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Love And Money: Should You Protect Your Assets Before Marriage?

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Love And Money: Should You Protect Your Assets Before Marriage?

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Although not as fun as choosing the destination and “saying yes to the dress”, it may have crossed your mind whether putting a prenuptial agreement in place is something you need to add to your to-do list in advance of your Big Day. Data shows that the number of couples deciding to do so is increasing rapidly. According to a survey conducted by The Harris Poll, the number of Americans with a prenup is 15%, up from just 3% a little over a decade ago, a 500% increase.

And that number is very likely to continue increasing, as the average age of first-time marriages creeps upwards. Furthermore, prenuptial agreements, once a concept whispered scandalously in gossip circles, have refurbished their image over the last couple of generations. The Harris Poll found that 4 in 10 adults now support the use of prenups and that 35% of those who are unmarried say that they are likely to sign one in the future. Anecdotally, I’m in my late 30’s and have several personal friends who are now getting married and have begun asking me whether a prenuptial agreement is something that they should consider, too.

In my experience helping women chart a financial path during and after divorce, I have certainly seen situations in which a prenuptial agreement would have clarified issues and reduced financial uncertainty. Even if you ultimately decide not to get a prenuptial agreement, at the very least, the scenarios below serve as good discussion points.

Document Your Assets Before the Wedding

This isn’t a point of discussion so much as practical advice. If you have assets in your name prior to the marriage, whether retirement accounts, brokerage accounts, savings accounts, etcetera, download copies of the most recent statements just before your wedding and save them somewhere you will remember. This documents the amount you each came into the marriage with.

Note that for any non-retirement accounts that you truly want to keep separate and pre-marital, don’t deposit any new money that isn’t also separate or pre-marital. For example, if you have $50,000 in a savings account as of the date of marriage, but then transfer money in from your (now marital) paycheck each month, you’re effectively mixing separate and marital funds, and it would be difficult to claim that the account was still separate property.

Prenuptial Agreements as a Tool to Protect from Spousal Debts

People intuitively understand that a prenuptial agreement serves to protect assets that have been accumulated prior to the marriage. What couples may consider less is how prenups can protect against debt either brought into or incurred during the marriage. An article in The New Yorker describes a couple who got a prenuptial agreement to protect the wife from large medical bills upon the husband’s terminal cancer diagnosis. Those debts would have otherwise become hers after his death.

Regardless of whether a prenuptial agreement is in place, when one or both spouses are entering the marriage with significant debt, couples should clarify, up front, what expectations are around how those debts will be paid. A prenuptial agreement can specify that each individual is responsible for their own debts and can protect assets accumulated prior to the marriage from being used to pay off the other spouse’s debt in the event of divorce.

Prenuptial Agreements to Protect a prior Home Purchase

These days, it’s common for one partner to have purchased the marital home prior to the marriage, and for the non-owning spouse to pay some or all of the housing-related bills. Marital funds are also often used to make renovations or improve the property. Naturally, there can be strong feelings about how the value of the home should be divided, when both partners feel they have contributed and deserve a share of the proceeds.

Generally, if the new spouse was never added to the deed, it remains separate property, but it becomes complex when marital funds are used to maintain and improve it. If the original home is then sold and the proceeds are applied toward another home purchase, it becomes even more complex. Deciding at the outset how you want the value in the marital home to be treated in the event of divorce can save a tremendous amount of headache and set expectations from the outset.

Prenuptial Agreements to Protect Future Financial Security

Pre-nuptial agreements can also serve to protect future wealth. In my experience, the most vulnerable situation I see women get themselves into is when they step out of the workforce to care for children. Years out of the workforce erode future earning potential, and spousal support is rarely enough to make up for this lost income.

I recently brought this scenario up to my friend and matrimonial attorney, Paige Zandri, founding partner at Artese Zandri PLLC. Paige told me that she often works with couples who come to her to help them figure out a solution to this exact situation. “I encourage my clients to visualize, without inhibition, how they imagine raising their future children with their partner. Often they admit that if they can afford it, at least one partner will significantly reduce their investment in their career in order to be home while their children are still pre-school age and beyond. It is a very real financial sacrifice by one partner to support the family, and we’re not talking about a nominal or finite amount of money, we’re talking about compounding earning potential and opportunity costs that are lost and sadly, in some cases, can never be regained. Prenuptial agreements are such a fantastic and readily available way to financially secure both parents in the event either of them chooses to leave the workforce to raise children.”

Whether You Prenup or Not, Have the Conversation

The situations above merely scratch the surface of scenarios that could warrant putting a prenuptial agreement in place. Consulting with a matrimonial attorney in your state could help you identify potential issues that you weren’t originally aware of. Tech startups are also getting into the prenup game and offer a great alternative for couples who may not have a lot of complexity but want to clarify a few details in advance of the wedding. HelloPrenup is one such service whose website looks similar to a fun wedding planning site; nothing like a stuffy legal site that one might envision.

Of course, the Catch-22 here is that discussing these details requires good communication, a hallmark of a strong marriage, and strong marriages don’t often result in divorce. But even strong partnerships sometimes need help discussing something as vulnerable and steeped in emotion as money. Personal finance author and expert Ramit Sethi openly shares that he and his wife went to couples counseling to help them work out the details of their own prenuptial agreement.

Ultimately, whether you decide to get a prenuptial agreement or not, discussing how you feel about various financial scenarios with your partner can help to establish a mutual understanding of financial responsibility in the relationship from the outset.

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