Did you know that, for the longest time, finances were left to older men, leaving little space to include women in the decision-making process? We are so lucky today that we live in a more civilized and inclusive world. And yet, a lack of communication about money between spouses remains a challenge.
So if you want to keep your loving relationship for a long time, I recommend you start a dialogue of goals and expectations related to your financial well-being as a couple. There are many ways you can start a dialogue about money with your spouse, and there are a few tools you can implement to safeguard your finances.
As you probably know from watching children’s movies, love has no barriers, and you may end up marrying someone completely different than you. So, planning to protect your family assets with a layer of protection may not be a foreign idea after all. To do this, I recommend considering three options: a prenuptial agreement before getting married, a postnuptial agreement afterward or changing the title of your assets and placing them in a trust. Let’s look at examples where it might make sense to consider these options.
Prenuptial agreement: When your family assets may grow in the near future
In this case, Christina’s parents had a business where she and her four siblings worked in different roles. Her parents were proud that the five children had chosen to grow the business, and wanted each kid to manage one-fifth of the company. But Christina’s parents did not wish for their kids' spouses to inherit the business in the event of a divorce or sudden death—so, they asked each child to ask their spouses to sign a prenuptial agreement (known as a prenup) stipulating that all the assets owned as a single person before the marriage were theirs and not their soon-to-be spouses’.
Your state might have a statute relating to a “right to elective share,” which assigns the surviving spouse a portion—usually one-third—of the elective share of the decedent. But with a prenuptial, the future spouse waives the right to such a share of assets.
Trust: When you may have children from a prior marriage
When Manuel met Sandra and decided to get married, they were in their early thirties and starting their careers, with two little children each from previous marriages. Manuel was a construction worker and had saved some money for his children’s college, and Sandra had just graduated from her master’s degree program and was looking for a job.
Now, they’re in their forties. Manuel started a successful construction business, and Sandra is moving up the corporate ladder. They’re both making financial decisions to ensure their own kids are taken care of in the event of a sudden death or divorce. The financial well being of their children worries them, and they want to ensure their kids will be taken care of first, before each other.
In this scenario, Manuel and Sandra could also put their respective assets in trusts and name their children as beneficiaries to ensure more control. With a trust, the advantage is that you can instruct the trustee (the administrator of the trust) to distribute money to each child according to specific, outlined provisions. For example, Sandra could choose to pay only for a four-year university and a 10% down payment of her child’s house until they turn, say, 35. These are things that a postnup can’t accomplish.
Postnuptial agreement: When you and your spouse have different financial personalities
Paty and Paul have been married for 10 years and have three children. Paty is the saver in the family, and Paul the spendthrift—his big heart almost caused him massive credit card debt and bankruptcy. Paty’s parents wanted to give her a house where Paul and Paty could live and save some money, but they wanted to make sure that the house would pass to their children and not be used to pay off debt.
In most states, money that is brought into a marriage and used during the marriage could be considered “marital,” so in a separation or death it can be treated as joint. This is why a postnuptial may be recommended. For example, if Paty renovated the gifted house by adding another bedroom—increasing the value of the house—then the additional value could be considered marital. She could add another layer of protection by using a postnuptial agreement.
For both prenups and postnups, you must each present a balance sheet and income statements (three years of tax returns) and hire legal representation. I strongly recommend that you consult your Certified Financial Planner and legal counsel to fully understand the statutes that are specific to your home state. It’s always better to prevent a future conflict than to react to it when it emerges, so have a conversation with your (future) spouse today.
