Impact of Prenuptial Agreements in High-Income Divorce

For many couples, the thought of a prenuptial agreement seems like a hex on the marriage, like you’re dooming it to fail by contemplating a possible end. But the reality is that all marriages will end someday, either through divorce or death. In either situation, it is important to be sure that financial protections are in place to protect you if you find yourself single again. When the separation is due to divorce, a prenuptial agreement can be a critical tool in simplifying and expediting a high-income divorce because so many issues have already been resolved between the spouses.

Prenuptial Agreement Protects Against Financial Instability

A prenuptial agreement can be an important protection against financial instability, especially when your spouse is a high-income earner. For couples with a significant income disparity, i.e., one spouse earns a lot more than the other, it is important to craft a financial agreement that will protect the lower income/lower asset spouse while times are good and happy. A prenuptial agreement during the engagement allows the parties to create provisions that will protect each other and ensure that neither faces financial hardship after a divorce. It allows the parties to have peaceful discussions about difficult issues during a period where they are thinking about what is “ours”, versus what is “mine.”

Maintenance that Is Fair and Reasonable

In many marriages where one party earns a disproportionately higher income, a prenuptial agreement will be put into place to ensure that the less well-off spouse will receive maintenance, and often the amount of maintenance is dependent on the length of the marriage, which follows the Illinois statute on spousal support. By agreeing to maintenance in a prenuptial agreement, the parties eliminate leaving the issue of support to a judge’s discretion, both as to whether it happens and, if so, how much support is appropriate. The parties make that decision for themselves and, in doing so, ensure a maintenance award that both think is fair and reasonable.

Benefits to the Higher Income Spouse

For the higher income spouse, agreeing to a maintenance award in a prenuptial agreement can be a means to save money on maintenance in the future if they see a significant income or asset increase. For example, if a spouse agrees to pay $5,000.00 per month in maintenance based on their income of $400,000.00 per year, but during the marriage, their income increase to $1,000,000.00 per year, they were able to set a much lower cap on maintenance than their spouse would be entitled to in court. 

Benefits the Lower Income Spouse

For the lower income spouse, agreeing to a maintenance award guarantees they will receive maintenance, which is discretionary, without a big, expensive fight. While the recipient runs the risk that the amount they receive is lower than they could receive if maintenance were calculated as the time of the divorce (see example above), they are also protected from a situation where a judge could decide they are entitled to a lower amount, or not entitled to maintenance at all.

Identifies Nonmarital Property

A prenuptial agreement is an incredibly helpful tool in identifying nonmarital, which allows the parties to keep what is rightful theirs without a fight as well as identify what property needs to be divided. As part of the process, both parties will create lists of the financial assets and debts and their nonmarital property. If the parties divorce, they will be entitled to keep the items identified on their list as nonmarital. This applies not only to bank accounts, clothes, and personal items but also to cars, real estate, retirement accounts, and all forms of property. This is especially important for a high-income spouse who may be coming into the marriage with a large amount of high-value personal property that they want to ensure will remain with them in the event of a divorce.

Identifies What Will Be Marital Property

Likewise, a prenuptial agreement can also identify what the parties intend to become marital property. If a party purchases a house before the marriage but lists it in the marital property exhibit, the house has been purposefully converted into marital property and is divisible between the parties. While this will most likely cost the original owner equity, at least it will save them in legal fees.

Explore Our Guide for Messy Issues in High Asset Divorce

Once the divorce petition is filed, it is common for the higher-earning spouse to stop using “ours” and start using “mine.”  An intense possessiveness over money and assets will often show itself, and there’s no longer a willingness to share or protect their spouse. In these situations, it’s rare that a higher income spouse will agree to maintenance or accept their obligation to pay money to their spouse with much grace or understanding. Grumbling and acrimony are much more common, which makes these conversations that much more difficult and, depending on the desire to fight that obligation, much more expensive. 

Considering a High-Income Prenuptial Agreement?

When contemplating a prenuptial agreement, it is important to make a full disclosure of your assets and your debts to be sure that both parties have the ability to consult with an attorney who is experienced with experienced prenuptial agreements beforehand as to their rights (or knowingly waive that right), that both parties have ample time to read the agreement, and that the agreement is not signed on the eve of the wedding. These are all potential grounds for invalidation of a prenuptial agreement, so it’s critical to be sure that the agreement is drafted and executed with the assistance of a family law attorney who knows how to handle high-income prenuptial agreements to ensure they are fair, equitable, and enforceable should you ever need it.