About Pre-Nuptial Agreements
A prenuptial agreement, or prenup, is an agreement between an engaged couple. While discussing the good and bad sides of your financial situation with your soon-to-be spouse may seem uncomfortable, you will be much more uncomfortable if you find yourself in divorce court having to pay your spouse's bills that were accumulated before you got married. An equally uncomfortable situation would be having to split your hard earned-savings with your spend-happy spouse. Most states require that each spouse have his or her own attorney. As such, a prenup isn't cheap. For example, in February 2009, a standard prenup in California cost an average of $4,000. But that money may be the best money you ever spent should your relationship crumble.
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Who Needs It?
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Anyone who has a child or dependent from a previous relationship needs a prenuptial agreement. The agreement should stipulate what items and funds are considered property of the child and should go to the custodial parent in the event of a divorce. Business owners must have a prenuptial, even if the business is small or home-based. There is always a chance of significant income fluctuations in this case. People who may come into an inheritance should draw up an agreement that protects that money or property. Even if the transfer never comes about, you can rest easy in knowing that it is safe. College students who marry should have a prenuptial agreement that includes student-loan responsibilities and income clauses.
All-Inclusive
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All debts and assets must be included in a prenuptial agreement. Forgetting to tell your spouse about one bank account or credit card account may void the entire agreement. While this may seem a bit harsh, it is actually one of the best forms of protection, especially in community property states. As of February 2009, Arkansas, Arizona, California, Louisiana, Idaho, Texas, Washington, Wisconsin, Nevada and New Mexico are all community property states. Even if you don't live in one of those states, there is always the chance that a bill could change your state to a community property state. In all of the above-mentioned states, a prenuptial agreement is the only way to bypass the equal 50/50 split of debts and assets.
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Special Considerations
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A court may consider a prenuptial agreement invalid if it is signed just before the wedding. Financial expert Suze Orman recommends signing the agreement before sending out a single wedding invitation. If this isn't possible, she says that it must be signed at least one month prior to the wedding. Anything closer may be viewed as coercion. A prenuptial agreement takes precedence of a will if the prenuptial agreement is more generous than the will. However, if the will is more generous, it takes precedence over the prenup. It is ultimately up to a judge to decide how to interpret the two in the event of a conflict.
Review and Renew
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Although the prenuptial agreement is made prior to the wedding, it still must be reviewed periodically. Again, Suze Orman recommends looking over the prenuptial agreement every five years. At this point, you and your spouse can reconsider figures in every part of the prenuptial agreement. For example, if you and your spouse started a business together using equal funds from your pre-marriage savings, you may need to add a clause concerning the profits, assets, liabilities and debts of the business, should you find yourself in divorce court. When changing the agreement, each spouse should have an attorney present. The same attorney shouldn't represent both spouses.
Cohabitation Agreement
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For people who aren't planning on getting married but are living together, a cohabitation agreement may be needed. In some states, including Arkansas, significant others that live in the same house for a certain period of time are considered common-law spouses. In this case, should a breakup occur, you may find yourself strapped with your now-ex's bills, or worse, having to share part of your income. When designing a cohabitation agreement, all of the same considerations as a prenuptial agreement should be taken into account.
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