This is the first in a series of six blog entries focused on topics that might be of interest to the Millennial generation. If you would like to see our attempt at making these subject matters entertaining, visit our YouTube page to see a video version of this article.
I believe Kanye West said it best when he said, “We want prenup!”
There is nothing that can kill the romance of upcoming nuptials more quickly than your partner asking you to sign a prenuptial agreement (aka prenup). But do you know what can really kill the romance? Divorce! Perhaps you are thinking, “our relationship is going to last… we’d never get a divorce.” Well let’s face it, I don’t think anyone goes into a marriage thinking that in 5-10 years they are going to split. Other people may think that the agreement is only for the rich… this is actually a misconception. While it’s true, a prenuptial agreement may not be right for everyone, the following are a few scenarios in which it will make a lot of sense:
1: One partner earns the majority of the income. If you know going into a marriage that one person will be the primary “bread winner,” a prenup can be used to determine the amount of alimony that will need to be paid upon a divorce.
2. What about the partner that doesn’t make a lot of money? The prenup can also be used to make sure that the partner who is less financially set is protected in the event of a divorce.
3. For the spouse with substantial assets. If you own a home or other substantial assets prior to a marriage, you can use a prenup toestablish that those assets that came with you, will leave with you.
4. For the stay-at-home parent: This will obviously affect your income. If it is decided prior to marriage that one parent will stay at home with the children, a prenup can be used to make sure that each parent shares in the responsibility of taking care of the children financially.
5. One partner has a significant amount of debt. A prenup can establish who will be responsible for paying off debt in the event of a divorce. This can prevent you from getting straddled with debt that the other spouse created prior to marriage.
6. Children from a previous marriage. When entering into another marriage you need to make sure that you kids are protected from another divorce. This can ensure that in the event of your death/divorce that assets that should be going to your children won’t go to your disgruntled spouse.
7. You own a business. It is possible that in the event of a divorce your spouse will end up owning part of the business. Your partner will then go from being an unwanted spouse, to an unwanted business partner. Establishing that the business is off limits in a prenup can prevent this from happening.
It’s understandable that many couples don’t even want to entertain the idea of a prenuptial agreement. The important thing to remember is that this is a document used to protect all parties. Communicate openly and listen to the concerns of your partner. Even if you do live “happily ever after,” there will always be a peace of mind involved with foresight and deliberate planning.
Ashley Woodring, CFP®