. It was always his plan to leave whatever he does not choose to spend during this lifetime to his children and grandchildren someday. In fact, he plans to fund his four grandchildren’s college education and keep them far away from Sallie Mae. His career is starting to wind down and he plans to retire in the next couple years. Although he plans to leave to you whatever he further acquires during your marriage, he intends to leave his assets from before your marriage to his children and grandchildren. You know this, his children have been told this, but the laws regarding your state’s elective share laws do not care about this if he does not also enter into a prenup that will secure such provisions in his will.

His legal advisors are telling him to enter into a prenup that will serve no other purpose but to secure his premarital assets for his children and grandchildren in the event of his death or yes, a potential divorce. Signing that prenup will make your future stepchildren and other family’s members less guarded about you, their father’s new wife. It will also alleviate any anxiety about possibly having to someday fund their children’s college educations when they did not plan for that because Grandpa always promised to cover it.

Hopefully, you do not need any help understanding that having a good relationship with your spouse’s grown children is good for your spouse’s relationship with you and avoids significant tension and stress in your marriage. If you do not understand this, perhaps you should reconsider entering an already established family by marrying someone with children.

3. Money can be spent more freely during the marriage without anyone worrying about it losing its exempt status in a divorce.

In New Jersey, the law is generally that any inheritance or gift from a third party that one spouse received during the marriage is exempt from the other spouse’s claims in the event of a divorce. The same is true for premarital assets. However, as a family law attorney can explain to you in detail, this exempt status can be easily lost if you “commingle” these funds with your spouse or invest it into a marital asset rather than keep it separate. The concept of “commingling” can span multiple blog articles alone, as the case law is expansive. For now, you need to understand that in many cases, if you do not keep your premarital assets, inherited assets or gifted assets completely separate from your spouse and in your name alone, these assets can likely become subject to their claims in the event of a divorce. The lines can also be blurred, or perhaps even erased, when it comes to your estate plan and that pesky elective share law we keep warning you about.

On the surface, it may sound easy enough to just keep those funds in your own name and separate from your spouse. However, here are just a few examples of how this can play out in real life:

(a) You and your new spouse are going to buy your first home together. You have $10,000 of premarital funds to invest into the purchase. He has $150,000.00 to invest into the purchase from the sale of his premarital condo. Both of you are stuck looking at homes that are far less than you can afford and far from what you want to live and raise your future family in because your new spouse is afraid to contribute any of that $150,000.00 to the down payment because doing so would be to “commingle” it with you and likely ruin its exempt status.

(b) You and your wife have been raising your family of three kids in a small apartment while you do the best you can to save for a house in a good school district that is large enough for your family. Life is pretty miserable in that tiny space and you never thought you would be there as long as you have. You both work hard and have good jobs, but the price of daycare and Early Intervention therapy for your oldest child has really held you back from saving money for a house at the speed you once assumed you would be able to. Your wife’s grandmother just passed away and left $200,000.00 to your wife.This is the big break you have been praying for! Now you can finally get your family out of that tiny apartment and into a comfortable house.

Not so fast.There is one problem.Your wife is afraid to spend any of that inheritance on a house with you because doing would basically be gifting half of it to you and she would lose half of her inheritance in a potential divorce or in her will because of, yes, the elective share laws in your state.Although your wife has her moments were she wants to give in and just use the money for a new house, her parents and her older sister will not let anything risk Grandma’s money that she saved her entire life for.

Therefore, you continue to struggle in a small apartment with three kids while $200,000.00 sits untouched. You feel resentful, you can’t even look at your mother-in-law and sister-in-law and your wife is ugly crying from the stress of it all. How is your marriage going now?

(c) You, your spouse and kids already live in your “forever home.” Your family would love to have an inground pool, but we all know how expensive those are. Besides, right now you are trying to figure out how you are going to find the money to pay for a new roof for which your house is way overdue.

Your parents, in their estate planning, offer to gift you enough money to replace your roof and put in a fabulous in-ground pool that your family will absolutely love. It has a slide and everything. Your family would have many years of enjoyment and togetherness in your backyard and rain will stop leaking into your attic. Unfortunately, there is one huge problem standing in your way. Your parents want to make sure that the money they give you for this “stays with you” in the event of future divorce, elective share issues, etc. A family law attorney advises you there is no way to guarantee your family’s wishes are honored and any problems can be prevented if you invest this money into improving your marital home because you do not have a prenuptial agreement of any kind, much less one that accounted for the expenditure of future inheritances.

So now your parents hold tight to their hard-earned money, your backyard remains empty, your wife and kids are incredibly upset and your roof continues to leak.Now there is mold in your attic and in the ceiling over your moody teenage daughter’s bedroom. Such a situation would undoubtedly bring stress into your marriage, don’t you think?

All the above examples are situations that could have been avoided simply by entering into a simple prenuptial agreement that provides a mechanism to returning such funds to their “exempt” status in a potential divorce or your will. For example, a prenup can provide that if either spouse utilizes premarital, inherited or gifted funds to purchase, repair or substantially improve a marital home, those funds would be returned to them “off the top” of sale proceeds or an equity buyout in a divorce situation before the remainder of the equity in the house is shared by the parties in accordance with the law at that time. A similar provision can be included to protect those funds in your estate plan.

Hopefully you can understand how the ability to access and utilize otherwise “exempt” funds for the betterment of your marriage and family rather than being hyper-focused on keeping them separate for the sake of salvaging their exempt status at all costs – and all without your other family members feeling stressed about such use of these funds - would be a great thing for your marriage.

Hopefully you also now understand that even a narrowly tailored prenuptial agreement that makes both parties and/or their families less stressed and anxious about how any “family money” may or may not be used for the betterment of your own family living in your home can help you have a much more enjoyable and less stressful marriage.

Do not make the mistake of assuming that nothing like the examples in this article will ever happen to you. The longer you remain married (which will hopefully be forever), the greater your chances of running into such a situation that you may have never contemplated during your engagement.

If you would like our assistance with a prenuptial agreement, you can contact us here. We will help you tailor a prenuptial agreement to your needs, while respecting your love and excitement for new life with your fiancé and any concerns expressed by your respective families. Then when it’s over, we will tell you to put it away, forget that it exists other than when handling your estate plans or potential divorce, and enjoy a long and happy life together.