Celebrity divorces are hardly news, with so many high-profile couples deciding to call it quits. But they can provide some lessons for the wealthy.
Comedian Chris Rock has allegedly filed for divorce from his wife, but the financial moral of the story is in the prenuptial agreement he signed in 1996. According to Investment News, even though the prenuptial was signed by both parties, Rock is claiming it is no longer valid.
Value of a prenup
Prenuptial agreements are considered an essential document to protect wealth or a business in the event of divorce. Kimberly Foss, president and founder of Empyrion Wealth Management in Sacramento, California, says it’s just common sense and should be thought of as one of the practical tools in your financial plan, rather than a harbinger of potential doom.
“You buy insurance for your home and you don’t expect your house to burn down. You buy life insurance and you don’t expect to die. These are just policies that protect you so you can relax and enjoy your house and your life without worrying about what will happen if the worst-case scenarios — fire or death — present themselves,” she says.
“I look at a prenup the same way. It’s just a simple, practical policy that protects both people in the event they divorce,” she adds. Prenups can also be a part of the larger financial plan by outlining financial goals and investment strategies, Foss says.
The bottom line is that couples who marry without a prenup are taking a risk because they don’t have a plan, she says. “With a prenup in place, you know what is likely to happen if the marriage dissolves. Without a prenup in place, what happens is totally up in the air.”
Why prenups expire
So what about Rock’s claim that his prenup is no longer valid? It depends on the way it was drafted, Foss says. There are a variety of reasons it might expire.
“Sometimes, prenups are written to expire and be renegotiated in 10 years, because it’s impossible to foresee how your finances will change over the decades,” she says. “It could be that the primary wage earner becomes unemployed. Children also complicate and change a couple’s finances.”
Foss adds that couples can also agree to revoke their prenup and create a new one to meet their changed circumstances. “Let’s say one spouse inherits $3 million from a great aunt with an unwritten understanding that the money will go to charitable work in the community,” she says. “If the prenup originally called for all assets to be split upon a divorce, you’d want to revise it.”
Even the rich and famous make mistakes when it comes to estate planning. Read more about some infamous celebrity probate blowups.
Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.