Prenuptial Agreements

Matrimonial attorneys are often asked: How can I shield my 401(k) and other assets without asking my fiancé to sign a prenuptial agreement?

Matrimonial attorneys agree that the only way to protect your 401(k) and other assets is with a prenuptial agreement. A prenuptial agreement is a legal contract established before the marriage that specifies who will pay which expenses and how the assets will be divided in the event of a divorce or death. While they used to be discussed only regarding millionaires and celebrity divorces they have become increasingly common.

Any assets acquired before your marriage are yours to keep. Assets acquired during your marriage, as well as, any appreciation on your pre-wedding assets, are considered "marital assets" and must be shared. While your 401(k) was established in your single days, any contributions made to the plan after you're married as well any appreciation from your wedding day forward are considered part of your martial assets.

If you both agree, you can state in your prenuptial agreement that your future spouse will have no right to the entire account at any point. There's a big caveat here though. If you make the beneficiary of your 401(k) anyone but your spouse, your spouse must approve your selection. So, after the wedding, your new spouse must sign a waiver to relinquish his or her right to the account. But depending on your plans, it may not be in your spouse's best interest to sign away your 401(k). Especially if both of you decide that he or she will stay home and raise the kids. It makes no sense to cut him or her off from the 401(k) or other assets.

But, if you're at all concerned about your account, then establish a prenuptial agreement and discuss it gently with your fiancé. It's not the easiest subject to broach but it sometimes is necessary to have a conversation about money before you walk down the aisle. Just be sure to have the discussion at a time that's not emotionally charged. Bringing up money in the middle of a fight is probably not the most opportune time.

There are three things you need to do to make sure your prenuptial agreement remains valid. First, avoid the "ink-on-wedding-dress" syndrome. Don't ask your soon-to-be to sign something seconds before you walk down the aisle. While there's no real guideline, try to do it before the invitations go out. That allows everyone enough time to consider his or her options. Second, both parties must be represented by their own legal counsel. And finally, if all the assets are not revealed at the time of the writing, your prenuptial agreement may become worthless.

Who Needs a Prenuptial Agreement?

Anyone who is worried about divorce. Unfortunately, the divorce rate is holding steady at 50%, and the average marriage lasts only 7.5 years. So there's a fair amount to be worried about. But your marriage is a partnership. And what other partnership would you go into without a written agreement? You're investing your whole life in this partnership, so it's worth it. Owning all or part of your own business, having children from a first marriage, and amassing assets such as a home, stock or retirement funds also are good reasons to create a prenuptial.

Prenuptial agreements used to be saved for second marriages, but whether people are marrying later in life or the stock market has made loads of people wealthy, experts are seeing more people entering their first marriages with prenuptial agreements. Warning: Check your state's laws. They differ, so it's important to enlist the aid of a matrimonial attorney in your state to help you.

Do Trusts Ever Work?

The problem with trusts is that some states still consider the trust's assets to be part of the marital assets, regardless of which spouse's name is on the trust. Trusts may work when kids or other beneficiaries are involved. You can put assets in a trust for your children before you remarry so you know your children are taken care of regardless of how your marriage ends up.

Are you expecting monetary gifts in the future? Gifts from third parties are not considered marital assets unless you commingle the assets. So if your parents give you $100,000 and you use the money to buy a house for the two of you, that money becomes a part of your martial assets.

If you are expecting a large inheritance from, say, your parents, you might suggest they set up a dynasty trust, a.k.a. a generation-skipping trust. The beneficiaries are two or more generations younger than the donors, so your future kids would be the beneficiaries. The money then is not in your name so it's not considered part of your marital assets. These trusts often are created with clauses that allow the skipped generation to receive income in emergency situations.

Remember; always consult with a matrimonial attorney before making any decisions.