Personal Finance

I'm trying to plan early retirement and marriage — how can I create a fair prenup for pre-marital assets?

John Seetoo

Published: December 23, 2024 10:52 am

24/7 Wall Street Key Points

• Prenuptial agreements have increased 5 fold in the US since 2010.
• Gen-Z and Millennial couples are much more open to prenuptial agreements, often having come from divorced families themselves. 
• Prenups have become commonplace for couples to legally define and segregate pre-marital assets in the event of a divorce.
• Retiring early is possible, and may be easier than you think. Click here now to see if you’re ahead, or behind. ^(Sponsor)

It’s a sad commentary on the state of family cohesion when 40% of marriages end in divorce and prenuptial agreements have now become so ubiquitous that a recent Harris poll found that half of all Americans are open to prenuptial agreements. An earlier Harris poll found that the number of prenuptial agreements in the US had increased 400% between 2010 and 2023. 

Apparently, Millennials and Gen-Z couples are fueling the impetus behind this growing trend. The relationship dynamics behind the increased level of more affluent women, LGBTQ, and young professionals in alternate media and pop culture have changed radically over past generations. Many have been raised in blended families and are accustomed to divorce and remarriage among their own parents. As such, the perspective of marriages being transitory has spurred a stronger desire to protect one’s assets in the event of separation. 

Prenups and Fairness

No longer relegated to the realm of rich elites trying to protect their fortunes from gold diggers,, prenuptial agreements have evolved into a legal document reference for delineating individual assets and joint assets. As the likelihood of divorce hovers between 40% and 50%, ensuring that family heirlooms, personal mementos, and collections compiled since childhood do not become community property has taken on a higher urgency. 

A Reddit poster who is using a F.I.R.E (financial independence retire early) strategy is planning to get married and wished to solicit advice on suggestions for creating a fair prenuptial agreement to protect premarital assets.  With many young professionals, especially those in technology, achieving F.I.R.E. success at young ages due to swiftly appreciating stock options, these newly minted millionaires, bruised by the divorces during their own childhoods, are turning to prenuptial agreements for financial insurance protection. 

Fair Prenup Suggestions

The widespread adoption of prenuptial agreements has led many couples to customize theirs to suit particular circumstances. The subsequent replies contained numerous suggestions that were designed to uphold a similar goal of fairness. 

1) One couple residing in Europe created their prenup based on these steps: 

• Ownership of all pre-marital assets, business ventures and potential inheritances are designated as separate. 
• All after-tax income and income from pre-marital assets is routed to a joint account and shared 50/50. 
• Each spouse draws down an allowance from the joint account.
• All shared household expenses are paid from the joint account.
• Any assets purchased from the joint account are shared 50/50.
• As the husband is the larger earner, this arrangement gives the wife the latitude to max out her 401-K so her net worth can prospectively catch up to his.
• Gifts are irrevocable.
• Purchase of a house would involve the larger earner covering the down payment and the joint account making the mortgage payments similarly to paying rent. 
• Children would be in joint custody until they reach their teens and make their own decision as to which parent they prefer.
• Alimony would only be at the minimum legally mandated level.
• Asset segregation only in the case of divorce, since larger jointly held assets in case of one spouse’s demise yields tax benefits.

Most other respondents offered variations on the above with some additional pointers:

• Depending on the degree of net worth disparity, one suggestion was for the husband to establish an irrevocable trust for the wife with an annual contribution for the investments to grow. This could be used as a nest egg for the wife in the event of a divorce or could be designated for the children if the couple remained together. 
• Several replies advocated only buying a house with jointly owned money unless no other alternatives existed, due to potential ownership percentage disputes in the case of a divorce. 
• As laws frequently change, one warning was to review a prenup for compliance updates on a regular basis, since a new statute or precedent could invalidate part or the entirety of some prenups drafted as recently as only 5-10 years previously.