Prenuptial Pacts Move Mainstream

Prenuptial agreements are often associated with millionaire moguls and super celebrities, but the truth is prenups are not only for the über rich and famous.

In fact, people of all ages and ranges of net worth could find a lot of value in signing one before they tie the knot.

One of the most basic benefits of prenups, which makes them appealing to couples in all walks of life, is they make it a lot easier to sort out things if a marriage should end in divorce.

"Prenups can really minimize the amount of time and money you spend in litigation if the marriage doesn't work out." Says Pamela Valentine, an attorney with Marsh Valentine & Donohoe, which specializes in matrimonial and family law.

"At that point the spouses aren't feeling very warm and fuzzy," Valentine says, adding that being able to refer to a prenup can make the process a lot easier "than waiting and trying to resolve issues at a time when no one is feeling particular cooperative."

Valentine added that having a prenup in place is often most advantageous to couples without a very high net worth.

"Sometimes the less to fight over the harder it gets," she says, which "can often make the litigation process more difficult."

This is particularly true if there are a lot of illiquid assets involved, such as real estate, retirement funds or sentimental property that can be difficult to divide.

Lure Of Limited Liability

Another general benefit of prenups, Valentine said, is that they can provide each person protection from the other partner's pre-marital liabilities or liabilities that are connected to their separate property.

For instance, if one spouse has a liability, such as a student loan, that is named in the prenup as their individual liability, the other partner is free from obligations tied to the loan. "This works best when the liability is in one party's individual name or in connection with property in one party's individual name," Valentine said.

Valentine had one case in particular where there was no prenup and student loans became a big issue. In this instance, the non-student partner co-signed a student loan with the student partner, which made the loan an obligation for both partners.

The problem, she said, could have been partially alleviated if they had a prenup that stated in the event of a divorce only the student party would be responsible for the obligations in connection with the loan.

The same rules can be applied to tax and bankruptcy issues. For example, if a tax liability is in one of the partners' individual name, a prenup could safely prevent the liable party from claiming that the liability is a marital obligation. In terms of bankruptcy the same holds true.

Though it depends on the circumstances of the prenup -- most likely a prenup won't be deemed valid if it's believed it was entered into with the intent to avoid creditors.

Flexibility A Factor

Another aspect of prenups that makes them attractive to a wide array of people is their flexibility. There is a common misconception that prenups are very rigid and result in the less financially endowed spouse coming out with nothing in the end. Those types of agreements, however, are actually rare and often unenforceable because they don't comply with general fairness principles.

The reality is that "as many people as there are, there are as many types of prenuptial agreements," says Jan Bernstein, a partner with Riker Danzig Scherer Hyland & Perretti LLP, which focuses on family law.

"There are all sorts of triggers that people are building in their prenups these days to mold and craft the agreement to fit their age, lifestyle and what they see for the future," explains Bernstein.

They include more typical clauses, such as one that terminates the prenup after a set period of time -- known as a sunset clause. But prenups can also be tailored in order to serve the individual needs of the couple, for example, by determining which spouse will be responsible for the housework or who will stay home and care for the children.

In one instance, Bernstein drafted a prenup that went as far as including which spouse would be responsible for taking out the garbage.

"Sometimes people really like to try to order their lives," says Bernstein, who notes, "They are not planning for a divorce but instead planning for a marriage."

Another benefit of prenups, albeit an ironic one, is their ability to help strengthen a relationship - that is if the couple makes it through the arduous drafting process.

While there is no denying that prenups are unromantic, they do require each person to completely disclose all of their finances up front. That can be very helpful in opening the lines of communication and avoiding complicated financial problems later on in the relationship.

In addition, Valentine of Marsh Valentine & Donohoe argues that because creating a prenup is often such an emotion-charged and unpleasant experience, couples that get through that process are more likely to be able to work through difficult issues in the future.

Core Customer

While prenups have a wide range of benefits, there are certain groups for which they are particularly appropriate. For instance, men and women getting married for the first time later in life have had more time to accumulate assets and thus more to protect. Bernstein adds that the number of women who are in their 40s, and getting married for the first time who are requesting prenups for the first time continues to rise.

Folks that are getting married for a second time - particularly those that already have children -- may also want to consider a prenup as a way of preserving their assets and estate. This could include couples that have already gone through a divorce or those who have been widowed.

Prenups aren't necessarily for everyone. Drafting one can be pricey -- ranging from $5,000 to $15,000, depending on your lawyer and the level of complexity -- so if you know you are going to be fighting over a few thousand dollars it may not be worth it.

One thing that might help you decide whether a prenup is right for you is to acquaint yourself with the law of your state, Valentine said. "If there is something about the law you do not think sounds fair as it would be applied to you, think about whether it might make sense to set down a different rule by way of a prenup." Also, she said, if you enter into a prenup make sure it is stated that it will be interpreted under the law of the state under whose law it was written incase you relocate later on.

This is important because, in New York for instance items such as professional degrees, practices, businesses and earnings realized during the marriage, are subject to equitable distribution in the case of a divorce.

This can often be devastating to one of the partners.

© 2009 CNBC.com