Definition
A contract two people sign before marrying that sets out how assets, debts, and income will be treated during the marriage and divided if it ends in divorce or death, replacing the default rules of their state. To hold up it must be in writing, signed voluntarily well before the wedding, and based on full financial disclosure, usually with each side advised by their own lawyer. It cannot decide child custody or child support.
Why it matters
Without a prenup, state law decides what counts as marital property, and in many states that includes the growth of a business or retirement account during the marriage. A prenup is also the only way to keep one partner's premarital debt from complicating the couple's finances in a split.
Example
One partner enters a marriage with a $400,000 business and $50,000 of student loans. The prenup states that the business and its future growth remain separate, the loans remain the borrower's alone, and a home bought together is split equally. After ten years the marriage ends: the business, now worth $900,000, stays with its founder, and the $200,000 of home equity is divided $100,000 each.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.