Prenups: Not Just for the Rich
Are Prenuptial Agreements important regardless of wealth or amount of assets?
There is a common misconception that prenuptial agreements, or “prenups,” are only for the wealthy. While it is true that a prenup will benefit a person with significant assets, they are also quite beneficial to anyone, regardless of the size of their net worth.
Prenups define how you want your assets to be divided in the event of a divorce. In a way, with a prenup, you are acting as the legislator. Your prenup is the “law” telling the judge how you want your finances to be divided if you get a divorce. For example, you and your soon-to-be-spouse both agree that it would be unfair if your retirement accounts (401ks, IRA’s, pension, etc.) were split by the other party in the event of a divorce. In New Jersey, however, retirement accounts that accrue during the marriage are subject to equitable distribution and thus split between the parties. With a prenup, a provision can be added stating that the retirement accounts are excluded from equitable distribution. If there is a divorce, your retirement accounts are safe. Without this provision, your retirement account may be divided in a manner that you both agreed would be unfair for the other party.
Even if you only have $100 in your retirement account at the time of your marriage, it is still worth protecting. More often than not, a person’s retirement account will grow substantially while they are married due to contributions and market growth. A prenuptial agreement specifically excluding one’s retirement account could protect the growth of the account that occurred during the marriage. Therefore, while you may not have had much money at the time of your marriage, if you do wind up getting divorced, you can save yourself a substantial amount of money by protecting the growth of your accounts.
Another important point of a prenup is the waiver of alimony.
This waiver could be important if there is a disparity of income between the parties, even if neither of your incomes is substantially high. For example, a person earning $40,000 is probably not considered rich. However, if their spouse was earning $20,000 per year at the time of a divorce, they could have an alimony component. The payor earning $40,000 may not have considered themselves rich and thus thought that a prenup was unnecessary. In reality, the payor spouse could have potentially saved thousands of dollars if they entered into a prenuptial agreement. That is why it is important to realize that prenups are beneficial to everyone getting married, not just those who are wealthy. Statistically speaking, given the current divorce rates, it makes financial sense to enter into a prenup.