Amazon CEO Jeff Bezos and his wife of 25 years, MacKenzie, announced in a tweet Wednesday that they are divorcing. The news started an ongoing conversation about the usefulness of a prenuptial agreement, since, TMZ reports, the couple did not have one.
Do you need one? How do you know? CNBC Make It asked some experts to help you figure it out.What is a prenup?
“A prenuptial agreement is an agreement entered before marriage,” says New York City divorce lawyer Jacqueline Newman. “Generally, what prenups will cover are the two big D’s in life: divorce and debt.
“Depending on how much you want to put into the agreement, it has the capacity to dictate how assets are going to get distributed upon divorce, how spousal support — or alimony — is going to be distributed, and it also will deal with the state rights.”
What a prenup doesn’t address, Newman says, is anything to do with kids: “It cannot address custody or child support.”Who should consider a prenup?
Contrary to popular belief, prenups aren’t only for the super rich, says certified financial planner at Betterment Nick Holeman. But “they are expensive,” he says. “Depending on how complex the situation is and where you live and which attorney you use, I’ve seen them be anywhere from $2,000 to $15,000 or more.
“It’s not just a little purchase and so I do think you need to have some assets to justify it, otherwise it’s probably not worth the cost.”
A general rule of thumb is that “if you have a few hundred thousand dollars [in assets], you should at least consider a prenup,” says Holeman. “But in my experience working with clients, the big cause for actually needing a prenup isn’t necessarily on the dollar amount.”
Rather, “it’s when there are unequal amounts coming in from the marriage.”
In other words, if one member of the couple has a much higher income or significantly more assets than the other, it’s worth considering a prenup. “When one person has way more than the other, that’s where it gets a little dicey,” says Holeman.
If you’re both bringing in roughly equal amounts to the marriage, a prenup is “less needed, because it’s more of an equal playing field between both spouses,” says Holeman. Though, of course, he adds, that doesn’t mean you shouldn’t discuss getting one.
Newman agrees. Besides unequal income or assets, there are other reasons to consider getting a prenup, she says: If you own a business, are inheriting family money, had a prior marriage or you actively manage your assets.
“Let’s say you have $1 million in a brokerage account and you’re actively managing it and it appreciates to $1.3 million during the marriage,” she says. “That $300,000 worth of appreciation would be considered marital” in New York (laws vary by state). Without a prenup, depending on where you live, that money could get divided evenly in the event of a split.
Overall, while the topic of a prenup can be uncomfortable to bring up, “marriage is a contract, and it’s a super expensive contract if it doesn’t work out,” says wealth manager and bestselling author David Bach. “It’s not fun to do — it’s difficult to do because it’s another contract — but you’re basically pre-negotiating what’s going to happen if the marriage doesn’t work.”
And that happens more than you may think: The divorce rate in America is still quite high, although millennials are doing their part to bring it down. They’re divorcing less, partly because they’re marrying later if they marry at all, experts say. Millennials are also much more comfortable talking about money than older generations.
Seen in that light, discussing a prenup with your partner could be an opportunity to grow as a couple. “I’ve had experiences where prenuptial agreements have actually been a strengthener of the marriage,” says Newman.
“If prenuptial agreement discussions are handled properly, it really can give everybody the vehicle to be able to learn how to have difficult conversations and talk about things that are uncomfortable — because marriage isn’t easy and it’s important to be able to have tough conversations with your spouse.”
This article was first published by CNBC https://www.cnbc.com/2019/01/14/how-to-figure-out-if-you-need-to-get-a-prenup.html and is republished with its permission.