This article by Elizabeth Renter in USA Today may be of interest to readers of this blog.
Prenups: Not just for the wealthy
Talking about money is never easy, especially with someone you love and especially when you’re talking about keeping it for yourself.
While we commonly think of prenuptial agreements as contracts for the soon-to-wed wealthy, you don’t always enter a marriage with riches, or guarantees that the bliss will last. And even if differences or difficulties don’t arise, it might not be a bad idea to have such a plan in place.
Prenuptial agreements, or “prenups,” are contracts entered into before marriage that outline the division of assets in case of divorce. They may touch on things like spousal support (alimony), ownership of businesses and properties, and even financial duties and responsibilities during the marriage.
“Since getting into the business and seeing what can happen to family relationships in a divorce, I’m not sure there is an instance where a prenup would be a bad thing,” says financial adviser Jeffery Cortright, president of Phase 2 Investment Advisers in Jenison, Mich.
While prenuptial agreements are normally thought of as a matter of assets, there are many other concerns that can be addressed in the contract, such as: the costs of raising a child, caring for a parent or going back to school; shopping habits and matters like credit card debt; the costs and proceeds of business ownership; tax liabilities; spousal and child support from previous relationships; and even how death or disability could affect the finances of your family.
A prenup, Cortright says, isn’t only for the wealthy, though having significant assets are certainly cause for such an agreement. Even when couples have less than they need or eventually want, the effort that goes into a prenuptial agreement can have benefits far beyond the financial.
When a prenup is a must-have
There are certain situations when a prenuptial agreement is a no-brainer. If one person is entering the marriage with significantly more money or assets than the other, or if one or both individuals have family money or inheritances, common knowledge says that a prenup is necessary.
But Cortright also suggests considering a prenup when couples plan on keeping parts of their finances separate. Many couples opt to have separate bank accounts and one joint account for paying household bills, for instance.
“It is important to honor the prenup in continuing separate maintenance of the accounts once married, however, because anything moved to joint ownership will be difficult to maintain accounting for access and growth or depletion,” says Cortright.
In other words, if assets (like money in the bank) are mixed, accounting for increases or losses in the event of divorce could get messy.
Why all couples may want to consider a prenup
Prenups may be the stuff of the wealthy, but perhaps they shouldn’t be. Settling on the terms of a prenuptial agreement takes uncomfortable discussions and ultimately a greater transparency between mates. These difficult talks about money can uncover things that could be disastrous if put off until several years into the marriage.
Arguments about money are a top predictor of divorce, according to a study from Kansas State University. No matter how much you make or how much debt you have, the researchers found, these arguments last longer, take longer to recover from, and include some of the harshest language.
“When a couple is ‘evenly yoked’ financially, having a prenup can help determine if there are any differences in money attitude,” Cortright says. “When one is a significant saver and the other a significant spender, it may be better to spell out the issues that could arise from those differences beforehand.”
Children can also present justification for a prenup. If one spouse enters the marriage with a child from a previous relationship, the prenup can stipulate financial responsibilities when it comes to the costs of raising a child. The same goes if one spouse is a caretaker for an aging parent.
For the most productive and civil pre-marital money conversations, a professional may be able to help.
“Meet with a non-biased financial professional — a fiduciary adviser would be best — and a couples counselor for coping with the transition to married life,” suggests Cortright. “Each meeting has the potential to show greater depth of your connection with your soon-to-be spouse.”
Although talking about money may be difficult, the conversations often pay off. The wooing and honeymoon phase of courtship can conceal potential problem areas like differing financial philosophies. Uncovering these differences could bring couples closer together when it matters most and lessen the chances of financial arguments and misunderstandings down the road.
Information provided by K.O. Herston: Knoxville, Tennessee Divorce and Family Law Attorney.