April 23, 2020
One of the fun benefits of being a wealth manager is celebrating with clients who are getting married. Because of the close relationships we have, it’s a pleasure to share in these exciting events together. And I’m eager to work with them to plan for the wedding and future of their dreams.
The news can also be challenging, as it often sets the stage for what clients worry will be a more difficult conversation about a prenuptial agreement. These agreements have a negative representation in pop culture, so the thought of one might hang like a dark cloud over the engagement celebration. Who wants to think about the marriage potentially ending now?
But, for better or for worse, these conversations tend to shed light on each partner’s perception of money in a relationship and center around thorny topics such as trust, responsibility, gender roles, equity and financial security. For legacy wealth, other family members may have a strong say over the agreement. And for some women, it may be the biggest window into how much money they have or stand to inherit.
As a wealth manager, it’s my job to protect the long-term financial health of the client and their family. So I assure the couple that a prenup, or marital agreement, can have real value in beginning to build 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 and the roles you plan in your marriage.
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, such as:
In the case of a divorce, a marital agreement will override the default property division laws of the residence state. Accordingly, all property earned or acquired by either spouse during 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, a couple’s marital property is automatically split 50/50 upon divorce without a marital agreement. However, if a couple moves to a non-community property state, such as 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:
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 a divorce. 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.
A prenup can also clarify property ownership. If you plan to keep separate property, the key is to not “commingle,” or mix, separate property with marital property. It’s important to understand your state laws regarding separate and marital property before deciding on how assets will be held in and after (if necessary) marriage.
Separate property is generally 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.
Marital property is typically included in the division of property in a divorce.
Bringing up marital agreements with your fiancé can be a tricky business. When discussing a prenup, try to:
Marital agreements can be executed prior to marriage (prenuptial) or during marriage (post-nuptial). Either way, their key advantage is that both spouses have control — no matter where their lives take them.
If you think a marital agreement might be right for your marriage, your wealth manager can guide you through the process of establishing and executing one that is thorough and conscionable. If considering an agreement prior to marriage, we recommend executing the marital agreement at least three months before the wedding. Note that some states, like California, mandate that each spouse be represented by separate legal counsel, or waive the right to independent legal counsel in writing, prior to executing the agreement.
We understand that premarital agreements cross over terrain that’s emotional and often difficult to navigate, but in many cases the long-term benefit from disclosing assets and confirming expectations and roles early far outweighs any discomfort in the drafting process and lays the groundwork for a long and happy marriage.
Learn more about women and wealth by reading Aspiriant’s white paper, “Women Taking Charge: Six steps to feel more financially secure.”
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