Prenuptial Agreements and Estate Planning

Takeaways

• A prenuptial agreement can help define property rights and protect certain assets, but it does not replace a will or trust.

• Couples entering a second marriage should coordinate their prenup with their estate plan, beneficiary designations, and property titles.

• A prenup may address a surviving spouse’s inheritance rights, but the rules vary by state and the agreement must be properly prepared.

• Both people should have enough time to review the agreement, disclose their finances, and obtain independent legal advice before signing.

A prenuptial agreement, often called a prenup, can be an important part of estate planning and may be especially useful for couples who are marrying later in life, entering a second marriage, or bringing children, property, businesses, or inheritances into the relationship.

A prenup can help define what will happen to property and financial responsibilities if the marriage ends through divorce or death. However, it is not a substitute for a will or a trust. The strongest plan coordinates the prenuptial agreement with the couple’s other estate planning documents and account beneficiary designations.

Can a Prenup Be Part of an Estate Plan?

Yes. A prenuptial agreement can support an estate plan by explaining which assets each person considers separate property and by addressing certain rights a spouse might otherwise have under state law.

For example, a couple may use a prenup to address:

• Property owned before the marriage
• A family business or closely held company
• An expected inheritance
• Family heirlooms
• Responsibility for debts
• Ownership of income earned during the marriage
• Spousal support in the event of divorce
• Rights to property when one spouse dies

The American College of Trust and Estate Counsel (ACTEC) explains that a prenuptial agreement can specify how property and financial obligations will be handed when the marriage ends through divorce or death. ACTEC’s overview of prenuptial agreements also emphasizes the importance of beginning the process well before the wedding.

Why Prenups Matter in Second Marriages and Blended Families

Second marriages and blended families can create competing estate planning goals. One spouse may want to provide financial security for the other while also making sure that children from a previous relationship eventually inherit certain assets.

Consider a couple who each have children from a prior marriage. One spouse owns a home and wants it to pass to their children. If that spouse dies first, the surviving spouse may have inheritance rights under state law or may receive the home under the existing estate plan. The surviving spouse could later leave the home or its value to their own children.

A coordinated plan might address the situation by:

• Giving the surviving spouse the right to live in the home for life
• Placing the home in a trust
• Providing the surviving spouse with other assets instead of the home
• Confirming that certain property remains separate
• Coordinating the prenup with the will or trust
• Naming the intended beneficiaries on retirement accounts and life insurance policies

The appropriate solution depends on the couple’s goals, finances, family relationships, and state law. The important point is that a prenup should not be prepared separately from the rest of the estate plan.

How a Prenup Works With a Will, Trust, and Beneficiary Designations

Each document serves a different purpose.

Which Estate Planning Documents Do What?

A will generally controls property that is owned in a person’s name and passes through probate, the court-supervised process of validating a will, paying debts, and distributing property after death. A trust can allow assets to pass outside probate, depending on how it is created and funded. A trust controls property that has been transferred to the trust. Retirement accounts, life insurance policies, and payable-on-death or transfer-on-death accounts may pass directly to the named beneficiaries.

That means a person could have a carefully written prenup and will but still produce an unintended result if an old beneficiary designation names a former spouse or someone else.

Couples should also review jointly owned property. Joint ownership with rights of survivorship may transfer property automatically at the death of one owner, regardless of what the person’s will says.

Can a Prenup Limit a Surviving Spouse’s Inheritance?

In some circumstances, a prenup can address or waive certain inheritance rights a surviving spouse might otherwise have.

The exact rules vary widely. Some states recognize strong protections for surviving spouses, while others apply different rules based on the type of property, the length of the marriage, or the wording of the agreement. A waiver that is valid in one state may not produce the same result in another.

A prenup should clearly explain what rights each person is giving up and what, if anything, the person will receive instead. The agreement should also be consistent with the couple’s wills, trusts, and beneficiary designations.

A will alone may not be enough to accomplish the couple’s goals.

What Assets Should Couples Discuss Before Signing?

Before preparing a prenup, each person should make a complete inventory of assets, debts, income, and financial obligations. The discussion should include both current property and assets that may be received later.

Topics may include:

• Homes and other real estate
• Bank and investment accounts
• Retirement accounts
• Life insurance
• Business interests
• Trust interests
• Inheritances that have already been received
• Expected inheritances or family gifts
• Personal property and heirlooms
• Student loans, mortgages, credit cards, and other debts
• Ownership of future income or business growth

An inheritance may belong only to the person who receives it, depending on state law. But how the money is handled can change how it is treated. For example, putting inherited money into a joint account, mixing it with marital funds, or using it to buy property owned by both spouses may make it harder to prove that the inheritance belongs to one person alone.

The prenup should address the couple’s intentions, but the couple must also follow through with appropriate account titling, recordkeeping, and estate planning.

What Makes a Prenuptial Agreement More Likely to Be Enforced?

Requirements vary by state, but several practices can help reduce the risk of a later challenge.

• Put the agreement in writing. A verbal promise is generally not enough.
• Provide complete financial disclosure. Each person should disclose assets, debts, income, and other relevant financial information.
• Avoid pressure or coercion. Presenting an agreement immediately before the wedding can create questions about whether someone had a real opportunity to review it.
• Allow time for review. Both people should read and understand the document before signing.
• Consider independent legal advice. Each person should have an opportunity to consult a separate attorney.
• Use clear and specific language. The agreement should explain which property and rights are being addressed.
• Avoid provisions that violate public policy. For example, a prenup generally cannot determine child custody or eliminate a child’s right to support.

When a Postnuptial Agreement May Help

A postnuptial agreement is signed after a couple is already married. It may be considered when the couple did not sign a prenup, their financial circumstances have changed, or they want to clarify how a new inheritance, business interest, or other asset should be treated.

A postnuptial agreement may also be part of a broader effort to resolve uncertainty about property ownership and inheritance planning. Like a prenup, it must comply with state law and should be prepared voluntarily with full financial disclosure and adequate legal advice.

A postnuptial agreement is not a reason to ignore existing estate planning documents. The couple should review their wills, trusts, beneficiary designations, and property titles at the same time.

Questions to Ask an Estate Planning Attorney

Couples considering a prenup may want to ask:

• What rights would my future spouse have under state law if I die without a prenup?
• Can a prenup limit what a surviving spouse can inherit?
• How should our wills and trusts be coordinated with the agreement?
• Should either of us create or update a trust for children from a prior relationship?
• Which property should remain separate, and how should it be titled?
• Do our retirement account and life insurance beneficiaries match our plan?
• What happens if an inheritance is received during the marriage?
• Should we use a postnuptial agreement instead?
• How often should we review the agreement and our estate plan?

Before meeting with an attorney, gather existing wills, trusts, account statements, beneficiary forms, deeds, business records, and information about debts. These preparation steps can make an estate planning meeting more productive.

A Prenup Is One Part of a Larger Plan

A prenuptial agreement can help couples define property rights, protect family assets, and clarify their intentions for a future marriage. It can be particularly valuable when either person has children from a prior relationship or wants to preserve a family business, home, inheritance, or heirloom.

But a prenup is only one part of the plan. Couples should coordinate it with their wills, trusts, beneficiary designations, jointly owned property, and other estate planning documents. They should also review the plan after major life events, such as the birth of a child, receipt of an inheritance, a business sale, a move to another state, divorce, or the death of a beneficiary.

Because the legal effect of a prenuptial or postnuptial agreement depends on state law and the facts of each situation, consult an attorney who understands family law and estate planning before signing or relying on an agreement.

Related Reading

• Estate Planning When You Have a Stepfamily or Blended Family
• Make Sure Your Beneficiary Designations Match Your Estate Plan
• What Is the Difference Between a Will and a Trust?