Should Everyone Have a Prenup?

When you hear the word “prenup,” what comes to mind? If you’re like most people, you probably picture an old rich guy about to marry a young, not-so-rich girl. While that’s the traditional use for a prenuptial agreement, there are some personal finance pundits – notably, Suze Orman – who insist that prenuptial agreements are something virtually everyone considering marriage should have. In fact, in articles like this one, she says that even those considering living together should consider a “cohabitation agreement.” We’ll get more into Orman’s logic for universal prenups in a minute. But first let’s get a lawyers take on the subject. I interviewed one for the following news story, “3 Steps to a Prenup.” Check it out, then meet me on the other side for more…

What’s a prenup?

A prenup is essentially the same thing as the property settlement agreement associated with divorce. It’s a legal document detailing a couple’s assets and how they should be divided if the marriage ends. In addition to keeping assets separate, a prenup can also keep debts separate, as well as provide for spousal support and even dictate behavior during the marriage.

For example, the bride might say that if the husband gains too much weight, he forfeits money. Or the groom might stipulate that if the wife cheats, she loses. You’ll need a lawyer to do a proper prenup, and as you learned in the video above, they’re not cheap: The lawyer I talked to said $1,500 minimum. Not only that, your partner will need the final agreement reviewed by their own lawyer.

Does everyone really need one?

Orman bases her belief that prenups are for everyone based on two primary arguments.

The first is the high rate of divorce. In this Yahoo article, for example, she says, “The national divorce rate is roughly 50 percent.” In this article on Oprah.com, she says, “North of 40 percent of marriages end up in divorce.” But is the common belief that half of marriages end in divorce even true? Not according to some people: On this page of TruthOrFiction.com, the author calls the belief that 50 percent of marriages ending in divorce an urban myth…

Let me say it straightforwardly: 50 percent of American marriages are not ending in divorce. It’s fiction. A myth. A tragically discouraging urban legend. A spokesperson for the U.S. National Center for Health Statistics told me that the rumor appears to have originated from a misreading of the facts. It was true, he said, if you looked at all the marriages and divorces within a single year, you’d find that there were twice as many marriages as divorces. In 1981, for example, there were 2.4 million marriages and 1.2 million divorces. At first glance, that would seem like a 50-percent divorce rate. Virtually none of those divorces were among the people who had married during that year, however, and the statistic failed to take into account the 54 million marriages that already existed, the majority of which would not see divorce.

The rate of divorce also depends largely on the group you’re talking about. From this 2005 article in The New York Times:

Women without undergraduate degrees have remained at about the same rate, their risk of divorce or separation within the first 10 years of marriage hovering at around 35 percent. But for college graduates, the divorce rate in the first 10 years of marriage has plummeted to just over 16 percent of those married between 1990 and 1994 from 27 percent of those married between 1975 and 1979.

Of course, even if Orman is wrong on the percentages, it’s still common. So lets move on to the second reason she thinks prenups are essential.

From the same Oprah article cited above: “Drawing up a prenuptial agreement together is a sign of incredible trust and financial openness – you’re fooling yourself if you think you can achieve complete intimacy without it.”

Hopefully, she’s not trying to say that you can’t achieve intimacy without a prenup. What she presumably means is that if you’re going to share your life with someone, it’s important to share your financial life as well. I agree – who wouldn’t? But sharing financial intimacies with your partner isn’t the same as sharing them with your partner, your lawyer, and your partner’s lawyer, then paying thousands of dollars to have them converted into a binding legal agreement.

So who does need a prenup?

As you’ve probably gathered by now, I think Suze Orman’s suggestion that every engaged couple should have a prenup is silly. Two engaged people without any money starting their lives together shouldn’t create a $2,000 legal bill. And if they eventually split up, they should be OK with equally splitting what they made together. But there are, in fact, lots of people who should explore a prenup:

  • People with money, at least if they’d like to leave the relationship with at least as much as they came in with. It doesn’t have to be big money: If I’m marrying someone with $100 million dollars and I come in with $25,000, I still might want to protect my $25,000.
  • People who might inherit, at least if they want to make sure family property, heirlooms, or money stays in the family.
  • People whose partners have debt, at least if they want to make sure their partner’s debt problems will never become theirs.
  • People who own a business, at least if they want to make absolutely sure that the business remains entirely theirs no matter what.
  • People whose income might radically increase, at least if they don’t want to potentially share it with anyone in the form of support after divorce.
  • People with children from other marriages, at least if they want to make sure certain assets pass to their kids upon death rather then their partner.

Saving money on prenups

It’s possible to begin the prenup process – and save some money – by drafting it yourselves, then taking it to lawyers. Nolo’s Prenuptial Agreements: How to Write a Fair & Lasting Contract is one of many books that might help. You can also learn more about prenups at this page of Nolo’s site.) Bottom line? Prenups aren’t nearly as simple as people like Suze Orman suggest, and they’re not for everyone. But if you decide they’re for you, remember what the lawyer said in the video above: Be clear on your reasons, start early, and work together. Remember: Honest communication’s not the main thing in a successful relationship: It’s the only thing.

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