From the February 2007 issue of Investment Advisor • Subscribe!

February 1, 2007

Planning the "Prenup"

Where a prenup is clearly the planning tool of choice, the following approaches may help to smooth negotiations and ensure the establishment of a valid, legal instrument.

Start early. Try to get the couple comfortable with the concept. Avoid rushing the decision-making process. A last-minute agreement may not hold up in court -- springing a prenup on an unprepared future spouse may be viewed as coercive and open the door to a successful legal challenge.

Retain separate legal counsel. Having his-and-her lawyers is mandatory in some states, and highly recommended in all of them. It is virtually impossible for a single lawyer to represent both parties with impartiality. If the court determines that either spouse lacked adequate counsel, the agreement is likely to be struck down.

Make full disclosure. Complete and honest accounting of income, debts and the fair-market value of bank and investment accounts, jewelry, art, real estate and other assets--on both sides--is essential. Both parties must conceal nothing. Otherwise, the prenup risks being invalidated.

Be fair. Punitive or one-sided agreements, especially between couples of disparate means, are likely to be voided. The same holds true for agreements based on unreasonable demands. For instance, a prenup cannot be used to force a spouse to lose weight, quit smoking, or become a vegetarian.

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