Prenump

[Guest Post] Is Getting a Prenup a Wise Financial Decision?

Gen Y Finance Guy General Information 9 Comments

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Today we have a guest post on the topic of prenups, a topic that has the potential to sour the romantic nature of relationships. I still remember a guest that attended my wedding reporting back to me that my grandmother had just said “I hope he got a prenup.” The funny thing is most people probably misunderstand exactly what a prenump is and what it does. My grandmother also didn’t realize that my newly wife was actually bringing more financial assets to the relationship than I was at that time. My wife and I never really had a reason to consider a prenump, because neither of us had much in the way of assets, and everything we did build in the future would be done together. That said, there are actually some valid reasons why you might want to consider a prenup and Eva is going to walk you through the considerations below:

I am not married, but my boyfriend and I have talked about the topic extensively. Frankly, I am not sure if I want to ever get married, but if I choose to say “I do,” I will be getting a prenup. The decision to get a prenup is an informed decision I came to after hours of research and “free” initial consultations with family law attorneys.

When I started looking into it, I knew very little about prenups, except for that Kayne said “We want prenup.” Even though that should have provided me with enough social validation to get one, I thought I should do my own research instead of just blindly listening to Lord Kayne.

When you hear about prenups in the news, it is usually in relation to someone rich or famous, or rich and famous. Recently, there has been buzz around Meghan Markel, a budding actress, and her prospective engagement to Prince Harry. Obviously, there is a huge income gap between the two parties so it makes sense that a prenup be involved.

Let’s start with what people think of when they hear that their friend, let’s call him Bobby, had his fiance, let’s call her Sally, sign a prenup.

What Sally’s friends say behind her back:

“Girl, they are for sure getting a divorce.”

“How could he!? Damn he must think they ain’t going to last”

What Bobby’s friends say to his face:

“Oh dang! Did she cry? Women hate the word ‘prenup’ ”

“My man! Good for you. Protect yo self!

There are many misconceptions, including what Bobby and Sally’s friends said, when people think about a prenup. Below are some of the most common:

  • If you sign a prenup, you are essentially admitting that divorce could happen, and thus are more likely to get divorced
  • Prenups aren’t upheld in court so why go through all the hassle?
  • If your spouse asks for a prenup, it means that he/she doesn’t trust you

A prenuptial agreement is a contract between two parties before they get married, that governs their financial obligations and speaks about how their property will be treated. While a prenup is commonly used when one party is wealthier than the other, that is not the only use. A prenup can be used by couples where one party owns an interest in a business or when one party is prone to taking out more debt than the other. As a serial entrepreneur, I have business interests in several companies. I will continue to start companies throughout my life, and having a prenup will allow me to clarify that these business interests will be treated as separate property should my husband and I decide to part ways.

Even though everyone knows that the divorce rate in the US is a little under 50%, each couple believes that they are the exception to the rule. This false optimism leads them to avoid protecting themselves. Instead, think of a prenup in the same way that you think of car insurance, hurricane insurance or health insurance. You hope that nothing bad ever happens and that you won’t need to file a claim, but if it does, you are protected. You don’t think you will ever get divorced, but as no one can predict the future, you have a prenup in place just in case.

Based on my own experience exploring the topic of whether or not to get a prenuptial agreement, here are 4 reasons as to why getting a prenup is a smart financial decision.

1) A prenup instigates a conversation around finances

Kevin Leary, otherwise known as Mr. Wonderful on the popular show Shark Tank, was quoted in Entrepreneur saying “Demand a prenuptial agreement” says O’Leary. “It forces you [and your betrothed] to tell the truth about your financial past…It’ll save you hundreds of thousands of depression and grief and it may save your marriage to find out.” As part of the prenup, each party needs to make full disclosure about their current financial situations. You have to be transparent about all of your assets and debts. I believe O’Leary is right. At the very base, a prenup will require both parties to sit down and discuss their financial pasts and expectations for the future. I have several friends that have gotten married without having a discussion about whether they are a saver or spender, what their financial goals are etc. If you do not have these kind of conversations with the person you are about to spend the rest of your life with, you are going to run into problems later on, especially when children are involved and money goes out the door faster than when it did when it was just you and your partner.

2) A prenup can protect your interest in your current and future businesses

If you are an entrepreneur like me, having a prenup is crucial. Should I get divorced, I want to make sure that my interests in the businesses I spent so much effort, time and resources on, remain mine. A prenup enables me to keep my business interests as my own separate property. The same principle applies if you are a musician, content creator on Youtuber or writer. Keeping your intellectual property as separate property is something a prenup can help you accomplish.

If you are a professional (i.e. lawyer, doctor, accountant) even though you may be slaving away as an associate now, you may at some point venture out on your own and start your own practice. In this case, you may want your business interest to be separate. Some partnerships even require the parties to have a prenup (or postnup if you are already married) in place so that if something were to happen to you, whether voluntarily or involuntarily, your interest would not pass to your spouse, but would remain with the firm.

3) A prenup can dictate that debts are separate

If your spouse has a history of taking out a lot of debt, you may want to consider having a prenup that delineates that debt will be considered separate property. Without a prenup, depending on what state you live in, you could be liable for paying for your spouse’s debt obligations, should you get a divorce.

4) A prenup can speak to the financial responsibilities of each party

Will you be filing taxes separately or jointly? If all assets are separate, how will household expenses be paid? Will you have a joint account for expenses? How much will each party contribute? These are the questions that should be discussed and addressed in a prenuptial agreement.

If you do not have a prenup you are letting the state, and more specifically a judge, decide on how to partition your assets. It could end up in your favor or it could be to your detriment. Instead, why not decide now what you both think is fair,should you decide to part ways in the future? Of course, no one wants to think or even address the big “D,” but unfortunately divorce happens, sometimes for reasons out of your own control. We all hope divorce doesn’t happen to us, but we don’t know what the future holds. I believe it is best to something in place to protect against the hardships of divorce, including the costs. Prenups are not about love or romance, they are documents that protect the financial futures of you and your partner.

Eva Hibnick is a graduate of Harvard Law School. She is a serial entrepreneur who started a digital agency and because of her own experience researching prenuptial agreements, now runs Endure, a service that provides affordable online prenuptial agreements. Prior to joining the tech world, she was an attorney in New York City.

Disclaimer: The information in this blog post is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. No information contained in this post should be construed as legal advice from Endure Documents Inc. or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.

 



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Gen Y Finance Guy

Hey, I’m Dom - the man behind the cartoon. You’ll notice that I sign off as "Gen Y Finance Guy" on all my posts, due to the fact that I write this blog anonymously (at least for now). I like to think of myself as the Chief Freedom Officer here of my little corner of the internet. In the real world, I’m a 30-something C-Suite executive. I am trying to humanize finance by sharing my own journey to Financial Freedom. I believe in total honesty and transparency. That is why before I ever started blogging, I decided that I would share all of my own financial stats. I do this not to brag, but instead to inspire motivate, and also to hold myself accountable. My goal is to be a beacon of hope, motivation, and inspiration, for you, the reader, by living life by example and sharing it all here on the blog. My sincere hope is that you will be able to learn from me - both from my successes and my failures! Read More

Comments 9

    1. Hi Erik – You should check your state laws but there are usually some restrictions to what you can and can’t include in a prenup. For example, in California, you can’t include anything about child support.

  1. I didn’t know much about prenups, so thanks for this great primer on them! Mr. Picky Pincher and I have been married going on two years and we didn’t personally opt for a prenup. But I don’t think it’s a bad decision if a couple decides a prenup is right for them–particularly if one person owns a business or generates massive wealth. It’s not very romantic, but prenups do exist for a reason.

  2. I’m not a fan of a prenum for 99% of couples. The only time I think it even partly makes sense is if there is an *extreme* difference in wealth between the two. If one couple’s family is mega-rich and the other middle-class… maybe. Still even then I’d move very slowly into the decision. “Mine” and “yours” should turn into “ours” when two people get married… and I think a prenum prevents the “ours” from ever being honest and complete.

    1. Thanks for the reply Brad. In fact, in California, a prenup requires full disclosure of both parties regarding their assets and liabilities to be valid. For some couples, prenups help the couple start the conversation about finances, both what their current situation is and what expectations they both have.

  3. Well aside from not having the assets to justify a prenup, my concern would be the idea of financial skin in the game. The pain of divorce in itself is a decent reason to try to avoid divorce, but the financial ramifications of divorce are another reason to try to work things out. Not everyone feels this way but if marriage is a positive commitment for life to be united, I prefer as much incentive as possible to stay together and keep that commitment, including financial incentive.

    Are there other ways to “protect yourself” after the fact, such as an irrevocable trust or some other vehicle for the holding of assets? Just curious. Interesting post

  4. A pre-nup can also included anticipated inheritance. My parents both plan to leave something to my siblings and I. We hope our parent live another 30+ years, which could mean their assets grow (but if they need to spend it all over those years, I’d much rather have time with them).
    I don’t have a significant other right now, and you plan to love your partner for better or worse, richer or poorer. My parents got divorced because, over 20+ years of marriage, they grew apart. I’ve changed in the last 10 years!
    I had a friend who had to disburse her 401k, pay the taxes, and then give half to her ex. She got hit with both the taxes, and the inability to have that money grow tax free for the future. That alone makes me want to have a legal document stating that my retirement funds prior to the marriage stay mine.
    I’ve also seen the influence friends and family can have during a break up, goading on either party to ask more more, demand more, take a certain item because ‘you deserve it’. If my partner and I have discussed splitting assets when we were in a loving caring state of mind, all of the vindictive bs has been planned against.
    Everyone tells me I’m pretty great, and I thought my ex and I had a future because he brought up ‘when we get married / have kids’. And then at some point I wasn’t enough, or what he wanted. *poof* it was over after 7 years, thankfully with no assets involved. Since then I realized I avoided his eventually financial collapse, and am quite happy. I learned you can love the person but that doesn’t mean you should stay with them.

  5. I think a prenup is necessary. The thing is, people change over time. Even someone who seemed perfect might change over time and a divorce will be in order. Quite frankly, I’d hate to give 50% of my wealth to someone I don’t love anymore.

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