Do you Trust Me?
Important Conversations About Love and Finances Before You Say, “I Do”
By Jacqueline Combs, Esq. Blank Rome
There you were sitting at the dining room table, talking about which band you are going to pick for the wedding two months away, when he blurts out, “We need to talk about a prenup.” While you were busy planning the start of a lifetime together, reality struck. Statistically, your marriage may not last. “Don’t you trust me?” you ask, stopping to reflect that your perfect relationship may not be so perfect after all. Or, should you look at this through a different lens?
There is a stigma surrounding premarital agreements (prenups) that is not necessarily based on facts. The misconception that requesting a prenup is, essentially, planning for divorce before the first dance, clouds the wisdom behind these agreements. In reality, prenups can, in fact, protect both parties.
There are many reasons for wanting a premarital agreement. Consider some of these scenarios:
- Family wealth. A prenup can insure that any separate funds used during the marriage to purchase a home, or other assets, remain that party’s separate property, unless there is a written intention to gift the asset to the marital estate/community property.
- Family businesses. A prenup can insure that your interest in the business remains with the family.
- Children from a prior marriage. In the event that one party already has children, a prenup can insure that they are taken care of financially in the event of a divorce or death during a subsequent marriage.
- Debt. In the event of divorce, a prenup can specify the responsibility of each party with respect to certain debts then outstanding, such as student loans.
Today, more and more people are marrying later in life, and are getting remarried. As a result, people are coming into marriages with substantially more wealth and assets than someone straight out of college, thirty years ago. Ultimately, having a prenup is creating a roadmap to unravel your circumstances should the marriage not work out. It does not mean that you won’t follow the law, it just may mean that you acknowledge, in writing, that one party came into the marriage with equity in his or her home valued at $1,000,000 rather than having to look for old paperwork twenty years in the future to prove that he or she had that equity at the time of the marriage.
While the party taken by surprise in our example above may not like the idea, the premarital agreement can also serve to protect them. For example, if your soon-to-be-bride works a few hours a week for the family business, but ultimately receives distributions from a trust as her primary source of income, that income from the trust is her separate property. Unless there is transmutation of those funds, that income remains her separate property and she can build her separate property assets while you work to build the community or marital estate without contributions from your partner. Twenty years later, she’s built a $5,000,000 separate property estate, however the community’s assets are only valued at $3,500,000. Had you realized that her income wasn’t community property or that you both weren’t equally contributing to the community or marital estate, you may have had a discussion earlier on as to how to allocate expenses and contributions towards the community/marital estate.
While these conversations may be difficult and daunting to have, it is important to discuss and sign a prenup as early as possible before the wedding. Having a prenup doesn’t mean you don’t trust your significant other, it just means you would like to have a plan in place should things not turn out as planned. And that, is smart.
Prenup discussions can bring up topics you haven’t dealt with before, such as, learning how much your significant other makes, how much debt he or she may have, how he or she pictures maintaining a household, and so forth. Worst case, you may learn that your significant other doesn’t have the best intentions, which may be a difficult realization – but it’s better to learn sooner rather than later. On the other hand, these conversations provide an opportunity for couples to work through the practical aspects of marriage, such as managing money, allocating responsibilities of income earners, caregivers, and raising children – which in turn, can bring you closer together as partners.
While all prenups are different, it is important to factor in the following aspects before signing one:
- Each party should be separately represented by an experienced matrimonial/family law attorney. While you may have a real estate attorney friend who is willing to represent you at a reduced rate, protect your interests by hiring someone who knows what happens in the event of a divorce.
- Both parties must disclose all assets, income, and liabilities.
- While you want to protect yourself, don’t be greedy. Play fair.
- The agreement should be clear and concise to insure you have a valuable document to work from many years in the future.
- Understand what it means to include estate planning provisions in your prenup and to file for divorce in different states. Protect yourself accordingly.
Marriage is a partnership and a premarital agreement can lay the framework for a successful one. How someone acts during the negotiations of the prenup is not always indicative of how they may act during a divorce, but it still may be a precursor to how he or she does business and what he or she expects from his or her business partner. It’s not always about trust. t’s about having a plan in place to protect yourself and your assets when you don’t know what the future may bring.