If you’re going to create a prenuptial agreement covering your assets with your future spouse (a good idea), make sure it doesn’t cover just the obvious such as your bank accounts and your house—or you could be sorry later. There are certain types of surprisingly valuable assets that many people forget.
A prenuptial agreement isn’t the most romantic thing to think about before getting married—it spells out in writing which assets each spouse will keep in the event of a divorce and which assets each spouse has control over during marriage. But it can protect your financial future and reduce the likelihood of a long, expensive court battle. What’s more, by agreeing in advance how to divide your property, you retain control over key decisions that might otherwise fall to a judge during divorce proceedings.
For that reason, most people write prenups that focus on major assets such as their savings and investment accounts, retirement accounts and houses. But when you enter into a marriage, you often bring with you other assets that might not immediately seem important to include—things both tangible (such as valuable furniture) and intangible (such as an idea for a business that could make you rich someday).
Identifying these less obvious assets and spelling out who retains them in case of divorce helps ensure your prenup will provide the protection and benefits that you expect. Consider these important but sometimes overlooked assets when writing a prenup…
• Frequent-flier miles and other rewards points. When tabulating assets, couples often forget to include the points they have amassed (or will amass) through various airline, hotel and other rewards programs.
But frequent-flier miles can easily be worth thousands of dollars in airline tickets—which makes them and other collections of rewards points a potential source of contention during a divorce.
One solution is to specify in a prenup that each spouse retains all frequent-flier miles and other rewards points accumulated in his/her own name. Dividing up rewards points can be trickier in cases where rewards earned by both spouses are held in one person’s name—for example, if a wife arranges most of the family’s hotel reservations and collects hotel rewards points in her name for rooms she shares with her husband. Some rewards programs make it difficult (or impossible) to transfer points to someone else, so if you expect to have one spouse in charge of a rewards program, your prenup can specify that this spouse will compensate the other partner at an agreed-upon rate for any rewards acquired during the marriage.
• Digital assets. Today it’s common for married couples to share digital libraries of music, e-books and movies that they’ve purchased and other digital assets. The accounts containing these assets can be especially hard to divide during a divorce because many digital assets can’t be freely copied and shared. If you’re a heavy consumer of digital media, your prenup can state that one spouse will retain control of specific accounts and their contents—such as the 10,000 songs in your shared iTunes library or the 100 movies you bought and downloaded from Amazon—but will reimburse the other person at an agreed-upon rate such as half the value of the digital library.
• Jewelry. Expensive pieces of jewelry often become points of contention in divorces. Some states, such as New York, consider gifts that spouses give each other to be shared marital property that must be equitably divided in a divorce—which means that without a prenup, your soon-to-be ex may have the right to a portion of the value of the jewelry that he/she has given you over the years. You can avoid these debates by spelling out terms for each spouse’s jewelry in your prenup. Example: Your agreement may state that any piece of jewelry given by one spouse to another remains the separate property of the recipient. This approach will prevent the spouse who gave the gift from requesting a portion of its value during a divorce.
• Collectibles. Many collections, such as sports memorabilia or vintage toys, can be worth quite a bit of money. If you came into the marriage with a valuable collection, it likely will be considered your property in case of divorce. But in some states, all assets acquired during the marriage count as marital property, meaning that your spouse has the right to half the value of the baseball cards or comic books you continued collecting. As a result, you would be required to compensate your spouse for his/her portion of that property. And if you couldn’t reach an agreement, a court could order you to sell some or all of that collection and divide the proceeds.
If you plan to continue collecting after you get married and want to be sure you can keep that collection intact, use a prenup to specify that you’ll maintain ownership of the items with the provision that you will pay your ex-spouse an agreed-upon amount in compensation for any value added to the collection during the marriage.
• Heirlooms. Treasured family keepsakes can have emotional importance as well as significant financial value. As such, they can become the subject of bitter disputes in a divorce. To prevent these arguments, your prenup can specify that each spouse retains control over family heirlooms that the spouse brings into the marriage, such as his family antiques and her grandmother’s jewelry. However, you also can include provisions for heirlooms that each spouse might receive during the marriage due to a future inheritance. Adding these items to a prenup clarifies that future inherited objects won’t be counted as marital property—meaning that you won’t have to compensate your former spouse for the value of treasured family objects you inherited during the marriage.
• Intellectual property. Trademarks, patents, royalties from book sales and similar intellectual assets can provide ongoing income that’s quite valuable—and can be subject to division in a divorce. Example: If you began writing a book when you were single but it wasn’t published until you were married, your spouse may be entitled to a portion of your royalties in perpetuity after a divorce. A prenup can list important intellectual property—including ideas for a business, an invention or a movie—that predate the relationship and specify that you will control any future revenue derived from it.