American Idol winner and celebrity Kelly Clarkson is involved in a high-conflict divorce. As she is worth an estimated $45 million, she has significant financial exposure. Her monthly child support and support alimony obligation is approximately $200,000. Due solely to the disparity in resources between her and her husband, she was required to pay him $1.25 million to assist him with legal fees. (Source: People).
Kelly Clarkson protected herself before their marriage by entering into a prenuptial agreement. During the divorce, her husband tried to attack the agreement and have it invalidated, but he failed. As a result, there is less to fight about, because their agreement defines what is marital property and separate property. Their judge just ruled that the $10 million ranch where her husband is currently living belongs to Kelly. If the ranch would have otherwise been marital property and divided in half, then Kelly saved herself $5 million for that piece of property alone, just by having a prenuptial agreement.
Divorce is Predictable, and You Can Insure Yourself Against It
Philosopher Nassim Taleb calls unpredictable, unexpected and devastating events “black swans.” Like seeing a black swan in the wild, a black swan event is very rare and cannot be predicted beforehand. By this definition, a divorce is not a black swan event. Even though every engaged couple enters marriage with hope of a lifelong happy relationship, almost half of first marriages end in divorce. Although divorce is unpleasant and undesirable, it is a foreseeable potential outcome.
Every state has laws which set default rules for divorces, including child support, spousal support, and division of property and debts. Those default rules apply to every married couple in a divorce, with one exception: where there is a valid prenuptial agreement. Prenuptial agreements can change the rules for:
- Ownership of land, buildings and personal property
- Ownership of businesses and intellectual property (ideas)
- Ownership and division of savings and retirement accounts
- Exposure to debts
- Spousal support (alimony)
- Attorney fees
A prenuptial agreement is not necessarily “unfair,” even though it departs from how state law would affect the marital estate differently. Premarital agreements are fair in the sense that they give each spouse more certainty about outcomes in the event of a divorce, as opposed to the uncertainty associated with the broad discretion given to family law judges.
There Are Many Reasons for Women to Have a Prenuptial Agreement
Gender roles and expectations in the United States are shifting. As of 2020, women made up more of the U.S. workforce than men. This trend will likely continue, as an even greater percentage of women are attending college than are men. This means women who are getting married are more likely to have more assets to protect, such as valuable premarital business and property interests and retirement savings. In addition, distrust in the government is increasing. A prenuptial agreement can remove discretion from state judges and minimize the uncertainty associated with divorce and family law matters. For these reasons and more, women are seeking prenuptial agreements more than ever.
How to Prepare for a Prenuptial Agreement
If you are considering marriage and a prenuptial agreement, discuss it with your partner. Communication well in advance of the wedding can reduce conflict about the idea, and you will both be better served if you don’t wait until the last minute to try to put an agreement together. Gather information about the nature and value of your separate property interests, and ask your partner to do the same. Consult with your financial advisor and a qualified matrimonial attorney for specific advice and ideas about how to preserve your hard-earned savings and insure yourself against unnecessary loss.