Getting married is supposed to be one of the happiest days of your life. You’ve found the person you want to spend every day with, and marriage intertwines your identities. Understandably, you don’t want to tarnish this beautiful season with thoughts of prenups, but as a physician, it may be a necessary step.
Statistics show an average divorce rate of about 24% among doctors (with this number being higher or lower depending on your specialty). While divorce is always difficult emotionally, from a financial perspective, a prenuptial agreement will make it easier if your marriage doesn’t go in the direction you foresaw on your wedding day.
So, what is a prenup, what does it protect, and should you look into it before getting married?
This blog answers those questions and explains how to get started.
What is a Prenuptial Agreement?
Prenuptial agreements, better known as “prenups,” are contracts agreed upon by a couple before getting married. These documents outline control of financial matters should one person pass away or the couple divorce. Rather than follow the state’s guidelines for division of property/alimony, the prenup determines how to handle debts and assets.
Breaking Down a Prenup
Without a prenuptial agreement, financial issues that arise due to death or divorce fall back on the state’s framework, whether those guidelines are “fair” or not.
For example, if the state says that the funds in a bank account should be divided 50/50, yet most of that money came from one person’s salary, that might not be “fair,” yet it would be “equitable.”
This default distribution of personal property doesn’t work for everyone. In those cases, a prenup takes precedence. These contracts are still governed by state law, so an experienced local attorney must create the agreement.
The document covers topics like personal property, bank accounts, cash, retirement accounts, and other investments, but it also outlines the meat and potatoes of the financial obligations in detail. Each party’s marital responsibilities are laid out, and, in the event of separation, divorce, or death, the prenup explains where all assets and debt are to be allocated.
But a prenup can’t cover everything, and it isn’t necessary for everyone. Let’s look at the situations where this type of contract is a wise form of asset protection.
When Are Prenups Encouraged?
The only “normal” thing about relationships in the 21st century is that they’re all unique. A prenup might’ve been seen as a big deal in the past, but today’s couples control their choices, doing whatever they see as healthy.
When it comes to asset protection, a prenup is simply another step toward creating a financially healthy life.
This legally binding contract was once associated with couples where wealth was in question. Now, it’s a common part of the financial package for those in many situations, such as the following:
When There Are Income/Asset Disparities Between Partners
When one partner earns more money, has assets like real estate or investments, or is set to receive a substantial sum, a prenup stipulates assets as belonging to a particular partner.
This is frequently seen with married doctors. With a prenup, these assets can’t be divided during a divorce, even when high emotions impact negotiations.
To Protect Family Inheritance or Gifts
Certain heirlooms are very valuable, but they also have sentimental value. In a divorce, these inheritances can be considered property and sold, splitting the proceeds. But a prenup keeps these cherished possessions in the family.
When Minor Children From Previous Relationships Are Involved
Prenups can’t dictate custody or child support of children from this marriage, but they can protect the financial interests of minor children from previous relationships.
When There’s a Business Ownership
Building a business is a significant investment of time, money, and other resources. No one wants to lose their share of that investment when a divorce or death arises.
A prenup protects the owners’ business interests, keeping them separate from marital assets. It can also determine how a family business would be handled in the event of a divorce, compensating the family members who don’t want to be co-owners with an ex-spouse.
To Protect Against Debt
Prenups can ensure that your partner’s debts don’t fall into your lap to pay if you get divorced. This is an essential legal concern for spouses of doctors who inadvertently become liable for their partner’s massive student loan debt or an unagreed-upon shopping spree.
The prenup serves as financial peace of mind before marriage that one person’s debts will not become the other person’s liability.
To Provide Financial Fairness and Clarify Expectations
One of the leading causes of divorce is money issues. The other is basic incompatibility, which often involves how one person feels they should live their life differently from their partner’s beliefs.
Prenups can serve as a default communication that guides both partners as they navigate life, setting a path for spending, saving, and working toward goals.
What Assets Are and Aren’t Protected in a Prenup?
When established with the guidance of a knowledgeable local attorney, prenups give couples broad control over their financial and personal property.
Yet, not everything is allowed to be included in this legal document. What can you protect yourself from in a prenup, and what requires other planning and considerations to keep safe?
Protected By a Prenup
In general, debts and assets can be broken down into terms controlled by those set in the prenuptial agreement. These include designations on how to divide or distribute:
- Property rights and responsibilities for property owned by one party before the marriage, including who is responsible for maintenance costs
- Business ownership, detailing buyout costs of ownership, which interests are protected to ensure the business remains established and employees are paid, and what to do in the event of a death
- Spousal support expectations, covering whether alimony is waived or what the minimum amount will be
- Division of marital property, such as vehicles, vacation homes, and other assets, provided the distribution is considered just and fair (note that this can also include division of debts)
- Dependents’ interests to protect children from previous relationships and ensure their rightful assets are not included as marital property
- Life insurance/trusts/wills, sharing detailed explanations of how these plans are handled, and whether a life insurance policy is required
- Past and future inheritance protection, ensuring these assets remain separate property instead of becoming community property
Prenups are arbitrated by state laws, which vary from state to state. To ensure your prenup is binding, working with a local family law attorney is paramount.
What a Prenup Does Not Protect
Although a prenuptial agreement covers the majority of financial concerns you may have before, during, and after a marriage, there are a few factors that are not permitted to be controlled by this document.
Prenups are not the place where your child custody and support issues are established. Routine matters not concerning finances won’t stand up legally if covered in this document. They’re not to be considered a financial incentive for divorce, and any illegal, unfair, or unjust concerns aren’t upheld, even if they’re in a prenup.
Clarity on what is and is not permitted in a prenup is vital, so it is essential to work with a skilled estate planning and family law attorney.
What Common Mistakes Should You Avoid When Drafting a Prenup?
In most states, a couple has broad rights to control their finances in a prenup, with the stipulation that an enforceable agreement meets strict legal standards, was voluntarily created in writing, and was willingly signed by both parties.
Because of the legal loopholes that can be fallen into and the requirement that each party fully discloses its financial situation, it’s easy to make mistakes that can cost you later.
Before you agree to any terms in a prenup or attempt to draft your own, consider these five common mistakes and how you can avoid them:
- Not having a financial expert and a local attorney to guide you. If your state permits, you could save a little money by drafting the document yourself and hiring an attorney to make it enforceable. But is it worth saving a little bit now just to possibly lose substantial sums if you ever need to use the prenup?
- Not disclosing all assets and obligations. A prenup can be determined invalid if one of the parties failed to disclose their full financial state prior to drafting and signing the agreement. Transparency is one of the essential components of a prenup.
- Not following state rules. Agreements written using the laws of the wrong state may be invalidated.
- Forgetting essential details such as business ownership or alimony. These omissions might not invalidate your prenup, but could detrimentally affect your finances. If you forget to include certain business ownership or alimony terms, they’ll fall back on state laws to decide the terms, which could affect your physician practice.
- Missing legal requirements. No one wants to miss out on something because of a technicality. Yet, that’s precisely what invalidates many prenuptial agreements. You may be missing a signature, notary, or date. Whatever it is, the prenup is now void, and you’re back to square one with letting state laws divide your property.
Instead of chancing any of those errors, you and your future spouse may wish to meet with a family law firm for legal advice. Right now, it may be for informational purposes, but together, you can address any financial concerns before they become marital issues.
How Do You Start the Prenup Process?
Thinking about suggesting a prenup but not sure how to bring the topic up to your partner?
The key is to have clear, open communication early — this conversation can be emotional, and you want to address it and get the elephant out of the room.
Once you’ve presented your request, it’s up to you both whether you want to have a pre-conversation about important topics or wait until you’re with your legal representative.
Because of concerns of jurisdiction and state limitations, always hire a local attorney to help you with the legal documents. Having an attorney also works in your favor if there are questions about whether the contract was voluntarily established and signed.
Remember, transparency is vital to a valid prenup. Work with your financial advisor to ensure full disclosure of both parties. With that in hand, you, your partner, and the attorney can work out all premarital agreements more concisely and equitably.
Your attorney will help you both understand the main goals and the non-negotiables so it’s easier to know where the lines are drawn and what is negotiable.
When both parties are content with the final terms:
- The legal counsel will draft a contract.
- You’ll each sign it.
- The document will be filed away until the event of death or divorce proceedings.
As a physician, you may need to make changes as your career progresses and your financial situation changes. Prenups can be adjusted accordingly when future earnings due to advanced degrees or education occur, significant assets are added, or unexpected debt arises. These modifications also require strict legal adherence.
Conclusion
Whether you’ve learned from the mistakes of a prior marriage or take your financial responsibilities seriously, you know a prenuptial agreement is vital to your future as a physician in case of divorce.
This step requires a complete understanding of your financial situation. Our experts at OJM Group are ready to help you navigate this next season of life.
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