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Anthony Engel:

What do you think of when you hear the phrase prenuptial agreements or prenups? It can be a loaded term and it's certainly one many of us have preconceived notions about. But what are prenups actually? Why and how do you create one?

And what is the best way to discuss them with loved ones? A prenup is a financial contract two people sign before they get married. It defines where assets should go in the event of divorce or death. You might ask, isn't that what a divorce attorney or estate plan is for?

Yes and no. There are standard legal guidelines for courts to follow in these instances. But for individuals with substantial wealth or financial complexities, a prenup offers customized guidance for navigating their unique situation.

While laws governing marriage vary widely from state to state, in general there is an understanding that property will either be separate, typically acquired by one party prior to the marriage, or marital, things the spouses acquire together.

In some states, marital property is called community property. Categorizing some property is pretty straightforward. A home you bought prior to meeting your spouse is separate. The home you bought together is marital.

But the longer a couple is married, the murkier the lines can become. What happens when you put your inheritance, which is considered separate property, toward the purchase of your family home? It may become marital property.

How about stock you acquired prior to the marriage that grows significantly in value during your years together? In many states, that appreciation is considered marital property. As you can see, things can get complicated.

When a married couple divorces without a prenuptial agreement in place, the courts will decide what's marital property and how to fairly divide it. In community property states, property acquired during the marriage is generally divided equally between the spouses, but there can be exceptions.

Some of these states allow property to be divided equitably rather than equally, depending on the circumstances. But prenups aren't only useful in the case of divorce. They can also clarify where assets should go if a spouse dies.

For individuals with a blended family, complete with children, stepchildren, and current and former spouses, a prenup can work together with an estate plan to clarify their inheritance wishes.

Now that you understand what a prenup does, let's look at how to create one. The first thing you should know is that a prenup is not airtight, but taking care during the drafting process increases its chances of being honored.

When a court reviews a prenup, its primary concern is that the agreement is fair to both parties. To meet that threshold, you and your future spouse must both fully disclose all assets and debts before creating your prenup.

You should each retain separate counsel for drafting, someone to advocate for your best interests. And the agreement cannot be signed under duress.

Finally, a prenup may only address finances unrelated to children. You can't outline the terms of child custody or child support in your prenup.

Your next question may be, so should I get one? Sometimes engaged couples decide on their own that a prenup is right for them. Other times, family members may be urging one or both people to create one.

No matter the motivation to opt for a prenup, it's important to start conversations about it far in advance.

If you're a parent who sees prenups as a matter of family policy to protect your intergenerational wealth, it can help to raise your children with the understanding that no matter who they marry, a prenup will be expected.

If you want your future spouse to sign a prenup, start these conversations when the relationship becomes serious, rather than waiting until you're engaged.

So to recap, prenuptial agreements are financial contracts couples sign before marriage. They define where assets should go in the event of divorce or death.

Prenups provide clarity in complex financial situations and ensure both parties' interests are protected. A court will assess the validity of your prenup if you ever need to use it, so draft it with a focus on mutual fairness.

Starting conversations about prenuptial agreements early and often can help reduce stigma and resistance. Still not sure about a prenup?

An estate planning or family law attorney can help you evaluate your unique situation and needs. You can also watch our Across the Board video on prenup alternatives to explore other mechanisms for protecting your financial interests in marriage.

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