The Key to a Happy Marriage:
A Pre-Nuptial Agreement
One of the things that turns high-profile divorces into fodder for gossip magazines is the couple’s finances. News coverage of big breakups usually only takes a few paragraphs to get to the big question: did the couple have a pre-nup? Did one of the spouses sign under duress? The media treatment of these events makes it easy to see why pre-nuptial agreements have been stigmatized as a wealthy person’s “get out of marriage free” card.
In reality, pre-nups, or marital agreements have real value in building a good marriage. No matter who has what or how much, a marital agreement can be an effective, practical way for spouses to list assets and define roles in the marriage.
For example, with the guidance of a thoughtful expert, couples can use their marital agreement to declare that the husband will care for the children, the wife will work and all earnings will be divided equally during and, if necessary, after marriage. Setting these expectations early and confirming them throughout your marriage can be a healthy way of tackling the often-taboo subject of money.
When to Say “I Do” to a Marital Agreement
We strongly recommend marital agreements in certain financial situations that have nothing to do with a clairvoyant ability to foresee the end of your marriage. We simply know your situation includes one of the following:
- A significant difference in wealth between individuals entering into the marriage. While not always easy to negotiate, a marital agreement can help you reach key financial decisions ahead of time that can otherwise throw curve balls into the marriage.
- Children from a prior relationship.A marital agreement can ensure that pre-marriage assets are available to those children in the case of death or divorce. It also can help set the stage for your family’s estate planning.
- A business that is owned by you or your family. A marital agreement can confirm and clarify important issues…like a reasonable salary level for the business-employed spouse…to preclude claims against the business alleging otherwise if the marriage ends. These types of issues can cause substantial headaches for small businesses, as well as unnecessary delays in the divorce process.
- Children getting married. No matter how much you love your soon-to-be-son or daughter-in-law, you may still want family heirlooms and assets to stay in the family. If asking your children to get marital agreements feels awkward, add a provision in your estate plan that no outright distributions can be made to your married child from the trust unless your child and his or her spouse have a marital agreement that protects inheritances in effect. This puts the blame on you, who is likely no longer living.
Tips for Talking to Your Family about a Marital Agreement
Bringing up marital agreements with your fiancé, spouse or child before they get married can be a tricky business. When discussing a marital agreement, try to:
- Frame the conversation in practicalities
- Focus on the positives – role definition, mutual expectations, values
- Be honest about your finances to encourage an open exchange and harmony in the marriage
Same Agreement, Different State
Marital agreements can be executed prior to marriage (“prenuptial” agreement) or during marriage (“post-nuptial agreements”). Either way, their key advantage is that the couple stays in control—no matter where their lives take them. In the case of a divorce, the agreement will override the default property division laws of the residence state. Accordingly, all property earned or acquired by either spouse during the course of the marriage will be divided in a way that was predetermined by you and your spouse.
This can be especially valuable for couples who have opportunities to relocate. In a community property state like California, without a marital agreement, a couple’s marital property is automatically split 50/50 upon divorce. However, if a couple first moves to a non-community property state, like New York or Ohio, and then files for divorce, the court will take an inventory of all marital property and then attempt to divide it between the spouses, considering a variety of factors such as:
- Length of marriage
- Earning history and potential future earnings of each spouse
- Each spouse’s role in the marriage
- Future responsibilities for children from the marriage
This process, called equitable distribution, does not necessarily yield a 50/50 property division. It puts the power in the hands of the court and makes it possible that one of the spouses might walk away with no marital property or future spousal support.
While marital agreements may not be appropriate for every couple, if properly drafted they can make a marriage easier and reduce the pain of the end of a marriage. Regardless of what state you live in, the division of property during divorce, or after death, can be an emotional, time-consuming and expensive process. Depending on the situation, a marital agreement can make the process run more smoothly while ensuring that your assets are divided pursuant to your original wishes.
Joint Households, Separate Property
Regardless of your decision about a marital agreement, if you plan to keep separate property, the key is to not “commingle” (i.e., mix) separate property with marital property.
- Property earned or acquired before the marriage
- Gifts and inheritance received by a spouse after the marriage
- Generally is off-limits for the division of property at divorce, in both community and non-community property states…but income from separate property may be considered in a divorce, depending on the facts and circumstances
- Property earned or acquired during the marriage
- Property covered by marital agreement, including gifts and inheritances that are delineated as joint property
- Generally is included in the division of property in a divorce
Executing a Marital Agreement
If you think a martial agreement might be right for your marriage, your Aspiriant team can guide you through the process of establishing and executing one that is thorough and conscionable. For clients considering an agreement prior to marriage, we recommend executing the marital agreement at least three months before the wedding. Note: some states, like California, mandate that each spouse be represented by separate, independent legal counsel, or waive the right to independent legal counsel in writing, prior to the execution of the marital agreement.
We understand that premarital agreements cross over terrain that’s emotional and often difficult to navigate, but in many cases the long–term benefits from properly disclosing assets, and confirming expectations and roles is worth the effort.