Why prenups matter for wealth protection
Prenuptial agreements are not just for the ultra-wealthy. They are planning tools that set clear boundaries around property, business interests, inheritance rights, and debt responsibility. In my practice advising families and business owners, a well-drafted prenup reduces litigation risk, preserves business continuity, and protects inherited or gifted assets for future generations.
Beyond asset division, prenups can address cash-flow arrangements during marriage, protection from one spouse’s creditors, and the treatment of retirement accounts. When paired with estate planning documents and ownership structures, a prenup becomes part of a broader wealth-protection strategy rather than a one-off legal formality.
(For background on how prenups fit into broader asset-protection planning, see our piece on “Prenuptial and Postnuptial Agreements as Asset Protection Tools”.)
Typical provisions that protect wealth
A prenup can contain a wide range of clauses. Common, wealth-protecting provisions include:
- Identification of separate property: lists of bank accounts, investment accounts, businesses, real estate, and personal property acquired before the marriage.
- Treatment of future earnings and appreciation: whether increases in value during marriage remain separate or become marital property.
- Business interests and management rights: protections for founders, buy-sell triggers, valuation methods, and control protections to avoid forced sale of a business on divorce.
- Spousal support (alimony) terms: whether support will be paid, amount, duration, or a waiver (subject to enforceability rules).
- Debt allocation: who is responsible for premarital liabilities or business debts.
- Estate and inheritance coordination: language describing how the prenup interacts with wills, trusts, and beneficiary designations to protect children from prior relationships.
Each clause should be specific and measurable — vague language invites disputes. In practice, I encourage clients to attach schedules listing assets, account numbers, and appraisals when appropriate.
How to draft a prenup that holds up in court
Successful prenups are negotiated fairly and documented carefully. Follow this step-by-step approach:
- Start early and communicate. Begin conversations months before you must sign. Pressure to sign at the last minute is a major red flag for courts.
- Full, written financial disclosure. List assets, debts, and income. Disclosure should be in writing, dated, and preferably supported by statements or appraisals.
- Independent attorneys for both parties. Courts prefer to see that each person had independent legal advice. This reduces claims of coercion or misunderstanding.
- Avoid unconscionable terms. Provisions that leave one spouse destitute or that are extremely one-sided may be set aside.
- Update related documents. Coordinate the prenup with wills, trusts, beneficiary designations, and business agreements.
- Follow state formalities. Signatures must be witnessed and notarized when required.
The Uniform Premarital and Marital Agreements Act and the Uniform Premarital Agreement Act (UPAA), promulgated by the Uniform Law Commission, provide guidance adopted by many states. However, adoption and application vary; always check your state’s version and case law (Uniform Law Commission).
State law differences and enforceability
Prenuptial law is state-specific. Key points to watch:
- Timing matters. A last-minute signing can be deemed coerced. Schedule adequate time for review.
- Full disclosure is essential. Hidden assets or omissions can invalidate a prenup.
- Courts will refuse enforcement for provisions that violate public policy (for example, terms that penalize having children in some jurisdictions).
- Child support cannot be waived: agreements cannot bind a court’s duty to protect a child’s best interests.
Because of these nuances, terms enforceable in one state may not be in another. If you plan to live, marry, or later move across state lines, consult counsel familiar with multistate issues.
Tax and retirement considerations (what changed since 2019)
Tax treatment of alimony changed with the Tax Cuts and Jobs Act (TCJA) effective for divorce or separation instruments executed after December 31, 2018. For those agreements:
- Alimony is no longer deductible by the payer and is not taxable income to the recipient (TCJA change). This affects how parties negotiate spousal support and can influence the overall asset division.
- Retirement accounts: a prenup can specify whether and how retirement benefits (IRAs, 401(k)s, pensions) are marital property. A Qualified Domestic Relations Order (QDRO) is still required to split certain retirement plans in divorce.
Always check IRS guidance and speak with a tax advisor because tax treatment affects net outcomes. (See IRS guidance on divorce-related tax issues and alimony rules.)
Business owners: protecting your company
Business owners should take extra steps:
- Valuation clause: agree in advance on a valuation method (e.g., formula based on EBITDA, independent appraiser, or fixed multiple).
- Buy-sell triggers: specify what happens to ownership on divorce to avoid a non-owner spouse receiving shares or voting influence.
- Income attribution: distinguish between active compensation and passive appreciation to define what portion becomes marital property.
In my work with entrepreneurs, combining prenups with shareholder agreements, family limited partnerships, or trusts provides layered protection and clarity.
Real-world example
Sarah and James (an anonymized composite from client work): Sarah owned a real estate business and had substantial premarital rental properties. The prenup listed the business, the properties, and the method for valuing any appreciation tied directly to operations. When the marriage ended, the prenup prevented a forced sale and preserved Sarah’s business continuity while providing James with a pre-agreed settlement for marital contributions.
Common mistakes and how to avoid them
- Waiting until the last minute. Start the process early to avoid claims of coercion.
- Incomplete disclosure. Hidden accounts are dangerous; document everything.
- Using a single attorney. Dual representation creates conflicts and grounds to challenge the agreement.
- Being overly vague. Use schedules, numbers, and practical formulas instead of general descriptions.
Checklist for a strong prenup
- Begin discussions at least 3–6 months before the wedding.
- Prepare a full financial disclosure package with supporting documents.
- Each party hires an independent attorney experienced in family and asset-protection law.
- Include schedules listing bank accounts, investments, real estate, business interests, and debts.
- Define valuation methods for businesses and high-value assets.
- State how retirement accounts and future earnings will be treated.
- Coordinate with wills, trusts, and beneficiary designations.
- Consider a review clause to revisit the prenup after major life events.
Review and update
A prenup is a living document. Major life events — children, significant inheritance, sale of a business, or a move to a new state — are triggers to revisit the agreement. Consider adding an automatic review clause (for example, a review every five years or after a qualifying event) so the contract reflects current circumstances.
Interlinking resources
- For a deeper look at prenups as part of an asset protection playbook, read “Prenuptial and Postnuptial Agreements as Asset Protection Tools” (https://finhelp.io/glossary/prenuptial-and-postnuptial-agreements-as-asset-protection-tools/).
- If divorce or remarriage is a possibility, coordinate your prenup with estate documents; see “Updating Your Estate Plan After a Divorce or Remarriage” (https://finhelp.io/glossary/updating-your-estate-plan-after-a-divorce-or-remarriage/).
- Our core glossary page on prenups explains basic legal concepts: “Prenuptial Agreement” (https://finhelp.io/glossary/prenuptial-agreement/).
Professional tips from practice
- Use neutral valuation experts for business interests to reduce future disputes.
- Consider limited buyout funding (life insurance or escrowed funds) so an agreed settlement is executable without forcing a business sale.
- Document non-financial contributions clearly (e.g., caregiving or unpaid support of a partner’s business) and how those translate to a settlement formula.
Authoritative sources and further reading
- Uniform Law Commission, Premarital and Marital Agreements Act (UPAA/UMAA): https://www.uniformlaws.org/acts/premaritalagreements
- American Bar Association, family law resources on premarital agreements.
- IRS guidance on divorce and separation issues, and alimony tax treatment (TCJA changes).
- Consumer Financial Protection Bureau materials on couples and finances.
Limitations and disclaimer
This article is educational and does not constitute legal, tax, or financial advice for your situation. Laws and court interpretations vary by state and change over time. Consult a licensed family law attorney and a tax advisor in your state before signing any prenuptial agreement.
