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Say ‘I do’
with a contingency plan in hand
By
Terry Savage
No,
a prenuptial agreement about what happens if it doesn’t
work out isn’t particularly romantic. Yes, it’s a good
idea, especially if you’ve been married before.
They say that getting married
for the second -- or third -- time is a triumph of hope
over experience. But because nearly half of all marriages
end in divorce, it makes sense to plan ahead the second
time around. And even first marriages might benefit from a
solid prenuptial discussion of how finances will be
handled to make the marriage work -- or in case it doesn’t
work!
The key ingredient in that planning process is likely to
be a prenuptial agreement. Writing one may not sound very
romantic, but it is very smart. The best and most sensible
agreements are completed when both parties are very much
in love, not when they’re considering divorce. If you’re
anticipating getting married -- or know someone who is --
why not send them the link to this article? It will
certainly start a discussion!
Prenuptial agreements aren’t just for the wealthy.
Forget the stereotype of the wealthy, older man marrying a
much younger wife. Even young couples who have already
embarked on careers could benefit from a legal agreement
about the financial consequences of divorce. Certainly,
those embarking on a second or third marriage will want to
provide for their children from previous marriages, as
well as keeping premarital property separate.
Keys to an agreement
Prenuptials aren’t limited to financial issues, although
finances generally are the critical issue. You could make
a prenuptial agreement about almost any area of potential
conflict -- during the marriage and in case the marriage
fails. It’s important to distinguish between a simple,
personal agreement of how you’re planning to handle money
matters and other important issues (such as work and
child-care priorities) and a true prenuptial agreement.
The prenuptial is a written, legal and binding document.
There are two key ingredients to a valid, legal prenuptial
agreement:
- Both parties must be represented by separate and
independent legal counsel.
- Both parties must fully disclose all of their
financial assets and liabilities. Failure to do so will
almost always void an agreement.
Once again, throw out the stereotype of the dominating
male forcing the young bride to sign on the dotted line
just minutes before the ceremony. Not only might that be
considered coercion, and thus invalidate the agreement,
but these days prenuptials are arrived at through joint
discussions handled by attorneys (and, sometimes,
accountants if there’s enough money involved) well in
advance of any marriage ceremony. And your input is vital,
so you need to discuss these issues with the person you’re
about to marry.
The purpose of a prenuptial agreement is to supersede,
where possible, state laws that apply to dissolutions of
marital property. And in states where judges are given
broad discretion over division of property and future
support, a valid prenuptial agreement limits a judge’s
ability to dictate property settlement terms. So you do
need an attorney trained in matrimonial law because state
laws vary, and because your estate plans will also have to
be coordinated with your prenuptial agreement.
Issues to address
Here are a few financial issues to consider dealing with
in your prenuptial agreement, depending on your
circumstances and state of residence.
Premarital assets. If you agree that any assets
owned before marriage will be kept separate, you might
want to set up separate, revocable living trusts and
transfer title to the assets into the name of your trust.
Marital assets. You’ll have to decide how to deal
with assets acquired by joint purchase during your
marriage and any assets and earnings you acquire
separately during your marriage. In many states, but not
all, wealth accumulated after marriage will become
community property, or at least marital property. You may
want to discuss how to divide marital property in the
event of a divorce, or make an advance agreement on
ownership of assets acquired during the marriage. (True
community property states that assume property acquired
after the marriage is equally owned by both spouses are
Arizona, California, Idaho, Louisiana, Nevada, New Mexico,
Washington, Texas and Wisconsin, as well as the territory
of Puerto Rico.)
Retirement assets. Although retirement plans are
considered separate property, in many states a non-working
spouse is entitled to a share of the working spouse’s
retirement assets. You’ll definitely want to see how the
law applies in your situation.
Inheritances. If inherited property is kept
separate from marital property, most courts do not
consider it part of the marital estate in case of a
divorce. But if you take a portion of your inheritance and
use it for a down payment on a house owned jointly, you’ll
convert this portion of your inheritance into marital
property. In any case, if you’re expecting to inherit
money, your prenuptial should spell out your intentions to
keep the assets separate.
Financial lifestyle and support. Your prenuptial
can outline your intentions for contributing to the
financial lifestyle of the marriage, during the marriage.
For example, non-financial contributions such as
child-rearing should be taken into consideration. One
spouse may limit career prospects to build the family
lifestyle. Courts take these contributions into
consideration, and so should your prenuptial agreement.
Obviously, circumstances may change during your marriage,
and a good marriage will be flexible. But a bad marriage
will break -- and that’s why most prenuptials outline a
support agreement between the spouses in case of divorce.
For example, each spouse may agree to limit ongoing
support to three or four years. Or they could agree not to
seek support from each other at all, in exchange for an
even division of marital property.
If you expect -- or simply want -- to have children, your
agreement may contain not only references to child
support, education and other expenses, but may extend to
social issues such as religious upbringing and type of
schools. And in cases of second marriages with children,
the agreement should take into account the child-support
arrangements from the previous divorce.
Terms. Many prenuptial agreements for support and
property division in the event of divorce include a scaled
agreement. That is, if the marriage lasts only one or two
years, the couple could agree to no support. If a marriage
lasts for a longer period, then either larger support or a
lump-sum payment could be agreed upon. Or the agreement
might “vest” like a pension plan -- with a portion of the
payout dependent on the longevity of the marriage. And the
couple may agree to review the terms of their prenuptial
at a certain date in the future, or the agreement may
“sunset” after a specific number of years.
Life insurance. Financial circumstances can change
during the course of a marriage. Many prenuptials call for
both parties to maintain life insurance -- with each
spouse owning the policy on the other’s life. This won’t
pay off in the case of a divorce, but as long as each has
an “insurable interest” in the other’s future, the owner
can continue paying premiums and maintain the coverage.
Estate plans. Prenuptials cover not only financial
considerations in case of a divorce, but agreement on what
happens if either of the couple dies. So the provisions of
a prenuptial must be incorporated into each spouse’s
estate plan. For example, as part of a prenuptial, the
spouse might receive lifetime use of a residence, which
will then become an asset of a child from the previous
marriage. Although different attorneys may draw the estate
plans, they’ll rely on the prenuptial to outline certain
terms. And then each spouse’s attorney should review the
separate estate plans for compliance.
A final reminder: If you’re thinking that a prenuptial
agreement is about to take all the romance out of your
marriage plans, think again. You’re about to spend a lot
of time and money making arrangements for the ceremony,
the party, the flowers and wedding dress. Those aren’t
very romantic subjects, either -- but they’ve become part
of the “tradition” of having a wedding. Now, it’s time to
start your own new tradition of planning for a financially
successful marriage through a mutual prenuptial agreement
that demonstrates your love, commitment -- and
practicality.
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