Prenups are "in," and one reason may be because they aren't just about marriage and divorce anymore.
Prenups, once a little taboo like all most money discussions were, are now common. More than half (53%) of engaged or married Americans under age 45 had signed a prenup, according to a Harris Poll
for Bloomberg in May. That's an 11 percentage point jump from 2022, making the prenup a mainstream document to have.Prenups are traditionally signed before vows are exchanged to protect or divvy up assets in case of a divorce, but their purpose is expanding, lawyers said. Prenups increasingly are used as part of an estate plan in case a spouse dies or is incapacitated, they said.
"Most marriages end in death, not divorce, and often pass through incapacity
first," said Melissa Rodriguez, private client partner at Day Pitney. "Yet, a lot of prenups plan only for the least likely exit."
Why does a prenup have to address death and incapacity, too?
When a spouse dies, some state laws give surviving spouses substantial rights that can override a will and end up dividing your assets in a way you didn't envision, possibly leaving little to nothing to children from a first marriage or step children, for example.
"When a spouse dies, state law hands the survivor a set of automatic claims that override the will and can reach up to half the estate unless they're deliberately waived," Rodriguez said. A prenup can be the document in which couples waive those rights to ensure assets are used or given the way you intend.
Though state laws can vary considerably, some examples of these types of laws to look out for include:
- Homestead, which can allow a home to pass automatically to the surviving spouse or allow the survivor to live in the house for the rest of their life. The home would only pass to children after death.
- Elective or "forced" share that gives a surviving spouse a guaranteed minimum portion of an estate, stopping a person from completely cutting out their spouse in a will.
- Family allowance, which is immediate short-term financial support to spouses and minor children to pay for basic living necessities while the estate is in probate.
"Before making a prenuptial agreement, a couple should research the laws of their state," said Barb Lightner in a report on prenuptial agreements. "If the laws cover all the financial issues in the way that meets the couple’s needs, a prenuptial agreement may not be needed. A prenuptial agreement, however, will protect a couple’s expressed desires if the couple moves to another state with different laws."
If a spouse becomes incapacitated, a prenup can dictate how and what money and assets are spent to cover care, lawyers said. They can define what's considered individual or marital property and prevent the entire estate from being drained before intended gifts can be distributed.
"Incapacity is the chapter everyone forgets," Rodriguez said.
Are other estate planning documents still necessary?
Typical estate planning documents like wills and powers of attorney (POA) are always necessary, even if you have a prenup, lawyers said.
Prenups can separate assets and establish ownership rules for them, but a will directs how they're given away after you die, lawyers said. It clarifies what's yours and can be given away and to whom based on your will. The two documents work together to ensure your wishes are fulfilled, lawyers said.
"Coordinating a prenup means going through every instrument: the will, any trusts, every beneficiary form, and if there's a business, the buy-sell or succession agreement, and making sure they all describe the same outcome," Rodriguez said. "A prenup is one instrument in a system. If the will, the trusts, the beneficiary forms, and the business buy-sell agreement don't say the same thing, the contradiction gets litigated after death."
Remember, "a prenup is a promise, not a delivery mechanism," she said. In the case of actor Malcolm Jamal Warner's widow, "the life insurance was never bought, the beneficiary never named, and the trust never changed (so), the surviving spouse has to sue to enforce the promise."
A prenup also doesn't name who will be in charge of your closing your estate or the guardian of your children, if they need one.
It also doesn't name a person to make decisions for you if you should become incapacitated. That's covered by POAs.
Keep it updated
As life changes, it's important to update the prenup along with the rest of your estate documents, lawyers said.
"One of the biggest mistakes people make is assuming that a prenup is a 'set it and forget it' document," said Terri Hilliard, an attorney in California, in her blog. "Estate laws change, financial situations evolve, and family dynamics shift."
Procrastination is risky, too. Warner "reportedly meant to modernize the plan and ran out of time, which is why the prenup and the broader estate plan need to be built together and revisited at marriage, at the birth of a child, and whenever a plan goes stale," Rodriguez said.
Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
This article originally appeared on USA TODAY: Prenups cover more than just marriage and divorce these days
