Kelly Bensimon, who starred in the “Real Housewives of New York,” recently called off her wedding with financier, Scott Litner, only 4 days prior to saying “I do.” The reason: he refused to sign a prenuptial agreement (“prenup”). Of the breakup, Bensimon stated, “He thought I would enter into this union without legal protections in place, that I would leave everything to faith. But I’ve worked really, really hard as a single mother and have always made smart decisions for myself and my family, and that will continue.”
Now, Bensimon is no stranger to divorce. She and her previous husband, Giles Bensimon, divorced after 9 years of marriage in 2006. Given the same and her relative fame, Bensimon is acutely aware that marriages often do not last and being proactive in protecting oneself from that uncertainty is one of the smartest decisions you can make. Think of it this way – no one gets into a car thinking you will get into an accident, but accidents do happen. That’s why we also carry insurance. It seems that insurance policies can be obtained for nearly every major significant event, so why not marriage or divorce? Enter, the prenup.
While couples do not often enter into a marriage thinking it will end in a divorce, sometimes – and likely more often than not – it happens. Much like an insurance policy, a prenup is simply a contract entered into by prospective spouses before a wedding that’s intended to clarify the financial obligations of each party, to provide certain financial disclosures about the other soon-to-be spouse’s assets and debts, and to offer protection and financial certainty against protracted litigation in the event of a divorce. While it may appear counter-intuitive, the proactive approach towards financial certainty can provide a more stable foundation for a healthier and more satisfying marriage.
Unfortunately, the social stigma surrounding prenups is still alive and well. Many subscribe to the misguided notion that a prenup suggests that divorce is imminent. Opponents often lament that weddings are supposed to be about happiness and love, and prenups only increase anxiety and foment distrust amongst the soon-to-be spouses. A very narrow view in my opinion that does not take into account the reality of marriage in the 21st Century and the heightened risk of entering into a marriage without a contingency plan for unfortunate outcomes – namely, death or divorce.
This is likely why Shark Tank’s Kevin O’Leary recently stated that he forces his family to get prenups. O’Leary’s stance: “I want financial due diligence on significant others because I’m a realist, I deal in the real world.”[1] While arguably O’Leary’s reality may be different than most – after all, he has an estimated net worth of over $400 million – his sentiments regarding financial transparency and the reality of a potential divorce should be taken to heart regardless of your or your soon-to-be spouse’s current net worth.
So, what can a prenup do for you?
1. It can help build open and honest communication.
Although the negotiations surrounding prenuptial agreements may likely increase anxiety leading up to the marriage, that added stress pales in comparison to the financial uncertainties of a divorce. I see so many clients in my office who spent untold hours and tens of thousands of dollars planning and celebrating their wedding and very little time or money discussing or planning their futures. These same clients complain about the lack of financial transparency during the marriage and how the same contributed greatly to the dissolution of the marriage. One of the major benefits of a prenup is that it jump-starts an open and honest conversation regarding property, finances, and each of your expectations during the marriage.
2. It will likely lead to decreased time and money spent in protracted litigation.
Divorce is expensive. For most, a divorce will constitute the largest financial transaction of a person’s life. A properly drafted prenup can save you and your soon-to-be spouse a lot of time and money fighting over how your marital property will be divided, how it will be characterized (i.e. separate or community/marital), and what sort of financial support (other than child support) will be available to the other spouse. The beauty is that a prenup is fully customizable, meaning that you and your partner can tailor-make a financial document that makes sense for both of you.
3. It protects the property you had before marriage and can safeguard generational wealth.
Most prenups that I draft are designed to protect pre-marriage assets and the income that is generated from the same. Although property owned by a spouse prior to marriage is considered separate property and not divisible by the Court, the spouse seeking to set aside property as separate in a divorce bears the burden of proving the separate nature of that asset. This can often be difficult to prove in a long-term marriage where financial records may not have been kept and may no longer be available from the financial institution. Moreover, the cost of tracing these assets can be considerable.
A prenup can eliminate these issues by clearly setting out what property existed at the time of the marriage and confirming that property to that spouse in the event of a divorce. It can also go further by side-stepping state laws and making any income generated by that asset also separate property. This can be particularly helpful in terms of generational wealth where a spouse who is a beneficiary of a trust receives distributions throughout the marriage from that trust. The prenup could set aside all of those distributions to that spouse as his or her separate property in the prenup.
4. It enables you to make major financial decisions when you are clear-headed
Major financial decisions should be made when you are able to think rationally and reasonably. Far too often, when a couple reaches the point of divorce, judgment is often clouded by painful emotions and traumas that may have been experienced during the marriage. This can often lead to fights over more trivial matters that increase the cost of litigation. Prenups are created (in most cases) when prospective spouses are excited about what the future holds and more willing to cooperate, negotiate, and trust that the other is moving forward in the same direction. Simply put, a properly drafted prenup allows the most common legal financial hurdles in a divorce before reaching the point where cooperation and trust have severely diminished.
But, of course, there can be drawbacks.
Tunnel vision is common at the beginning of a relationship. In some cases, prenups can become after-thoughts, with couples waiting until mere days or weeks before the wedding to begin drafting or negotiating terms of the prenup. This delay can be particularly devastating for the soon-to-be spouse of more meager means or even the party who has typically been the more submissive. Instead of spending time negotiating and really planning out their financial future, these couples tend to push the “let’s just get this done” mantra because “we will never get a divorce anyway.” While hopefully that latter sentiment comes to fruition, if you end up executing a prenup that gives your soon-to-be spouse more than he or she could be given in the event of a divorce, you could end up walking away with less than you deserve.
It is therefore essential to have hard conversations regarding the terms that need to be included in the prenup with your soon-to-be spouse early and to negotiate those matters before the ink is put to paper. Additionally, you should consult with independent counsel as soon as you know that a prenup is going to be part of the marriage relationship. You will be more equipped and certainly more informed about your rights, what you may be relinquishing, and what you may be gaining by executing a prenup, by seeking this advice early.
[1] https://finance.yahoo.com/news/shark-tank-kevin-o-leary-114917542.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAJ8Y4e-Zfh6unfsP4MQ-TuB4_v0SxCvBJd_6TCr4zpey4YH8JQ356C5CJ2MZU3AtDtWg3SnNtKpapR8rEP3w31NRe1BqonEchuT33IWHQNNXy3tCTSMFeiJvZtVz-meJ7TocoajmIRjrlxu8KzpaFVK3ab8CvqOeagCDz6YA4zRV