When you should consider a pre-nuptial agreement

The idea of a prenuptial agreement is distasteful for many couples, for understandable reasons: The last thing you want to think about when you’re in the love is the possibility that it won’t last forever.

But prenups make a lot of sense, if only to open up important discussions about your mutual financial picture. You don’t want to be arguing about money after you’re married. A big benefit of a prenup is the precedent it sets for honest, frank communication. Better to clear the air now than try to do so later on after conflict arises. And it’s better to work through complicated financial questions when feelings are still warm and fuzzy, instead of later on when life’s responsibilities and worries have built up over the years.

Still not sure if you want or need a prenup? Here’s a checklist to help you decide. If more than a couple of these points apply to you, a prenup might be to your benefit:

• You own part or all of a business, particularly a startup, or you have stock options in a startup that might greatly increase in value in the future.
• You plan to buy a home together, or one of you already owns a home (particularly in a highly appreciating real estate market).
• Either of you is expecting a gap in income due to such things as returning to school or staying at home to raise children. A prenup can make sure you both share the financial responsibility and opportunity costs of raising kids. It can also make sure that the needs of the partner who helped put the other through school to obtain a higher-paying job are addressed in the event of a divorce.
• You want to keep some assets separate, such as your parents’ old home or a vacation home.
• You have other beneficiaries you want to keep in mind, such as aging relatives, nieces and nephews, or children from another marriage.
• You have a large inheritance coming down the road. Inheritances are generally considered separate property. But if community property income is commingled with inherited assets (in an investment account, for example) or used to maintain them (as in the case of real estate), the audit trail can get murky.
• You have a big difference in the amount of assets (or debt) each of you is bringing into the marriage. Generally, what each person brings into the marriage remains his or hers. But wrinkles abound. For example, what happens if one partner uses community property income to pay off pre-marriage student debt, leaving the other partner to shoulder a bigger share of household expenses?
• You worry about your partner’s debt or spending habits. If your partner has lots of debt and you get divorced, you probably don’t want to find yourself saddled with half of that debt. Unpaid taxes and liens are especially dangerous.
• You want to address spousal support upfront, so that it’s already dealt with in the event of a divorce. This could reduce conflict later on that has to be litigated, and which could end up being more costly than what you would have spent on the prenuptial agreement in the first place.

Keep in mind you can’t make any provisions for child custody, visitation or support in a prenuptial agreement. These will be addressed at the time of a divorce or separation. Also, many attorneys won’t do a prenup if there is less than six months until the wedding, so get the ball rolling early. It’s best if you both have separate counsel, and full disclosure is necessary, or the prenup may be voided down the road.

It’s always a good idea to begin your relationship with a firm grasp of what constitutes good financial habits. Take the Mosaic Financial Fitness Challenge to get started in the right direct on planning for your financial future.

Learn more about Steve on NerdWallet’s Ask an Advisor.