The contracts can address prickly matters such as the outstanding or future loans of one spouse.
The contracts can address prickly matters such as the outstanding or future loans of one spouse.

In the popular imagination, a prenuptial agreement limits the assets that change hands when a wealthy person and their not-so-wealthy spouse divorce. They're usually mentioned when affluent celebrities or the uber-rich end their marriages.

But the contracts — and the postnuptial variety, which is essentially the same thing in all but timing — are useful for much more than just protecting the assets of someone who already has more money than they could spend. They're also increasingly used by less affluent clients to protect one spouse from a potential ex's debt and to lock in how things will be divvied up should one party end up more well-heeled than the other.

"I'm seeing an increase in interest in prenuptial agreements among young couples who don't necessarily have significant wealth," said Kaylin Dillon, a financial planner in Lawrence, Kansas. "They tend to be pragmatic people who may have seen others go through costly and contentious divorces, or they may simply like the idea of drawing clear boundary lines when it comes to their money." She added that such couples might set terms for protection from existing or future debt, such as the huge sums involved if one party decides later to go to law school. Or the contracts can delineate rights to future income — especially if one spouse leaves a career to take care of the family — or ownership of a pet, timeshare or car.

Your debt, your problem
In particular, Dillon said she has clients with loans who are arranging a prenup now to protect their future spouses from that debt. "One of them is a doctor with significant medical school debt," she said. "The other has very little debt, but poor credit and is currently completing a bankruptcy." A prenuptial agreement will not just shield the other spouse from that debt but also define how both parties will manage their finances in a way that protects their respective credit and financial contributions to the joint household.

Still, the contract isn't an absolute necessity for couples coming into a marriage while still owing money. "Every state has some protections in place saying that the debt you brought to the marriage should remain yours," Dillon said. But if you consolidate loans or otherwise rewrite existing debt during the marriage, that can muddy the waters. So can the passage of time. "Proving what was yours and what was your spouse's can get harder as you've been married longer," she said.

The legal agreements surface broad issues about saving and spending that are key to long-term financial health.

A prenup can also clarify who's responsible for future debt incurred during a marriage, including the terms under which that financial obligation remains separate. That won't stop creditors from hassling a divorcing or surviving spouse, but it can ultimately protect that person from having to pay out — ensuring, for example, that a spouse's medical debt stays with him.

Yours, mine and ours
A prenup can also clarify ownership and rights pertaining to ownership. Dillon's client, who is currently in bankruptcy, for instance, can't get a mortgage. His future wife will take out a loan in order to buy them a home. Their agreement will spell out that the house belongs to both of them, even though the mortgage is hers.

"The groom is in the bankruptcy process, which will complete next year" Dillon explained. "He can't acquire a certain level of wealth or income without affecting his remaining payments, and he can't take out any new loans. But he's still contributing to their shared finances. Their prenup says that things they buy with the bride's credit belong to both of them."

A spousal agreement can be specific in spelling out each person's rights to a business, too. Curtis Crossland, a planner in Scottsdale, Arizona, has a postnuptial agreement designed to provide his advisory business with a continuity plan to keep going should his marriage end. The agreement, written up at the request of Crossland's business partner, says that Crossland's wife will be financially compensated in the event of  divorce or Crossland's death, but she won't be able to step into Crossland's role in the company. "In this business, you want continuity," Crossland said. "Long-term relationships with clients are important." His business partner's prenup contains the same stipulation.

Compensation for unpaid labor
As the average age of marriage moves later, more spouses — typically wives — give up a career if they stop working in order to care for family members. Dillon said she's seeing more couples use a prenup to specify a caregiving spouse's rights to compensation, including retirement savings.

Steve and Elisabeth, who are omitting their last names because of Steve's work for the State Department, had little money when they married in 1993. When Steve began a career of foreign deployments for the diplomatic service in 2002, they realized that his career would make it difficult or impossible for Elisabeth to continue developing her own. She might not have permission to work in the country where they live or speak the local language well enough to work there. Changing countries every three to five years would likely throw a wrench into her professional plans.

The couple agreed that Elisabeth will be compensated for the unpaid work she does as a wife and mother if the two  should divorce. The agreement seems fair to both parties. "Women often get the short end of the financial stick when marriages break up," Steve said. Their agreement means that both he and his wife have an equal interest in making their relationship last.

Punishment for cheaters
Now that every state recognizes no-fault divorce, courts don't typically punish adulterous spouses by withholding child custody or financially penalizing the cheater. A prenup generally can't stipulate child custody, which is governed by state laws and has to be done in the best interest of the child. But it can financially punish an unfaithful spouse.

"I've done a prenup that says that, if there's proof of adultery, there's a disproportionate division of assets or support that punishes the cheater," Burris said. "It contains specific terms about what would constitute proof of adultery: letters, intimate pictures or messages of a sexual nature."

Support your prenup
A well-written prenup is a contract like any other, said lawyer Kelly Burris, a partner at Cordell & Cordell in Austin, Texas. The parties can use it to make agreements about how they will handle any property during the marriage, in a divorce, or after one or both spouses' deaths.

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To make a prenup effective, it's important to hire a lawyer who understands state laws governing the agreements. "If you follow the rules, a prenup is hard to break. If you don't follow the rules, it can be easier to break," Burris says.

Anne Tressler, a lawyer in Minneapolis, Minnesota. said that she recently handled a divorce where the contract was "very well written."

"They acknowledged that all kinds of things could happen in the future, and said that disability, changes in income, a choice not to work and so forth won't change this agreement," she said. Airtight language makes it less likely that a judge will see a change in circumstances as a reason to break the agreement.

It's also important to title debts and assets in ways that support a prenup's intent, Tressler said. If you've decided that each spouse will keep separate finances, for instance, don't mingle assets or let creditors send bills addressed to both parties. "You want to make things as airtight as possible, so you're not leaving things up to the discretion of the judge," Tressler said.

Though you'll need a good lawyer to draft a prenup, don't put that person in charge of storing the signed document. "Keep a copy of the prenup in a safe place," Burris said. "Don't depend on your attorney. They purge their records."

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