Monday, December 6, 2010

Saying 'Yes' to a Prenup

http://online.wsj.com/article/SB10001424052748704767804575655223931267664.html
By EMILY GLAZER

When 24-year-old Desiree Burns got married in March, she and husband, Timothy, settled into his house in Raleigh, N.C. They vacation at his timeshare in Florida. And Mr. Burns, 28, is helping to cover tuition costs since Ms. Burns has gone back to school.

Thanks to a prenuptial agreement, if they ever get divorced, Mr. Burns keeps the home and vacation spot. She gets the pets.

"I don't feel that it's right to take part of something that I wasn't part of before," Ms. Burns says.

The Burnses aren't alone. Prenups are becoming more common among younger couples. And the contracts aren't just about protecting individual assets and divvying up property in case of a divorce. More young adults also are using prenups to shield themselves from a partner's debt and to even the field when one spouse shoulders the financial burden early in the marriage.

The contracts help young couples have a frank talk about their finances, which often aren't discussed before marriage, says Gabriel Cheong, a divorce attorney with Infinity Law Group in Quincy, Mass.

"You want to be secure in the idea that you did this so long ago that you planned for your future out of love, rather than out of hate when you're getting a divorce," he says.

The cost of setting up a prenuptial agreement varies by geographic location and a person's financial complexities. Prices typically range from $500 to $2,000 per person.

So when is a prenup worth the expense -- and the potentially awkward conversation?

Many young adults, unable to find a job after graduation or laid off because they were the last hired, are returning to school. And that usually means taking on more debt. Mr. Cheong says he often sees situations where one spouse works full-time -- and supports a young family -- while the other goes to school full-time.

In this case, a prenup could specify that the spouse who bankrolled the education would get reimbursed if a divorce occurred. In Ms. Burns' prenup, for example, if she gets divorced within five years of finishing her degree, she must pay back half of the money her husband contributed.

Prenups also can address who is responsible for paying debt a person has coming into a marital union, such as credit cards or a car loan, as well as debt incurred during the marriage. (Otherwise, courts might split debt equally.)

Tom Petrelli, managing director of Philadelphia-based Petrelli Law, says clients can stipulate what happens if a spouse decides to change careers, and alters a couple's financial situation.

With the job market still tight in many industries, more young adults are opting to start their own business -- often running it from home. And in some cases, a spouse unofficially helps the business get off the ground. A prenup, lawyers say, can spell out how home-business assets would be divided if a marriage goes south.

And some people want to protect assets they could inherit some day. Hunter Lowder, 30, got a prenup with her husband, now 34, when they married six years ago to outline her 100% ownership of a trust that includes her family's commercial real estate, home construction and insurance businesses.

Ms. Lowder, who lives in Carmel Valley, Calif., says her sisters and cousins will all sign prenups so the businesses are passed down to their generation.

"When it affects other people and their ownership in a company and their future and their finances," Ms. Lowder says, "you can't just say 'I'm in love.'"
—Email: emily.glazer@wsj.com