Once thought of as a tool only for the rich, prenuptial agreements are being used more frequently to protect less affluent families.
Prenuptial agreements, also known as premarital agreements, once were used only by the sensationally wealthy. When Jackie Kennedy was negotiating her prenuptial agreement with Aristotle Onassis, she reportedly demanded $20 million up-front. Yet today, premarital agreements have become useful to those with, shall we say, more modest means.
Prenuptial agreements are often used to protect children from a prior marriage from becoming disinherited. Before you remarry, you each disclose all of your assets and obligations, and you each promise to waive any rights to the other's property at death (or divorce). This enables your assets to pass to your children from your prior marriage.
(If you are already remarried, you probably have a will that says your children are to inherit your assets. But if you think that means your kids are protected, think again. If your new spouse survives you, your plan may be sabotaged, because a surviving spouse may claim property from your estate -- even if your will or trust says otherwise. Almost every state has a law that entitles a surviving spouse to a portion of the estate unless that right is expressly waived in a valid agreement. To solve the problem, many turn to a Qualified Terminal Interest Property, or QTIP, Trust. This trust allows your surviving spouse to enjoy access to the assets during his or her lifetime, but the assets revert to your kids upon your spouse's death.)
Premarital agreements also are helpful if you want to ensure that your assets remain within your bloodline. For instance, say your child inherits your assets upon your death, and later, the child marries and divorces. It is quite possible -- even probable -- that your assets could be distributed to non-family members. You can avoid this problem by placing your assets in a trust and requiring your child to sign a prenuptial agreement with her intended before she can receive any assets from the trust. It might sound gruff, but it will help ensure that your assets, such as heirlooms or real estate that have been in the family for generations, indeed stay in the family.
Prenuptial agreements must be drafted with care, for they are likely to be challenged when significant assets are at stake. Accordingly, separate legal counsel should represent each party to the marriage.
Prenuptial agreements don't necessarily indicate a lack of commitment to a future mate. Under "The New Rules of Money", they can be a reasonable step to avoid disappointments or further trauma to children when they lose a parent.
Financial advisor and educator Ric Edelman is the best-selling author of five books, including Ordinary People, Extraordinary Wealth, The Truth About Money, Discover the Wealth Within You, The New Rules of Money and Financial Security in Troubled Times. His firm, Edelman Financial Services Inc., is one of the largest independent financial planning firms in the nation with nearly $2 billion in client assets under management. He also hosts weekly radio and TV shows in Washington, D.C. and is the founder of the Edelman Center for Personal Finance Education. Visit Ric online at www.RicEdelman.com..