Do I Need a Prenup Marriage and Money
When it comes to uncomfortable conversations to initiate with your spouse-to-be, few discussions are more dreaded than that of whether to get a prenup. Will he think I’m greedy and obsessed with money? Will she think I don’t trust her? Will he doubt that I love him?
Please read The Legal Seagull’s disclaimer before proceeding further. This article is neither legal advice nor a substitute for an attorney’s services. The laws in your jurisdiction may differ in significant ways.
Why people shy away from prenups.
Some people worry that getting a prenup kills the romance by planning for a divorce before the wedding, at a time when the couple is madly in love and planning a future and family together. Others believe that a prenup is a self-fulfilling prophecy: Plan for a divorce and that is what you will get.
For others, prenups do not necessarily present a moral or philosophical dilemma. They simply do not believe they will get divorced. This is not all that surprising. People tend to be optimistic—and love and passion sometimes cloud rational decision making. While most people know the frightening statistics—between 40-50% of marriages in the United States end in divorce—no one expects his or her marriage to fail.
Many people never consider a prenup because they believe (mistakenly) that only the rich and famous need them. We’re both broke, why should we waste money we don’t have on something we won’t need? This is another common misconception. As discussed below, prenups can even be drafted to protect someone from his or her spouse’s debts, and to protect the spouse who is less financially stable.
Marriage is like a business. You need to plan how to pay bills; feed yourselves; save money; manage debt; afford a home; and, eventually, start a family (not necessarily in that order). If you do not bring up the “M-word” (money) prior to marriage, it will come up after. I can personally guarantee that.
Even if you ultimately decide not to get a prenup, strongly consider meeting with an attorney to discuss whether a prenup is in your best interests. Many attorneys offer free consultations for that purpose.
Community property vs. equitable distribution states.
There are two different systems for distribution of assets upon divorce—community property and equitable distribution. As of 2017, community property is the law in Arizona, California, Idaho, Nevada, New Mexico, Texas, Louisiana, Wisconsin, Washington, and Alaska (optional). This amounts to about 25% of the population of the United States. In community property states, income, assets, and debts obtained during marriage are split equally (50-50) between the spouses.
In the remaining states (the majority) of the United States, the prevailing law is equitable distribution. Under this system, the judge has broad authority to distribute assets and liabilities in an equitable (fair) manner. Depending on the state, the judge may consider, among other things:
- The length of the marriage;
- Each party’s health, education, training, and age; and
- Whether a party is at “fault” for the marriage ending (e.g., adultery, abuse, etc.)
Scenarios that apply to almost everyone
1. Protect money and property acquired prior to marriage.
If you have assets you acquired prior to marriage, you probably want to protect them. This may include bank accounts, stocks, bonds, real estate, vehicles, personal items, jewelry, or a trust fund. This is especially important in community property states.
Here is an example: Peter and Lois are about to get married. They live in a community property state. Peter has $25,000 he inherited from his mother and another $30,000 he saved while working at the local ice cream parlor.
In theory, the assets acquired prior to marriage are Peter’s separate property and Lois would not be entitled to them upon divorce. The problem arises when assets get commingled, making it difficult to trace the source of the original assets. For example, Peter and Lois may:
- Fund joint bank accounts with assets they are bringing into the marriage;
- Mix Peter’s inheritance and savings with additional income earned during marriage (wages, bonuses, etc.);
- Use the funds for a down payment on a home;
- Invest money in stocks, bonds, and real estate; and
- Use funds to pay off bills and mortgage payments
As the months and years go by, it becomes more and more difficult to determine what portion of the assets originated from Peter’s premarital assets. A well-drafted prenup may protect Peter from a contentious and expensive divorce and from losing a significant portion of his premarital assets.
2. Protect income and assets obtained during marriage.
Depending on the state, a prenup can protect income you earn during marriage and even limit the amount of alimony your ex-spouse can collect.
Here is a simple (perhaps over-simplified) example to illustrate this point:
Tarzan and Jane live in a community property state. Prior to marriage, Tarzan had $10,000 in savings, which he maintained in a separate account throughout the marriage. During their 20-year marriage, Tarzan refused to work, spending every day swinging on trees, eating bananas, and pounding his chest ferociously. With Jane working three jobs, the couple managed to save $200,000. When Tarzan filed for divorce, he kept his $10,000 premarital savings and half ($100,000) of the couple’s joint savings.
I am NOT suggesting that Tarzan should not be entitled to anything because he did not work. Many families consist of one wage-earning spouse, with the other primarily responsible for raising children and managing the household. In some families, a spouse cannot work due to disability, illness, or incapacity. In this particular scenario, however, Tarzan does not appear to be contributing much of anything. A prenup could have eliminated Tarzan’s share of Jane’s wages, or at least limited it (e.g., 15% instead of 50%).
3. Carry out your final wishes if your will is invalidated.
You might be reading this article and thinking, “When I die, my will already spells out who gets what.” Keep in mind that a will can be contested. If the will is successfully contested and invalidated by the court, your assets may be distributed in accordance with a prior will or your state’s intestate succession law. Here is an example:
Martha and George are a childless married couple living in the State of Atlantis. Before they married, Martha had $50,000 that she won in the Atlantis lottery. Martha’s will states that upon death, the $50,000 should go to her sister Abigail. Martha is killed in a duel. George challenges the will on grounds that it did not comply with Atlantis law because it was not signed and there was only one witness instead of two. The judge sides with George and invalidates the will. With no valid will, Atlantis’ intestate succession law applies. George inherits everything, including the $50,000.
Wills can be contested on numerous grounds, including but not limited to:
- Failure to comply with formalities;
- Undue influence;
- Lack of capacity; and
- Fraud
If Martha and George had negotiated a prenup listing the $50,000 lottery prize as Martha’s separate property, George would not be entitled to that $50,000 upon her death. The moral of the story: Before participating in a duel, make sure your affairs are in order. Just kidding, do not participate in a duel! The real moral of the story: A prenup can serve as a “backup” if your will is found to be invalid.
4. Reduce or eliminate uncertainty, extensive litigation, fighting, and bitterness in a divorce proceeding.
When negotiating a prenup, soon-to-be spouses anticipate potential points of disagreement and determine in advance what will happen to their assets (and liabilities) if they divorce.
When you are in love and planning a future together, discussing the division of your assets upon divorce can be a very uncomfortable conversation. But if you think that is hard, imagine that same conversation during a bitter divorce proceeding where each of you is represented by an aggressive attorney. Did I mention that each attorney bills at a rate of hundreds of dollars per hour?
In law and love, nothing is certain; however, a well-drafted prenup can eliminate or reduce unpredictability, conflict, and financial loss. The few hundred—or thousand—dollars you save by not getting a prenup could cost you tens—or even hundreds of thousands—in attorney’s fees alone.
Common scenarios where a prenup may make sense
1. You or your future spouse have children from a prior relationship.
Children from a prior relationship can introduce uncertainty and tension into your upcoming marriage. If I get divorced, will my spouse take money that I saved for my kids? If your soon-to-be spouse has children, he or she may have the same concerns.
Whether you discuss it with them or not, your children may also be anxious. Will dad’s new wife get all of my future inheritance through divorce or death? What will happen to Grandpa’s priceless watch?
A properly-drafted prenup can substantially reduce uncertainty, protect your children’s financial future, and allow everyone to breathe a sigh of relief.
2. You own a business.
A prenup can help protect the business you worked hard to create and grow. Even if you built a successful business prior to marriage, you could still face a claim by your ex-spouse that he or she is entitled to partial-ownership or some interest in the business. This is especially true in community property states if joint efforts were invested to support and build the business.
To prevent or reduce the likelihood of this scenario, a prenup can specify that some (or all) of the business is your separate property—even if your spouse contributes money and labor into the business.
If you have business partners, they will probably be thankful that you did some planning. Imagine this scenario:
Mario and Luigi are general partners in a plumbing business. Mario owns 60%; Luigi owns 40%. Mario’s wife, Peach, files for divorce, and ends up owning half of Mario’s share. Now, Mario owns 30%; Peach 30%; Luigi 40%.
Neither Mario nor Luigi can stand Peach, who does not know a darn thing about business or plumbing, and who left Mario for Toad, a young Salsa dancer. Because the three do not always agree on company decisions, they are often deadlocked, with no one holding a majority. Every month, the brothers must write Peach a check for her share of the business’s income. Mario and Luigi rarely enjoy each other’s company anymore. Mario cries himself to sleep most nights and wishes he had negotiated a prenup with Peach.
3. Your future spouse has a lot of debt.
Generally, a person is not liable for debts incurred by his or her spouse prior to marriage (again, read the disclaimer!). Nevertheless, if you and your spouse end up commingling your assets (e.g., joint bank accounts, etc.) it may be difficult to determine who owns (or owes) what. Moreover, if you decide to refinance or consolidate your debt, things get even murkier. The last thing you want is to be liable for your ex-spouse’s gambling debts, alimony from a previous marriage, back taxes, and more.
Consider including a provision in the prenup that all debt acquired prior to marriage will remain separate and that each spouse will not be responsible for debts acquired by the other during the marriage.
4. You or your future spouse plans to obtain (or is working towards) an educational/professional degree or certificate.
Each state has its own laws regarding the division (or non-divisibility) of degrees and licenses upon divorce. Degrees and licenses are inherently expensive—often costing over $100,000. They are also extremely valuable because they significantly improve earning potential and employment prospects.
Oftentimes, a person will sacrifice his or her career to financially support a spouse in obtaining a degree or license. This leaves the supporting spouse vulnerable in the event of a divorce. On the other hand, the spouse who obtained the degree will continue benefiting from it for the rest of his or her life.
Here’s another hypothetical: During her marriage to Mark, Cleopatra earned her nursing degree. Most of her tuition was paid for by her parents and some money she inherited from her grandparents. They decide to get divorced. Mark claims that based on their state’s laws, he is entitled to a portion of the nursing degree’s value (in addition to Cleopatra’s future income) because the degree was obtained during marriage.
A decent attorney could have anticipated this problem and drafted a prenup specifying how the degree should be valued and divided upon divorce.
5. You are planning to put your career on hold to raise a family and/or support your spouse.
It is not uncommon for a person to sacrifice his or her career to raise children or benefit a spouse’s career. This may include relocating, quitting a job, or giving up a career.
Take this example: Josephine and Napoleon fall in love and decide to get married. Josephine quits her job as an advertising specialist in Los Angeles (with a salary of $80,000 per year) to move to Cleveland and start a family with Napoleon. Before she quit, Josephine was on track to be promoted to junior vice president and get regular increases in her salary. Napoleon just started his career as an architect, also making $80,000 per year. With Napoleon as the breadwinner, Josephine focuses on raising their two children, Genghis and Khan.
Ten years pass, and the couple decides to divorce. Now, Napoleon earns $250,000 per year and has a promising career. Josephine, on the other hand, sacrificed her career years ago and must now start from scratch, probably making significantly less money than Napoleon—and less than she was making before.
Without a prenup in effect, Josephine is at a significant disadvantage and may have a hard time supporting herself.
Conclusion
If you are planning to get married, hopefully this article has not scared you away from the altar. Prenups are not for everyone; however, a sensible prenup can protect your financial future, reduce or eliminate uncertainty, and make divorce less contentious and expensive.
Even if you think divorce is unlikely, do yourself a favor and consult with a family law attorney to determine whether a prenup is right for you.
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