Prenups aren’t always a given.
I’m 35 years old and am getting married in a few months. Financially, I’ve been pretty successful and have a nice little nest egg, plus investments and a few real estate properties. How do I protect my finances when I get married? Should I insist that my partner sign a prenup? It just seems so unromantic! Plus, I don’t want it to seem like I expect the marriage to fail. What steps should I take to protect my long-term financial security? What conversations should I have with my spouse-to-be before we tie the knot?
Preparing to get married is an exciting time, but it is also fraught with expectations, tough financial decisions, and potentially awkward conversations. Also: Joint accounts can be scary.
Although getting married can be financially beneficial, sharing the wealth — and the debt — can make you feel like you’re paying more than your fair share. That’s why in most cases, it’s best to set clear financial expectations from the start and take steps to protect your assets, especially if one partner comes into the marriage with significant wealth or with children from previous relationships.
We spoke with several experts, who sounded off on whether to sign a prenuptial agreement, how to discuss finances without hurting each other’s feelings, and how to protect your assets.
Start With an Honest Conversation
The first step in the process is sitting down with your fiancé and having a candid conversation about money.
“Before you wed, you should explore values surrounding budgets, debt, lifestyle, retirement goals and plans, children and college, and so much more,” says Lynn Ballou, CFP® and regional director of EP Wealth Advisors in Lafayette, Calif. “It’s OK not to agree on everything, but [for] example, if you are marrying someone who doesn’t care about borrowing for a better lifestyle while you really want to own what you have before you purchase it, there’s going to be a lot of tension and conflict.”
She suggests meeting with a financial counselor to help facilitate these conversations.
Carla Dearing, CEO of online financial planning service SUM180, suggests asking several different questions of your soon-to-be spouse in order to get a more complete financial picture.
Start by sharing your credit reports, she says.
“Any joint account you open will require a credit report being checked for both you and your spouse. If your spouse’s credit is too poor to use for a home or car loan, you may be tempted to take on those financial responsibilities on your own,” she explains. “But be careful: Depending on where you live… should you face a divorce, you may be solely responsible for the debt owed on your home or car.”
Asking your potential partner if he is carrying significant debt is another big one.
“Debt can put a big strain on a marriage,” Dearing explains. “And, although legally you’re not liable for debt your spouse had before you got married, realistically, once you’re married, you will likely be involved in paying off your spouse’s debts. That’s why it’s important to be open with about how much you owe before you get married. This way, there are no surprises. You’re building trust and teamwork by deciding together how to handle debt that’s still on the books.”
Having an honest conversation early can very well make the difference between a good marriage and a not-so-good one, experts say.
“Money values are not an easy topic, but shared values are often the difference in a happy marriage,” Ballou says.
Should I Insist on a Prenuptial Agreement?
For Ballou, the answer is a resounding “yes.”
“However, you can present it in a more acceptable light perhaps by making it part of setting up a couple’s estate plan,” she notes. “Just be sure you have your own attorney review whatever you want to put in place before you sign. It’s important that you each have your own counsel.”
Dearing says it really depends on the situation.
“If you’re getting married for the first time and either you or your spouse have significant assets or perhaps even debts, it can be a good idea to plan how to handle these if the marriage doesn’t work out,” she says. “Don’t think of a prenup as a negative. Entering married life with these decisions made calmly and fairly beforehand may take some pressure off your relationship, so you can focus on enjoying your life together.”
When a prenup really comes into play is if there are children from previous relationships, Dearing explains.
“Again, it’s not about anticipating the failure of your marriage,” she says. “The context of a prenuptial agreement should be: How do we protect and provide for our extended families?”
In this case, the prenup can ensure your estate plan isn’t changed by your surviving spouse and that your property will pass along to your children from a previous relationship rather than to your new spouse. It can even allow you to waive rights to your spouse’s life insurance or retirement in order to make your children the beneficiaries, Dearing explains.
“However, if you don’t have children from previous relationships, a prenup is much less important — and probably should not be a deal-breaker,” she says.
After all, aside from the powerful romantic and emotional reasons you get married, you are probably also getting married in part to reap the financial benefits of the married state — i.e., to take advantage of the economies of scale and to build wealth together. A prenup may end up being limiting and counterproductive,” she says.
Although your first impression of a prenup may be how unromantic it seems, it doesn’t have to be that way, Ballou says.
“You and your fiancé should create a relationship with a trusted certified financial planner who will help both of you pull together all the important pieces of financial life,” she says. “That helps frame this conversation much more inclusively and more in the context of all the things ‘we’ need to do.”
Protecting Your Assets
“You want to ensure your separate assets remain separate and that you protect your finances from future divorces, future access to someone who’s untrustworthy, and from creditors should [your spouse] have issues with bankruptcy or lawsuits or something like that,” explains Loretta Hutchinson, founder of Financial Divorce Plan LLC, CFP® and Certified Divorce Financial Analyst®.
“You want to make sure that what you have acquired [prior to the marriage] stays separate. Every state is different on what this means. What I would recommend is keeping those assets in your name only. Once you start combining, they become marital assets,” Hutchinson says.
Jennifer Kruger, assistant branch manager of Fidelity Investments’ Park Avenue Investor Center in New York, New York, suggests focusing on the long view in order to start uniting your financial lives.
Setting goals is an important step to take, Kruger notes. Whether these goals are joint financial goals or something you’d like to take on alone, it’s important to work toward a goal and set a plan to do so. “You’d be surprised how many people make assumptions about how others think about saving and spending,” she says.
Her other suggestions include reviewing insurance policies, evaluating whether to purchase additional insurance, creating a will, and updating your beneficiaries.
Think Big Picture
Having these tough financial discussions may seem unromantic in the months leading up to your wedding, but it’s important to keep the big picture in mind.
“Differences in spending habits and financial goals are precursors to divorces — and one of the biggest reasons why people divorce,” Hutchinson says. “[You want it to be] the strongest possible start…so when challenges arise, you have already had these conversations and don’t have to start from square one. It doesn’t mean you don’t trust or love [your spouse.]”
Kruger echoes that sentiment.
“When you get married, you tie an emotional and financial knot that you need to keep strong throughout your lives together,” she says. “Talking about money and financial issues doesn’t come naturally to all of us, but it’s a critical conversation to have with your partner.”