March 5, 2024 | By Michael Kimmel, CFP®
Marriage is more than just a romantic relationship—it’s also a financial partnership. If you’re planning on getting married, you and your future spouse are probably focused on planning your wedding and honeymoon. But planning for your future financial life—and for what happens if your marriage doesn’t last forever—is just as important. In this Insight, I review the pros and cons of options for protecting your assets before or after your wedding, how to approach a conversation about this sensitive subject with your spouse or fiancé, and why working with a matrimonial attorney may be helpful. While solutions like marital trusts can provide valuable protection, there are still related legal complications, and no protection is absolute.
How to Protect Your Assets Before Marriage
While divorce rates (and marriage rates, for that matter) are at a 50-year low, 39% of marriages still end in divorce. You may be looking at the world through rose-colored glasses today, but five, ten, or twenty years down the line you could be in a totally different situation. You can’t predict the future, but you can take steps today to protect your assets (and those you might inherit) from divorce.
Many people protect their assets by putting them into a trust before getting married. Some couples sign prenuptial agreements that detail financial obligations and distribution of assets in the event of a divorce. Sometimes, situations change and a postnuptial agreement is signed during the marriage. Whatever the right arrangement for your personal situation, the first step in preparing yourself for the possibility of a divorce is to talk to your future spouse.
How to Have the Conversation With Your Future Spouse
Talking to your future spouse about the possibility of a divorce and bringing up topics like prenuptial agreements isn’t easy. What if you scare them away? Won’t it damage the trust in our relationship? How do you even bring up the topic? These are all valid concerns.
The first thing to remember when having this conversation is that it’s in the interest of both you and your future spouse. While you’re the one initiating the talk, your future spouse also has the opportunity to voice his or her concerns and expectations going into the marriage. During the conversation, keep an open mind and make it a collaborative process.
Throughout a marriage, you’re going to face countless disagreements and negotiations. By discussing beforehand, you’re venturing into the uncomfortable territory but you’re also practicing communication of a sensitive topic—something that could actually strengthen your relationship.
Prenuptial Agreements
The most well-known arrangement for couples entering into a marriage is a prenuptial agreement. Prenuptial agreements serve to protect each spouse’s financials in a number of ways. If one party has children from a prior marriage, a prenuptial agreement can protect their children’s inheritances in the event of death. It can also guard a relatively debt-free spouse against being saddled with the financial obligations of a spouse with large amounts of debt. If one spouse owns a business, a prenuptial agreement can protect the business from being divided after a divorce.
Prenuptial agreements have their drawbacks, however. A spouse may have to forfeit inheritance rights they would have typically been granted in the absence of a signed prenuptial agreement. During the course of a marriage, a couple’s financial picture could change dramatically, making what seemed like a mutually beneficial arrangement seem one-sided or unfair. And finally, just the prospect of drafting and signing a legal contract prior to marriage can take away some of the romance.
Putting Assets in a Trust
Another strategy for protecting your assets from a potential divorce is to put assets into a trust before getting married. Assets put into the trust before marriage are generally exempt from becoming what is known as “marital property.” This strategy can be a way to avoid the discomfort and awkwardness around having the “prenup conversation,” but it isn’t always foolproof.
In the event of a divorce, the wealth in the trust may be taken into account, allowing for the other spouse to receive a higher portion of the rest of the assets. And if the money in trust ever gets commingled with marital funds, this could muddy the waters even further.
Protecting Assets After Marriage: Postnuptial Agreements
Postnuptial agreements, or postnups, are similar to prenuptial agreements, except they are signed after a couple gets married, usually due to some new circ*mstances or developments. They usually stem from one or more unforeseen disagreements that arise after the couple has already tied the knot.
Postnups are also used for issues that go beyond financial matters. Agreements around infidelity or assigning household duties are common elements in postnup agreements.
These agreements can be beneficial because they provide couples with a proactive, structured solution for resolving potentially serious issues, clearly establishing expectations while providing a mutually agreed-upon framework for resolving future disagreements. Because a postnuptial agreement is legally binding, it can also help provide clarity and a straightforward path forward in the event the agreement is broken.
Why You Should Speak to an Attorney Before Getting Married
Even if you don’t plan on signing a prenup or putting assets into a trust, you and your future spouse should consider consulting with a matrimonial attorney before you’re legally married. Since you know that over one-third of marriages will end in divorce, going in blind is probably not in your best interest. You should also meet with a matrimonial attorney within a certain time frame prior to marriage since any pre-planning too close to the wedding can potentially be challenged in court. Under such circ*mstances, a judge may question whether or not you rushed into an agreement too quickly and invalidate any agreements.
A matrimonial attorney will give you a grounding in family law and help give you perspective on several areas you should consider before getting married: debt, property, child custody, commingling assets, retirement accounts, and more.
The laws around marriage and divorce can also vary significantly by state, so understanding the intricacies and nuances based on where you live is also important (e.g. California and “community property”).
The best course of action will depend on both you and your future spouse’s financial situation. To ensure the best possible outcome for all parties involved, speak to a matrimonial attorney and go over your options.
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