Understanding Prenuptial Agreements

The time and effort of pre- or postnuptial agreements can save money, pain and time if the marriage fails or when one spouse dies.

To prenup or not to prenup? That is the question. Unmarried men and women who are widowed or who are financially successful often hesitate to give their hands in marriage for fear that, if something goes wrong, they may lose a substantial portion of their assets in a divorce. In such cases, it is helpful to have a basic understanding of the two key types of "nuptial" agreements is key to any advisor.

Related Article | Should a Prenuptial Agreement Be Part of Your Estate Plan?

Protective Duos: Pre- and Postnuptial

There are two types of nuptial agreements:

• A prenuptial agreement is done prior to the actual marriage ceremony.
• A postnuptial agreement is signed after vows have taken place.

Postnuptial agreements are usually created and signed by couples who are in second and third marriages and are concerned about estate planning issues.

Prenuptial agreements are probably more popular in first and second marriages, and they usually focus on what happens if the marriage ends in divorce. They generally are created and signed by younger couples who are either without children or are in blended family situations.

However, prenups often fail to address what may occur upon the death of either party, and it's a huge blind spot in many prenuptial agreements. The parties are so concerned about focusing on what happens in case of divorce that they fail to address key estate planning issues. In many states, for example, the surviving spouse is automatically entitled to one-third of the deceased spouse's estate, the right to live in the home for life, and all jointly owned assets.

Tips. If you're contemplating a prenuptial agreement, make sure that it addresses the common issues – child support, alimony and division of property – as well as key estate planning issues in case of death. (Many death-related issues can be resolved with the purchase of life insurance.)

Obviously, the value of these types of marital agreements is in reducing the risk of heated arguments later. The time and effort put into addressing pre- or postnuptial agreements will save a tremendous amount of money, pain and time if the marriage fails or when either of the parties passes away. It may be awkward on the front end, but the reduction of stress and fighting in case of divorce or death is well worth it.

Adapted from the Daily Plan-It newsletter