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Prenuptial agreements are not limited to high asset couples

A prenuptial agreement has traditionally been used in a high-asset divorce to identify and protect the wealth of a richer spouse before a marriage takes place. Currently, prenuptial agreements are being more frequently drawn up in many states across the country, including New York, because future spouses have equal financial status. In these cases, spouses have established careers and amassed significant wealth and sometimes have children from earlier marriages.

The prenuptial agreements address concerns, such as how spouses will fund a newly acquired home, what funds will be kept in separate accounts or mingled. The prenuptial agreement also looks at issues such as who will receive what in the event of a divorce. Unlike previous prenuptial agreements which mainly were used as tools to protect assets from the poorer partner, these current agreements provide more equity so that in the event the marriage does not work, the spouse would essentially take what was earned individually and go back home.

Take for instance, the case of 51-year-old woman, who was a successful financial advisor. She remarried an equally successful man, a detective. Each had four children from previous marriages. While she wanted her four sons to receive her retirement savings, she did not want her husband's four daughters to be deprived from any financial gain upon death. The prenuptial agreement was an attempt at protecting both spouses' assets and providing for both families, in case of a divorce.

If a couple has high earnings, each is bound to protect those earnings. Retirement accounts may raise serious concerns because the earnings from a 401(k) account are taxed, whereas a Roth individual retirement account is not. Hence, a spouse with a 401(k) is at a disadvantageous position in a divorce. It is most important to outline all these circumstances in a new-age prenuptial agreement.

Source: The Wall Street Journal, "A New Way to Use a Prenup," Matthias Rieker, March 12, 2015

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