The mere mention of a prenuptial agreement can be enough to send chills up the spines of most romantics and cool the ardor of even the most passionate Romeos and Juliets. However, marriage is an institution formalized by a legal contract and, to a certain segment of the population, the prenuptial agreement is simply an addendum to that basic contract. Here we explain the basics of the prenuptial agreement and explain why these contracts are being viewed increasingly as practical documents rather than cynical safety nets for non-romantics.

Many people react with disbelief when they hear that someone they know is going to sign a prenuptial agreement; however, these contracts can be designed to benefit both parties in case of divorce. Imagine the case of a woman whose fiancé has inherited the proceeds from an ongoing, closely held business valued in the billions of dollars. According to the couples' prenuptial agreement, if the marriage lasts for at least three years, this man's future wife would receive a $1-million lump-sum payment, the house, the car and all child-related expenses paid in full for life. Because her fiancé's family has spent generations building a successful business, one messy divorce could wreck everything and leave multiple families without their only source of income. (To read more about weddings, see Revealing The Hidden Costs Of Weddings.)

What Is It and How Does It Work?
At the most basic level, a prenuptial agreement is a contract that clearly defines the division of assets should the marriage end in divorce. Some agreements also address estate planning issues, alimony, asset management during the marriage and responsibility for debt. Each party to the agreement is generally represented by a separate attorney, and the agreement is signed prior to marriage. Courts often frown on agreements signed immediately prior to the marriage, so entering into the agreement at or near the time of engagement is highly recommended. (To learn more, see Getting A Divorce? Understand The Rules Of Dividing Plan Assets.)

In the United States, each state has its own laws for interpreting the agreements. According to the National Conference of Commissioners on Uniform State Laws, in 2005, 26 states had agreed to honor the Uniform Premarital Agreement Act, which encourages the enforcement of premarital agreements and permits married couples to select the specific state law under which their agreements will be interpreted. However, it should be noted that an agreement may not be required in states where community property laws assign each individual the assets he or she had prior to the marriage. (For further reading, check out The Benefits Of Having A Spouse.)

Why Do People Sign It?
It's sad but true: love doesn't always last. According to statistics compiled by Divorce Magazine, divorce rates bottom 50% in a number of countries. These statistics indicate that, in 2002 (the latest year for which statistics are available), the following countries led the pack for percentage of new marriages that end in divorce.

Country Divorce Rate
Sweden 54.9%
Belarus 52.9%
Finland 51.2%
Luxembourg 47.4%
Estonia 46.7%
Australia 46%
United States 45.8%
Denmark 44.5%
Belgium 44%
Austria 43.4%
Czech Republic 43.3%

The United States boasts a divorce rate of 49%. Although experts may debate the precision of the numbers of any particular survey, divorce rates in the solid double digits underscore the reality that marriages have an extremely high failure rate.

Furthermore, the financial implications of divorce are becoming increasingly complicated. Because many more people are marrying later in life, a large number of these people have had time to build their lives, amass assets and assume responsibilities before they decide to tie the knot. Older single people may own real estate, businesses or self-made personal fortunes, and divorced people looking for love the second time around may have more than just assets - they may also have financial obligations from their first marriages, including children or debts. (For more insight, see Kids Or Cash: The Modern Marriage Dilemma.)

Pros and Cons
The practicalities of modern life have made prenuptial agreements more acceptable than ever. These agreements can help to clearly define financial issues, reducing conflict during the marriage and preparing both parties for the consequences of dissolving their union. They can provide the less affluent spouse with the comfort of knowing that an end to the marriage doesn't necessarily mean an end to the lifestyle to which he or she has become accustomed. Furthermore, the presence of a prenuptial agreement allows a couple to make the important decision of how their assets will be divided should their relationship end in divorce, rather than allowing a divorce court to have the final say.

On the other hand, getting married is a public declaration of love and commitment and an exciting occasion for most couples. Mapping out a plan for what you'll do if things don't work out isn't exactly the most hopeful and romantic way to begin married life. Indeed, discussing a premarital agreement can cause some people to doubt the strength of their marriage.

To Sign Or Not To Sign
Discussions about a prenuptial agreement may be the first opportunity you will have to communicate with your partner about money. Like it or not, money is one of the things that most couples fight about, and financial matters will likely play a big role in your married life. These discussions can be an opportunity to lay the foundation for a secure future, or even present the chance to realize that you almost married the wrong person.

When it comes to deciding whether a prenuptial agreement is right for your relationship, it is important to set aside the emotional aspects of the issue and look at it from an objective standpoint. Get familiar with the applicable divorce laws and make sure you understand their implications before you sign on the dotted line.

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