When confronted with most of life’s major financial decisions, most people go to great lengths to ensure they make rational, objective choices.
“Most successful people are planners,” said Cordell & Cordell Principal Partner Joe Cordell. “They get there by way of thinking a lot about the important decisions in their life, whether it’s what college to go to, where they’re going to live, what job they’re going to pursue, whether they should change jobs.”
However, in regards to the single biggest financial decision a person can make – choosing to marry – far too many people fail to consider any of the financial implications.
A marriage contract essentially means all of your assets are hopelessly comingled with your spouse’s. Saying, “I do,” not only gives your spouse half of your current wealth and what you bring to the marriage, but nearly every asset acquired during the marriage as well. This becomes problematic in the event of divorce considering that one spouse usually contributes disproportionately more in assets to the marriage.
When marriages fall apart, many people are thrown into a desperate, and often hopeless, battle to protect the financial assets they’ve worked years to accumulate.
Of course, this could all be avoided by signing a prenuptial agreement. Unfortunately, too many negative connotations are still associated with prenups.
A prenuptial agreement is a contract that re-writes the laws of divorce and estate law and is an obvious way to protect your financial interests. However, the perception exists that only extremely wealthy people need prenups and that they destine a marriage for failure.
It doesn’t matter how much money you make, your assets are still personally valuable. A construction worker making $40,000 can be just as financially devastated by a divorce as a professional athlete making millions.
And the idea that acknowledging the possibility of divorce by discussing a prenup is a silly notion. Refusing to recognize that risk when nearly half of all marriages end in divorce is to turn a blind eye to reality and won’t increase your odds of having a successful marriage.
Being able to have a rational conversation with your spouse-to-be about how to fairly handle such matters is a sign of maturity. States are even seeing the agreements as strengthening a partnership. The Michigan Supreme Court stated that prenups “allow couples the opportunity to ensure predictability, plan their future with more security, and, most importantly, decide their own destiny.”
According to a Harris Interactive Poll, nearly half of all divorced people wish they had a prenup, but only about 5 percent of couples actually have them.
There are several factors you need to consider to determine whether or not a prenup is right for you. These four are especially crucial:
- Age: the older you are, the more likely you need one.
- Children from previous relationships: a prenup can protect the financial future of children from previous relationships in regard to things like inheritances. However, prenups can’t regulate issues relating to children of the future marriage.
- Presence of substantial assets: while everyone needs to protect their assets, the more you have, the more you stand to lose.
- Disparity of assets: if you are bringing many more assets into the marriage than your spouse, it is smart to get a prenup.
Prenups are recognized in all 50 states, but it varies by state as to what makes one valid. Typically, it needs to include these five elements:
- It must be in writing;
- It must be executed voluntarily;
- It must have full and/or fair disclosure at the time of execution;
- The agreement can’t be unconscionable;
- It must be executed by both parties typically before a notary public.
Asset protection can be a complex and murky area of the law to navigate, and it is important to always have a family law attorney review a prenuptial agreement before you enter into it, because you will almost certainly be bound to it in the event of divorce.