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Start-Up or Merger? The Role of Premarital Agreements

Prenuptial AgreementOne of the most common questions a family law attorney can hear at a cocktail party upon stating their profession is “Do you think I’m someone who should have a prenup when I get married?” A prenup being a premarital agreement (or “prenuptial agreement”), which governs the division of a married couple’s assets when they get divorced, and can even do so when one of them dies.

A typical lawyer answer, one we all learned in law school, is “it depends.” And for premarital agreements, it really does. Every couple can benefit from discussing their finances ahead of marriage, and what their goals are as they enter what is likely the most important “business relationship” of their lives. Marriages aren’t commonly viewed as business relationships, since couples tend to marry for love. But given all the benefits, ranging from tax breaks, to insurance coverage, to even a special category of property ownership, marriage is typically the most important financial, and not just emotional, relationship a person can have. Most marriages fall into two camps that are easy to parse out in cocktail party land – “start-ups” or “mergers.”

A “start-up” couple may be young, have few if any assets, are likely entering their first marriage, and probably earn similar incomes. They’re like any “start-up” business we think about in Silicon Valley—they may have lots of potential, but are starting from the beginning together. A “merger” couple may be older, have assets, perhaps one person has been married before or may have children from a previous relationship, and they may have an income disparity. At least one party in a “merger” couple is typically more established—they’ve already met some life milestones, or have had enough success that they see their upcoming marriage as substantially impacting their finances.

It’s impossible to predict the future and know how life will unfold for a couple who are soon to be married. A prudent way of parsing the ground to cover in a premarital agreement is for a couple to discuss their goals. Do they want to have or adopt children? If so, will one of them stop working, or work less to care for those children? Does someone own a business, or want to start one? What contributions are being made to retirement or pension accounts? Does someone already own property, or do they plan to buy property together? What happens if someone dies? Is either party set to receive a substantial inheritance? Either type of marriage (“start-up” or “merger”) can benefit from a “business development” conversation and discussing what a future dissolution may look like.

Premarital agreements can cover those topics, and even have “sunset provisions,” which expire after a certain period of time, and which can be especially helpful for a “start-up” marriage. Both parties can waive a claim to spousal support, except if one party stops working to care for any children, or if a marriage continues for a certain number of years. Parties can delineate what will happen to any business interests, whether those exist at the time of their marriage or are created later. They can waive interests in each other’s retirement accounts, and re-execute the premarital agreement after marriage to more fully comply with the requirements of the Employee Retirement Income Security Act of 1974 (ERISA), which is especially helpful for a “merger” couple.

The parties can decide that property ownership should be determined by who has title to a property, or instead by contributions made to a property. They can even agree to waive interests in each other’s estates, if they have children pre-dating the marriage or other loved ones they want to pass their assets to instead. Other than child custody and child support, a premarital agreement can establish just about every other facet of how a “start-up” or “merger” marriage ultimately ends. As in the business world, having a plan for the future can set a couple on the pathway to a prosperous and lasting relationship.

Our Family Lawyers

If you are considering entering into a prenuptial agreement, be sure to speak with an experienced family law attorney in your area. Livesay & Myers, P.C. has a team of experienced family lawyers across offices in Fairfax, Arlington, Ashburn, Manassas, and Fredericksburg, representing clients across Northern Virginia. Contact us to schedule a consultation today.