Prenuptial agreements: Sign first,
then wait for better or worse
Fifth in a five-part series: Marriage and money
By Libby Wells • Bankrate.com

It's the moment you've been dreaming of: The man who sends your heart skipping slips a sparkling ring on your finger and asks, "Will you marry me?"

After you accept and your vital signs return to normal, he then delivers what feels like a heavyweight's jab to the gut: "Honey, I want you to sign a prenuptial agreement."

Nothing can kill romance faster than the word prenup. But with about one in three of all first marriages ending in divorce, and 50 percent of second or third ones hitting the skids, a prenup is smart financial planning, legal and financial experts say.

"Think of it as a business arrangement or as an insurance policy to help remove some of the emotion that's naturally involved," says Nancy Dunnan, a New York City financial adviser and author. "Marriage is not just an emotional and physical union -- it's also a financial union. A prenup and the discussions that go with it can help ensure the financial well-being of the marriage."

Detailing who gets what
A prenuptial accord is a contract between two people about to wed that spells out how assets will be distributed in the event of divorce or death. Such agreements have existed for thousands of years in some form or another, particularly in European and Far Eastern cultures, where royal families have always made provisions for protecting their wealth.

But you don't have to be a Rockefeller or Trump to need a premarital agreement. A person who has managed to save $30,000 may be more protective of their little nest egg than someone who has millions.

"Those are sometimes the most jealously guarded assets because it has taken a lot of hard work to accumulate a small amount," says Joseph P. Zwack, an Iowa lawyer and author of a best-selling handbook Premarital Agreements: When, Why and How to Write Them.

You should consider having a prenup if you fall into any of the following categories:

• You have assets such as a home, stock or retirement funds
• Own all or part of a business
• You may be receiving an inheritance
• You have children and/or grandchildren from a previous marriage
• One of you is much wealthier than the other
• One of you will be supporting the other through college
• You have loved ones who need to be taken care of, such as elderly parents
• You have or are pursuing a degree or license in a potentially lucrative profession such as medicine
• You could see a big increase in income because your business is taking off, or that garage band you play in has just gotten a contract with a big record company.

So how does one broach this touchy subject? First, do it as early as possible. The mention of a prenup shouldn't come as a surprise if you and your sweetheart have been open with each other as the relationship became serious.

Talk about it beforehand
Dunnan recommends couples talk it over before the engagement. "Let your intended know you believe these agreements are important and that you'd like to go over the topic."

Second, the discussion must be honest. "You have to be real candid about why you want the agreement. It's not very romantic, but you have to appreciate what the other party's concerns are," says Michael McDonough, a Palm Beach County, Fla., lawyer who specializes in matrimonial and family law.

The first step in the prenup process should be to sit down with your sweetie and reach an agreement about what, in general, you want the contract to say. "Draw up your list of assets and talk about it before you hire the lawyers," suggests Zwack. "You won't know the specific laws, but have a concept in mind."

Doing that can save you money. Fees for prenups depend on how long they take to draft. Hourly wages for attorneys can go from $300 to $500 an hour on the East and West coasts. In the Midwest, you might be able to get away with $100 to $125 an hour. Ask your attorney at the first meeting what the anticipated charges will be.

Next, hire separate attorneys. To help ensure an enforceable agreement, both parties need their own lawyers. Many a prenup has been thrown out because an aggrieved spouse did not have legal representation. The attorneys co-write the agreement with their clients' best interests in mind.

Honesty the best policy
Perhaps the most important ingredient of a solid prenuptial agreement is honesty. Both parties must FULLY disclose their assets. If it turns out either person has hidden something, a judge can toss out the contract.

An ironclad agreement also must be signed well in advance of the wedding. You can't present your honey with a prenup two days before the big day and say, "Uh, by the way, I need your signature on this."

The document should be signed as early before the nuptials as possible to avoid the appearance of coercion, another key reason why some agreements are rendered null and void.

"I recommend at least one month before the wedding and preferably before the invitations have been sent out," says Dunnan. "Then you both have time to back out if you're uncomfortable with the terms. If the discussion revealed such deep and basic differences between two people that they decide not to marry, it's obviously best if all the talks took place well in advance ... You don't want to have to send back presents!"

A valid prenup also is "fair" and will not leave one of the parties destitute. "No matter what state you're in, the state will look for equity to make sure one spouse is not being taken advantage of," Zwack says.

Weighty issues only
Prenups can include responsibilities that don't deal with money, but you should avoid making demands that might seem frivolous, such as requiring that your spouse not gain weight, or that he or she quit smoking and take out the garbage three times a week. A judge could look askance upon terms that are less serious than, say, stipulating what religion your children will observe if you and your betrothed are of different faiths.

"It's dangerous to do that, and you're flirting with having the whole thing set aside," warns Zwack.

Other tips:

• Use only matrimonial lawyers who are familiar with prenups and the laws of the state in which you will be living.
• Know that you cannot waive rights to child support payments.
• Understand that your spouse's will can't supersede the prenup if the will is stingier. But a will can be more generous than a prenup and leave the widow or widower more than what they agreed to before the marriage.

Finally, and although it seems obvious, make sure the agreement is in writing and the signing is witnessed by a lawyer. It is recommended the contract be signed in triplicate with the groom- and bride-to-be each getting an original copy, and a third being kept with an independent lawyer, CPA or in a safety deposit box.

Without a formal contract, you could end up a lot less rich -- like director Steven Spielberg. His ex-wife, Amy Irving, got half of what he earned during their four-year marriage because their prenup was scribbled on a napkin and she didn't have a lawyer. Her take: $100 million.

Keep it up to date
Zwack encourages couples with prenups to review them every few years. After 10 years of marriage, for example, you might want to consider giving your spouse more than the original prenup provided for. "Prenuptial agreements are written defensively," he said, "so after a certain number of years, it's good to be more generous."

One option for softening the blow of a prenup is to add a "sunset clause," which specifies a time at which the contract would expire -- for example, after 10 years of marriage. "Some people like that idea, others don't," says Dunnan. "However, marriages do end after 10 or 20 years, so review it with your lawyers carefully."

Difficult as it may be to talk about money before marriage, doing so can save heartache and hassles in the long run. A prenup can minimize the financial and emotional toll of a divorce. Couples without one will have their assets distributed for them by the state if the marriage ends and they disagree about who should get what.

Without a prenup, assets could end up in the hands of your spouse's children from a previous marriage instead of your own kids, or they could go to a slothful mate who did nothing while you toiled away at a business or book that eventually became a big success.

Protection from court division
"If you don't want a divorce court to make the final decision about how your assets will be divided, a prenuptial can protect you," says Dunnan. "Without a prenup you're letting your financial future be determined by a third party."

If you live in one of the nation's nine community property states -- Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin -- the law says property accumulated during the marriage will be divided equally.

In all other "equitable distribution states," assets are divvied according to what the court deems fair. The judge would take into consideration things such as the length of the marriage, whether there are children, and the couple's age, health, job skills and other factors. Alaska is a special case -- it's an equitable distribution state, but it has a law that allows people to voluntarily enter into a community property agreement.

Zwack says premarital agreements are a personal decision, but without one couples relinquish not only power over their assets but privacy as well.

"[The courts] shouldn't have to step in and interfere with a husband and wife's private financial affairs," he says.

-- Posted: June 11, 1999