It’s quintessentially unromantic, but apparently in-Vogue, to present your soon-to-be spouse with a prenuptial agreement … the “just-in-case-this-doesn’t-quite-work-out” agreement. Maybe you’re the starry-eyed first-timers with little assets to lose, who haven’t yet been financially charred by a partner. In this case, perhaps the prenuptial creates more problems than it presupposes to avoid. But for those second, third, and fourth-timers out there … the woman whose credit card happy man spent her into oblivion, or, the man whose woman cashed-out of their marriage in a hotly-contested-fight-over-everything divorce … a prenuptial agreement may be just the thing to help you walk down the aisle again and give love another chance.
It’s not surprising that most couples would rather see each other naked than share each other’s credit reports. Though opening the discussion of a prenuptial agreement is usually uncomfortable, it is also an opportunity to have an important conversation that will affect how you live your lives as a married couple, with a clear understanding of what happens if you decide to go your separate ways.
Top Ten Things to Think About
When thinking about what your future holds and taking steps to protect yourself, think about all of the “what ifs” that are likely and unlikely to occur, and then agree how to handle those events.
1. Premarital Assets/Debts: Make a list of the assets and debts you each currently hold in your name, and think about your intentions with respect to those assets/debts. Will they remain separate and distinct property, or, might these be inter-mingled with your marital property? What if one person’s asset is used to pay off the other person’s debt (for example, school loan or credit card debt) … will the paying party need to be reimbursed, or will it be treated as a gift? What if you use premarital property to buy a new home or other asset you’ll own together? Will the paying party need to be reimbursed, or is it a gift? Making these decisions before you tie-the-knot will hopefully avoid later arguments.
2. Marital Assets/Debts: These are the assets and debts you will both accumulate together as a married couple. With respect to these, think about how they will be handled during your marriage. Will they all be owned jointly? 50/50? Will you have joint credit cards? Are you the saver and your soon-to-be spouse the spender? (Typically, there’s one of each in every union!) This arrangement can work, so long as you each understand the other’s money habits and have worked out a way to assure that your needs and concerns are properly addressed. Before merging your financial worlds, you might want to determine…
a. Who will make the financial decisions and handle the checkbook?
b. Is there a threshold amount that can be spent by one person without the “consent” of the other?
c. Will you maintain joint and/or separate bank accounts?
d. Do you have similar approaches to savings? Debt management?
e. How will you each contribute to your retirement savings?
f. If you have children from a previous marriage (minors or adult), do you have an understanding how ongoing support payments may be made? College tuitions? Weddings? Gifts to grandkids?
3. Credit Reports: Consider the past when planning the future. Relationships can waiver when one is a spender and one is a saver. Similarly, if one of you is comfortable borrowing money and the other is not, you may be on a collision-course, as unwanted debt begins to accumulate. Plan ahead to avoid joint credit issues, such as pledging your home as collateral for a new business venture or using a home equity line to pay for a new boat or recreational vehicle. If one or both of you have bad credit, owe back taxes, or have other skeletons in the closet, now is the time to make some decisions about how these will be managed going forward.
4. Employment: Are your work ethics aligned? Do you value his work around the house? Does he believe that raising children has monetary value? If you can foresee or anticipate a career change now or in the future, have you planned for or thought about what might happen if you are no longer bringing home a paycheck? What if you are laid-off? Disabled? What if you were extraordinarily unhappy in your workplace and needed a career change? Think about how having a financially separate-but-married life might be affected in these situations.
5. Spousal Support and/or Alimony: Since the laws vary from state-to-state, do you want to create and agree to your own terms, which may differ from what state law permits? Once you are married, is it the expectation that you will both work and contribute equally to the household? What if there is a change in circumstance causing one of you to leave the workforce (for example, you voluntarily decide to return to school), will this affect how you view the need for spousal support?
6. Gifts and Loans from Family Members: Individual or Marital? If you receive a gift from a family member, will this be owned jointly or by the person whose family gifted the item? How will you handle an inheritance? What if it is used or comingled with a marital asset? Similarly, if a family member loans you money, who will be responsible for repaying the debt?
7. Taxes: If you have determined that your finances will remain separate and distinct, will you also file your taxes separately? Are you concerned that your partner won’t file his/her taxes properly and may expose you legally? Does either partner have any historical issues with the IRS that may affect the other partner down the road? Is a refund at risk of being seized because of an old debt? Can you legitimately seek the benefits of filing jointly as a married couple, when in fact, you are maintaining your financial lives separately and distinctly? Have you consulted with an accountant or tax attorney?
8. Duration of the Premarital Agreement: Does it make sense to renegotiate the agreement after 5, 10 or 20 years? Will certain life events impact how you feel about your security?
9. Business Ownership: Do you or your spouse own a business? If so, perhaps consider whether to agree to a forensic accounting review or auditing of the business’s financial records in the event of a separation or divorce. Do you work together? Own the same business? Again, planning ahead with how you will approach dividing this asset may save a lot of heartache down the road.
10. Death or Disability: It is important to have a thorough estate plan in place soon after your wedding, particularly if you have children from previous relationships, so that the disposal of your estate meets your intentions if you were to suddenly pass away. Think about …
a. What if you are separated or on your way to divorce just before your death? What provisions might you want to see?
b. What if you die while happily married?
c. Are there specific devises you wish to make? Family heirlooms?
d. Do you have a life insurance policy? Who is/are the beneficiary(ies)?
e. Who is the beneficiary on your retirement plans? IRAs? Etc??
f. Does your prenuptial agreement terminate automatically at your death?
g. What will happen to your spouse in the event of your death, and visa versa? Will he/she have a home to live in? Will he/she have access to funds to survive day-to-day? Will your death cause a hardship?
h. What will happen if one of you becomes incapacitated or disabled? Do you have Living Wills? Who will handle the finances under those circumstances? Do you share Powers of Attorney? Do you have disability insurance? Long term care insurance?
Litigate or Mediate?
The final topic, which should always be addressed in any antenuptial agreement, is the decision whether to litigate or mediate future disputes. Consider the benefits of including a clause that directs you towards mediation, collaboration or another alternative dispute resolution method rather than litigation.
On a final note, broaching the subject of a prenuptial agreement needn’t be an off-putting discussion or cause irreparable damage to your new relationship. Consider sitting down with a certified family law mediator, who can help you through these issues together.