Young couples embracing prenuptial agreements

I recently read an article in a national magazine that reported young, engaged couples now embrace prenuptial agreements.

Man, did that make me feel old (as does using the word “man” just then).

I remember when prenups were viewed as something only for the wealthy, and, worse, they meant someone didn’t think the marriage would last. Maybe that last part is still true — after all, Gen Z grew up with not just divorced parents, but divorced grandparents as not unusual.

A Harris Poll in 2023 found a significant rise in the acceptance of prenups, with half of U.S. adults open to signing one, up 8% from 2022. The increase was driven largely by Gen Z (41%) and Millennials (47%), who are increasingly using them as practical tools. According to the poll, 21% of Americans overall have signed one, up from 3% in 2010, according to related reports.

So, what is a Prenup?

A prenuptial agreement is a contract between two people entered into before marriage (after marriage it’s, not surprisingly, a post-nuptial agreement, and the rules are a bit different).

In the agreement, a couple can opt out of the community property laws altogether. Or it can set forth customized terms regarding what will be viewed as separate property (a list of specific assets, and/or types of assets) and what will be community property. An agreement can also predetermine spousal support in the event of a divorce, and inheritance in the event of the death of one spouse.

A pre-nuptial agreement cannot, however, determine or waive child support. Nor can an agreement encourage divorce. For example, an agreement that gave the less wealthy spouse 65% of assets upon divorce would be seen as encouraging a divorce since the divorcing spouse is better off after divorce…at least financially.

Why are they more common?

Younger generations (the beleaguered Millennials and Gen Z) are far more likely to marry later, have two working spouses, and keep their assets separate.

According to The Pew Research Center, in 2019, the average male first married at age 30, and females at age 28, up from ages 23, and 21, respectively, in 1967. Thus, these couples are far more likely to have already completed their educations, begun their careers, and established their own financial accounts (their avocado toast accounts?) by the time they marry.

Getting married and suddenly being subjected to community property laws might come as a shock to some.

In community property states, assets acquired during a marriage are treated as belonging to both partners.  The alternative common law property system states that property that one member of a married couple acquires belongs solely to that person unless the property is specifically put in the names of both spouses.

For better or for worse, you’re in it together in California. If one spouse refuses to work, runs up debt, cheats, and in general is a nightmare slacker of a spouse … too bad!  California also has no-fault divorce laws that ignore any and all evidence of how good or bad a spouse was. The non-slacker spouse will be responsible for the nightmare spouse’s debts and, in the event of a divorce, will share assets and likely wind up paying spousal support for at least some period.

More surprising to some, community property (income earned from employment, for example) can be reached for separate property debts. For an all-too-common example, say one spouse has run up tremendous credit card debt before marriage. After marriage, if the debtor spouse stops paying those cards, the credit card company, once they have a judgment, can garnish the wages of the non-debtor spouse to secure payment — unless there’s a prenup making earnings separate property.

For Millennials and Gen Z, community property laws might not make much sense anymore. A prenuptial agreement allows a couple to determine for themselves how they will share assets and debts and provides for transparency.

How to get a prenup

Prenuptial agreements have now become so common, there are several online services where couples can create the agreement themselves. One such company was even on the popular television show, Shark Tank, where the founders of the company received a $150,000 investment from two of the “sharks.”

Be cautious using an online platform in California, however, as California has strict rules, requiring full financial disclosure, voluntary and informed signing, fairness, and separate legal counsel, especially if spousal support is waived. In addition, the agreement must be finalized and presented to both parties at least seven days before it is signed.

In addition, while online platforms can handle the basics, they often miss nuances that can lead to challenges later.

You can still provide

Prenuptial agreements are mostly thought of as a document setting forth the terms of a divorce. But the agreement can also include provisions for a surviving spouse in the event of the death of the other spouse.

For example, the agreement could require one or both spouses to maintain a life insurance policy, to include provisions regarding the spouse’s right to live in (or own) the home upon the death of the other, or certain provisions for the surviving spouse’s support. This is particularly crucial where there are children from another relationship.

Make sure your estate planning lawyer knows you have a prenup so your estate plan coordinates. You can be more generous to your spouse at death than you would be in a divorce, and you can be more generous than the prenup provides. But you can’t be less generous.

It is common for a married couple in California to have a joint trust that deals with all their assets and all their beneficiaries. The trust would typically make reference to the prenuptial agreement, have schedules of assets, delineating each spouse’s separate property and their community property, if any. The trust then states what happens to the separate property and one-half of the community property of each spouse when that spouse dies (or becomes incapacitated).

As Bob Dylan sang, the times, they are a changin.’ (Kids, Bob Dylan is a singer/songwriter we old folks know.)

Couples working through how they’ll handle their finances and other matters before they get married is a good thing. Documenting that agreement in a prenuptial agreement is now viewed as normal and desirable — and that’s an improvement for the ages.

Teresa J. Rhyne is an attorney practicing estate planning and trust administration in Riverside and Paso Robles, CA. She is also the #1 New York Times bestselling author of “The Dog Lived (and So Will I).” You can reach her at Teresa@trlawgroup.net