Sunday, July 24, 2011

Prenup agreements aren't just for the wealthy anymore

Prenup agreements aren't just for the wealthy anymore

FORTUNE -- Reality TV star Kim Kardashian isn't often held up as a model of prudent behavior. But the recent reports that she and her fiancé, NBA forward Kris Humphries, are working out a prenuptial agreement make her the celebutante face of a practical new trend. Prenups are on the rise. And they aren't just for the wealthy and famous these days.

A prenup is a legally binding contract that spells out how a couple's assets will be carved up if their marriage fails. Nearly three-quarters of attorneys surveyed in 2010 by the American Academy of Matrimonial Lawyers said they had seen a marked increase in prenups in recent years. A key reason: The financial crisis left people anxious to protect what they have. A glance at marriage statistics underscores the importance of planning ahead. Almost half of all first marriages end in divorce, and the divorce rate on subsequent unions is even higher.

Without a prenup, you're at the mercy of state law if you call it quits -- and the guidelines can be surprising. The courts consider two main types of property in a divorce: marital and separate. The marital type, which gets divvied up, generally includes all income and property acquired during the marriage by either spouse. That includes salaries and bonuses deposited in bank and brokerage accounts, real estate, business income, and benefits accrued in 401(k), IRA, and pension plans. "Clients are often appalled to learn that their retirement accounts do not belong to them alone," notes Arlene Dubin, a matrimonial attorney at Moses & Singer in New York City.

Separate property includes assets owned by each spouse prior to the marriage, as well as inheritances received during the union. You typically get to keep the original value of your separate property, but in many states you must share any appreciation with your spouse. For instance, your spouse could lay claim to part of the increased value of a house you brought into the marriage -- especially if marital income was used to pay the mortgage or make improvements. And if your business blossomed during the marriage, your spouse could be entitled to a major chunk of its new worth.

The method for dividing marital property depends on where you're getting divorced. If it's in one of the nation's nine "community property" states -- including California, Texas, and Arizona -- it's usually split fifty-fifty. In the remaining 41 "equitable distribution" states, marital property is doled out according to what a court deems fair, taking into consideration a slew of factors, such as the length of the marriage and the existence of children.

A prenup allows you to override state laws, provided that it's properly executed. For instance, legal experts recommend that it be signed at least 30 days before the wedding, to avoid the appearance of coercion -- a key reason prenups are tossed out by courts. It's also crucial that each spouse be represented by his or her own lawyer. In the end, a prenup may not be the most romantic relationship move you'll ever make, but it could be the most valuable.



by Janice Revell Fortune Magazine June 29, 2011



Prenup agreements aren't just for the wealthy anymore

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