The Unromantic Wedding Gift: A Prenup
It’s wedding season and as thousands of happy couples prepare to take vows, just a fraction will spend time contemplating the end of their relationships. Let’s face it: signing a pre-nuptial agreement (“prenup”) is the most unromantic engagement or wedding gift ever. A prenup is a contract that outlines how a couple would split their financial lives in the event that the relationship does not work out. While most of us may think of a pre-nup as something for the very rich, after hearing about disastrous divorces and the financial horror stories associated with them, it’s clear that many more couples might benefit from the process that forces them to outline what they bring into the marriage, how they might split up assets accumulated during the marriage (marital property), including a home, and how the couple intends to manage family gifts or an inheritance.
The process is exposing because it forces each spouse to air his or her dirty laundry. Are there old credit card balances that should be disclosed? Did Uncle Murray leave a huge trust that could be used to pay for future education expenses? Although difficult, the process can be especially helpful for those entering a marriage with an uneven level of assets or liabilities. Consider this scenario: Joe has $50,000 of education debt, while Jane has none. They work hard to pay off the loans together and when they are almost done, Joe announces that he is no longer in love with Jane and is leaving. Sure, Jane was happy to forego savings to help pay down debt, but how might she feel when Joe is walking out the door to start his debt-free life with his new girlfriend?
For those who have been married previously or have children from a prior relationship, the prenup is a helpful way to keep assets separate and to honor previous obligations. And if you are the owner—even just a minority one—of a closely held business, these contracts are essential because they can protect your equity, while establishing a predetermined formula to be used to pay out a spouse, in the event of a breakup.
There is one more group that could use protection: those who are not legally married, but choose to live together. Marriage offers many legal and financial protections, which means that unmarried couples need to jump through some additional hoops to protect themselves. Instead of a prenup, consider consulting a matrimonial lawyer, who can draft a “No-Nup,” which includes agreed-upon terms in the event of a future breakup. The lawyer will also help guide you through the process of buying property together, including titling, how a down payment might be repaid when/if the property is sold and which member of the couple will claim certain tax-deductible expenses like mortgage interest and property taxes.
If you are convinced that a prenup would be smart for you and your honey, it’s important to approach the topic without sounding like a jerk. Start by having the conversation at a time that feels “safe”—do not blurt it out in the middle of a fight or the night before the wedding!
Matrimonial attorneys advise that the earlier the conversation occurs, the better. Open up the dialogue by saying that you would like to discuss how both of you can feel protected in the event that the relationship does not last. If there is immediate resistance, do not push the conversation; rather back off and make a plan to revisit it. The process is worth it: while not romantic, a prenup but can save a lot of future heartache.