Pre-nuptial agreements, or binding financial agreements as they may be known, are no longer an exclusive financial risk management tool for Hollywood couples.

Having seen what can happen when a high-profile relationship fails, increasing numbers of less famous couples are known to be opting for written agreements to protect the financial assets each partner brings to the relationship.

The popularity of binding financial agreements show men and women are taking more financial and legal precautions against a relationship breakdown or divorce, says Jenny Weaver, financial planner of the Sydney, Australia-based wealth-management and stockbroking firm Prescott Securities.

"Most see it as a form of insurance — a legally binding safety net which they hope to never need,” she says.

"These agreements have become increasingly popular among people entering their second marriage and who previously have been through a difficult settlement. While these couples want to protect themselves against potential claims, in many cases they also want to protect the assets they accumulated during the previous marriage for their children’s sake," she says.

Couples in a de facto relationship may also consider such agreements because living under the same roof for just three months may give someone a financial claim over a property.

People have become more pragmatic about such agreements, Weaver says.

"Increasingly people have seen what happens in high-profile cases and realize it is far more publicly acceptable to be up front about what they brought into a relationship."

"I say to people that if you can draw up a binding financial agreement then you will probably find it is much easier to talk about a lot of other more delicate financial matters," Weaver says.

The desire for greater financial independence among partners has also fueled the debate on running joint or separate accounts in a relationship. The decision depends on each partner’s preference.

It is worth remembering in that in many cases, if a relationship breaks down, what is earned during a marriage will be part of the settlement regardless of whether it has been held in a joint or separate account.

Whether to have a "prenup" is as personal a decision as whether to marry in the first place, says Attorney-Mediator Katherine E. Stoner.

Some of the advantages of such an agreement are: to protect your separate property; support your estate plan; it defines what property is considered marital property or community property; it reduces conflicts and saves money if you divorce; it clarifies special agreements between you, and it establish procedures and ground rules for deciding future matters.

"Creating a prenup may actually strengthen your relationship. While people often focus on the fact that negotiating a prenup is potentially divisive, it is easy to lose sight of the fact that communicating about money matters can actually improve the quality of your marriage," says Stoner.

But, of course, a prenup is not romantic.

"Being engaged conjures up images of candlelit dinners and walks in the moonlight. Although marriage is a financial partnership as well as a romantic one, if you feel that discussing something as mundane as property and finances, as well as the possibility of divorce, will mar an otherwise beautiful time of your lives, you may not be candidates for a prenup," Stoner says.

Pros

  • A premarital agreement can protect the inheritance rights of children and grandchildren from a previous marriage.
  • If you have your own business or professional practice, a premarital agreement can protect that interest so that the business or practice is not divided and subject to the control or involvement of your former spouse upon divorce.
  • If one spouse has significantly more debt than the other, a premarital agreement can protect the debt-free spouse from having to assume the obligations of the other.
  • If you plan to give up a lucrative career after the marriage, a premarital agreement can ensure that you will be compensated for that sacrifice if the marriage does not last.
  • A premarital agreement can address more than the financial aspects of marriage, and can cover any of the details of decision-making and responsibility sharing to which the parties agree in advance.
  • A premarital agreement can limit the amount of spousal support that one spouse will have to pay the other upon divorce.
  • A premarital agreement can protect the financial interests of older persons, persons who are entering into second or subsequent marriages, and persons with substantial wealth.

    Cons

  • The agreement may require you to give up your right to inherit from your spouse’s estate when he or she dies. Under the law, you are entitled to a portion of the estate even if your spouse does not include such a provision in his or her will.
  • If you contribute to the continuing success and growth of your spouse’s business or professional practice by entertaining clients and taking care of the home, etc., thus allowing him or her to focus on professional endeavors, you may not be entitled to claim a share of the increase in value if you agree otherwise in a premarital agreement. Under the laws of many states, this increase in value would be considered divisible marital property.
  • It can be difficult to project into the future about how potential issues should be handled, and what may seem like an inconsequential compromise in the romantic premarital period may seem more monumental and burdensome in reality.
  • A low- or non-wage-earning spouse may not be able to sustain the lifestyle to which he or she has become accustomed during the marriage if the agreement substantially limits the amount of spousal support to which that spouse is entitled.
  • In the "honeymoon" stage of a relationship, one spouse may agree to terms that are not in his or her best interests because he or she is "too in love" to be concerned about the financial aspects and can’t imagine the union coming to an untimely end.
  • Starting a relationship with a contract that sets forth the particulars of what will happen upon death or divorce can engender a sense of lack of trust.
  • As mentioned above, a contract can take the wind out of your emotional sails.
  • SOURCE: CNN