Sorry to be
a downer — discuss 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: Nothing fizzles the romance of an engagement or wedding like negotiating a prenuptial agreement.
A prenup is a contract that outlines how a couple will split their financial lives if the relationship does not work out. While most of us may think of a prenup as something for the very rich, disastrous divorces and the financial horror stories associated with them also are common among the rest of us. Couples can 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 and inheritances.
The process forces each person 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. 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 his 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 of a closely held business, these contracts are essential to 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 choose to live together without legally marrying. 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 also will 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, 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 approach this subject in the middle of a fight or the night before the wedding.
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. The process is worth it. A prenup can save a lot of future heartache.
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