Pre-Nup vs. Post-Nup – What are the Differences?
Differences Between a Pre-Nup and a Post-Nup
There are a lot of considerations to deal with when entering into a marriage. Even with the best of intentions of making it last forever, sometimes marriages just don’t last. A divorce or even a death can cause either of these agreements to be very beneficial when dividing up assets. That’s why it’s important to ensure your assets are protected before a divorce happens. You can do this through a pre-nuptial agreement, or a post-nuptial agreement. These documents have similar names, but very different attributes.
Pre-Nup
Pre-nuptial agreements are the most common, and the one you hear about most from the media. They are also recognized in all 50 states. As the name suggests, this document is drawn up before a couple is married. This document takes into account the couple’s individual assets and incomes. It then gives guidance on how to divide the assets in case of a divorce. It also takes into account any potential or future increases in one party’s assets or income. This is especially helpful for protecting a spouse’s retirement income.
When to Consider a Pre-nup
Pre-nups are essential for people with children from previous marriages. In the event of the death of that parent, their children could be left with nothing if all the assets go to the spouse. Keep in mind that while pre-nups can pre-arrange the amount of alimony, it cannot calculate child support or determine child custody. People with considerable assets entering the married state should also consider pre-nups.
Post-Nup
A post-nuptial agreement is established after a marriage has taken place. There are several reasons for these agreements; the most common is to divide assets in the case of a divorce in a community property state. Post-nups can also be used to protect a business owned by one spouse. Post-nups can be more difficult to create, as they must speak to assets or income acquired jointly by the parties after the marriage; these are known as community property.
When to Consider a Post-Nup
The conversation about a post-nup can occur for many reasons beyond asset protection.
Many couples will create a post-nup after one spouse has cheated. When the offending spouse wants to show repentance, and the injured spouse wants the situation never to happen again, a post-nup can put financial penalties in place. Whether the conditions to trigger the post-nup is a divorce in general, or another unfaithful relation is up to the couple.
Another common reason for a post-nup is when one spouse is likely to inherit significant assets. Nevada considers inheritance separate property. However, that separate property status can change under commingling rules. A post-nup would ensure that inheritance stays with the inheriting spouse.
Businesses are the final common reason worth noting. If someone dies or divorces and owns a business, the ownership of their company can be in jeopardy if there are no clear instructions. This can destroy the business if not resolved quickly.
If there is a divorce and no way for one spouse to buy out the other, they might have to sell the business to settle the matter. This would shatter one spouse’s source of income.
What should be in a prenup or postnup?
The content of prenup (or postnup) is fairly simple. You and your spouse should discuss how assets should be divided, how debts should be divided, and whether alimony would be appropriate. An important clause is the terms of the buy-out of a home, or business. Predetermining the financial terms of refinancing a home, or business are important to discuss.
All material information about the other’s finances needs to be enclosed at the time the agreement is made. Both parties should receive separate and independent legal advice at the time the agreement is formed. The agreement should be made at least 28 days before the date of marriage.
While pre-nup and post-nup agreements are typically used to divide assets and income, they can also be used to divide up debt between two spouses. This ensures that one spouse is not left holding the bag for debts they didn’t create if their marriage comes to an end. It’s always best to speak to a competent attorney when deciding whether you need one of these agreements, and how to divide your assets and liabilities.
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