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Anthony Engel:

Prenuptial agreements, or prenups, are financial contracts that define how a couple's assets will be divided in the case of divorce or death. You can learn more about them in our "What Are Prenuptial Agreements?" video. But what if you want financial protections but don't want to, or can't, for whatever reason, use a prenup?

What if you're a family member who wants to protect intergenerational wealth regardless of whom your relatives decide to marry? The good news is you have other options. The first alternative for couples to explore is a postnuptial agreement, or postnup. As its name indicates, postnups are entered into after a marriage begins.

They're ideal for couples who had a short engagement period and did not have time to draft a thoughtful prenup. There are some risks with a postnup, however, the most obvious being that since you're already married, there may be less incentive to create one. Postnups must also meet a requirement called consideration that exceeds what's expected of a prenup.

Consideration means that if one spouse is giving something up, they should receive something of value in exchange.

Both pre and postnups are agreements the married couple enter into together. But what if one of the spouses has a family that wants to protect its intergenerational wealth or family business interests? Individuals outside the married couple have two main options available to them, the first of which is establishing a discretionary trust.

Trusts can keep a family's wealth separate from marital assets, reducing the risk that a spouse would have claim to that wealth in a divorce. Discretionary trusts have the benefit of giving someone, the trustee, the flexibility to decide when the beneficiary receives distributions.

Families can also use trusts to set expectations around marital financial agreements in advance. For example, you can include language in the trust that encourages your beneficiaries to enter into a pre or postnuptial agreement by limiting discretionary distributions for beneficiaries who forego them.

Trusts can be drafted with flexible terms that will allow or disallow benefiting a surviving spouse. Those terms can also be dependent on whether the spouse signs a pre or postnup agreeing to limit their rights to the trust.

While trusts offer some real benefits, they're not a perfect solution. For example, if a couple's lifestyle is supported by distributions from one spouse's trust, during a divorce a court may decide that current and future distributions from that trust should be considered marital assets and therefore available for division or spousal support.

The second option families have to protect wealth is to establish an LLC, or limited liability company. While an LLC is technically a business entity, you can create one to hold family assets and then draft governing rules stating that only blood relatives are entitled to company information or voting rights.

LLC agreements can also be drafted to prevent a surviving spouse from inheriting LLC shares. Rather, the LLC would purchase the shares from the surviving spouse.

Similar to a trust, an LLC is an option a family can pursue to protect its interests, but it is not a direct agreement between the married couple so it does not offer comprehensive protection.

So to recap, there are several alternatives to prenuptial agreements that individuals or families who wish to protect wealth may turn to, a postnuptial agreement, family trust, or LLC.

Family trusts and LLCs allow family members outside the couple to protect intergenerational wealth. While they offer notable benefits, they are not tailor made for protecting assets in a marriage and therefore leave some gaps. These legal tools can be used individually or in any combination to achieve results that suit you and your family's needs.

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