Money may not buy happiness, but I’d rather cry in a Jaguar than on a bus.

(Francoise Sagan)   

It’s wedding season.  While the coronavirus has temporarily put a damper on festivities, couples are still getting married.  It wasn’t long ago when a prenuptial agreement (or prenup) was viewed as taboo and potentially a death knell for an impending marriage.  It can cast doubt on the couple’s commitment to each other and, therefore, the success of their marriage.  In recent decades, prenups have become increasingly more commonplace among women, especially Millennials, as they gain greater traction in the workforce and get marry later in life.[1] 

What’s a prenup? 

While marriage is a legal contract that outlines the rules of engagement, a prenup (in essence) is a legal contract that outlines the rules of disengagement.  Should the marriage end, the couple’s assets would be split as agreed upon in the prenup.  Since the divorce rate stubbornly stands at 40%-50% in the US, the probability of disengagement is high.[2]  For those pursuing a prenup, the thinking is that it’s best to put a safeguard in place before getting married.  This way, should a divorce occur, a prenup would help limit the entailing stress that comes with separation.   

What’s your state law?  

Are you considering (re)marriage?  If so, it’s important to understand these two terms – marital (or common law) property state and community property state.  It’s equally critical to know the classification of your state.  In a common law property state (all states that are not community property states), the property acquired by one member of a married couple before or during the marriage is owned completely and solely by that person.  However, if a property is in both spouses’ names, then it belongs equally to both individuals.  In case of a divorce or death, the individuals’ separate properties are distributed per their prenup or will.  In absence of a will, separate properties are distributed according to probate.  Meanwhile, marital properties are distributed 50/50. 

 

In a community property state (Louisiana, Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico, and Wisconsin), ALL assets and liabilities acquired during the marriage are considered community property.  Assets include earnings, properties, retirement savings, etc.  (NOTE: In a community property state, separate properties are those which a spouse owns, receives or inherits before or during a marriage.)  In case of divorce or death, the individuals’ separate properties are distributed per their prenup or will.   In absence of a will, separate properties are distributed according to probate.  However, community properties are distributed 50/50.   It doesn’t matter which partner earned more or less in a community property state.  If earnings took place during the marriage, then it’s considered community property.  

 

For those considering (re)marriage in a community property state, it’s important to understand the divorce rules and how they may impact your assets.  This way, you can better determine whether or not a prenup is right for you.   

Who should consider a prenup?

While getting a prenup is a very personal decision, you should at least consider it if you fall into one or more of these categories:

     ·      A woman getting married in a community property state

     ·      A woman getting married later in life

     ·      A woman with significant assets ($1M or more net worth) 

     ·      A woman in a relationship with great imbalance in assets and liabilities (debt)   

     ·      A woman with children entering a second marriage     

Personally, marriage is about commitment.  Legally, it’s a business arrangement.  As with any big life decision, it’s best to enter it with eyes wide open rather than head buried in the sand.  

What’s the value of a prenup?

First, a prenup can provide critical clarity for couples considering marriage by helping them address and potentially sidestep stress caused by their respective finances.  Money is often-cited as one of the key drivers of divorce.  A prenup could help some couples temper their money conflicts by outlining the rules of disengagement.  Of course, the prevailing argument is that a prenup could lead to a couple’s breakup before they even walk down the aisle.  Then again, if a couple can’t successfully resolve big money issues before they’re married, what hope do they have of doing so once they’re married?    


Second, a prenup is a form of marriage (or divorce – depending how you look at it) insurance as it trumps state asset distribution laws due to divorce.  Since divorce is a reality for almost half of married couples, it’s important to weigh your risk and (objectively) take measures to protect yourself should you become a statistic, especially in a community state.   


Third, for wealthy women who are remarrying, a prenup is a form of estate planning.  This is especially true for those with children from a previous marriage.  A prenup can help these women ensure that a portion or all of their assets will go to their children should they die before their (new) spouse.  

Conclusion

Given our society’s addiction to romance, it’s easy to overlook the fact that marriage is both a personal and business contract.  While many couples don’t seem to have a problem spending tens of thousands of dollars on their wedding, most still seem to question the value of a prenup despite the reality of divorce.  Although a prenup remains a polarizing topic, its increased popularity and adoption among Millennial women have helped highlight its utility and practicality.  Additionally, a prenup is not appropriate for everyone.  But, among well-heeled women considering (re)marriage, a prenup may be a savvy and wise move as it balances hope with reality.      

 

[1] “The of Millennial Prenup, The New York Times, July 2018.   

[2] “Marriage & Divorce,” American Psychological Association, 2020.   

 
 
 
Recent Posts

RECENT POSTS

A pair of female hands holding an unopened gift box

Year-end reflections on gratitude and wealth

Personal Commentary

December 2023

With year end, I want to share with you some of my personal and professional experiences and observations and the insights they’ve given me regarding gratitude and wealth.

Power of Patience: Make the most of your 401k

Investing

December 2023

For many workers, making the most of your 401k is one of the best things you can do to increase your investment returns exponentially.

A single dandelion against a black background

Successful Financial Planning: Part Magic, Part Math

Financial Planning

October 2023

Countering conventional wisdom, my professional experience has taught me that successful financial planning is based on magic and then on math; on you and then on me.

Get a free financial education.

Learn more about key financial topics, such as investing, 401k, disability insurance, paying for a home, at your own convenience. Sign up for Women’s Wealth monthly newsletter and have relevant information delivered to your inbox.