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Is Prenuptial Agreement a Good Idea?

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Be frank about finances before you head to the altar. It’s a key piece of advice for all marriages. However, it takes on a whole new weight when people say “I do” for the second, or third, or fourth time.

If you’re older and remarry, you should talk as a couple about having a prenuptial agreement. You may have more assets than a younger couple, and probably have children from a prior relationship. That’s different than a first marriage, where people often enter as financial equals. In a second marriage or subsequent union, situations are more complicated—and the stakes are higher. You should protect your money in the event of divorce and protect your children in the event of your death.

Working a clear understanding out about your expectations before marriage requires having a number of crucial and often tense conversations. Barron’s recent article, “How to Manage Your Money When You’re Remarrying,” says the subject of money should be easier this time around. Money talk might have been taboo going into your first marriage, but experience—and the battle wounds of divorce—tend to make this dialog much easier.

The best strategy for navigating the financial side of remarriage is to be direct and give yourself plenty of time before the wedding to work out the details. All good financial plans start with a broader discussion that has more to do with identifying and setting goals than it does about dollar signs.

Consider what you hope to achieve individually and as a couple over the next year, five years, decade, and so on. Discuss your priorities and intentions, be specific, and write it all down. Your conversation will be the groundwork for the specific financial planning decisions the two of you will need to make when it’s time to formalize your plans for merging finances or—as the case may be—keeping them separate.

Prenuptial agreements, or “prenups,” are becoming more frequently used by millennials because they are marrying later and bringing more assets and debt to the marriage. In the case of remarriage, a prenup should be strongly considered by most couples. This legally-binding agreement details how assets and liabilities will be divided, in the event of divorce.

For a proper binding prenuptial, each party should seek independent estate planning attorney.

Many experts suggest keeping separate checking, savings, and investment accounts—but setting up joint accounts for shared lifestyle expenses. Having a joint account removes the need for constant discussion about how you’ll divide expenses. Create a monthly joint budget and agree on the fairest way to split it. Some couples divide it down the middle, while others base it on a percentage of their respective incomes.

You don’t need to have all of your estate plans settled before the wedding but be certain to update key documents where appropriate—such as your prenuptial agreement, wills, medical advance directives, retirement plan, and insurance beneficiaries.

A big trouble spot for couples remarrying—especially if there are children and grandchildren from other marriages—is how assets will be divided in the future. Without a clear estate plan, if you die first, then the assets will pass to your spouse and then to that spouse’s children. That can be a big source of family strife—even for families who aren’t wealthy. A good solution is to set up revocable livings trusts that say exactly how you want your respective and joint assets to be distributed when you die.

Reference: Barron’s (March 2, 2019) “How to Manage Your Money When You’re Remarrying”

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