A prenup can be an important part of protecting your assets during (and after) your marriage. Here’s what to discuss together.
Few people would describe prenuptial agreements (often called prenups) as romantic. But conversations about your financial wants, needs, and expectations could help bring you and your partner closer, whether you put those formally in writing or not.
“I think the more you know about each other’s financial perspectives, your experiences with money, and the resource challenges and opportunities you each faced, the richer your relationship will be and the deeper your connection,” says Mariana Martinez, senior lead family dynamics specialist at Wells Fargo Wealth & Investment Management. That’s why finances should be a part of the ongoing dialogue with your partner.
Conversations about finances can be awkward; however, it’s especially important for individuals from families of wealth to clarify expectations and intentions before marriage. Clear expectations and intentions can provide safety and security for everyone holding individual and shared assets today and in the future.
As you and your intended discuss your plans for your financial future, here are a few things to consider.
Why prenups can be important
A formal prenup can clarify what assets (and liabilities) will be considered separate versus shared. That liabilities part is key: The agreement covers debts, thus providing potential protection from responsibility for an ex-partner’s loan and mortgage balances. A prenup may also cover how you and your partner will handle other financial aspects of your lives, from paying bills to planning for retirement.
Most American states have laws regarding the division of income and assets accrued during the marriage. Properly documented, a prenup helps to clarify ownership of assets during the marriage and in the event of death or divorce. For example, you can agree in a prenup that real estate that was yours before the marriage remains yours after the marriage. This may be especially important if there are children from a previous relationship that you’d like to see ultimately receive specific assets.
“It’s important to have an estate plan in place,” says Sandy Cairns, senior wealth planning strategist at Wells Fargo Private Bank. “You may have a good understanding with your spouse, but what if one of you is gone and the kids from your previous marriage are left with a stepmom or stepdad with whom they don’t get along? It’s helpful to clearly delineate what you intended for them through proper estate planning.”
Finally, one of the most frequently cited reasons partners give when requesting a prenup is concern about what may happen to legacy assets like shares in a family business or family heirlooms in the case of divorce or death. The prenup may help ensure these assets stay in the family of origin.
“It’s worth it for families to assess the degree of protection they have in place before a child gets married or starts talking about assets with a partner,” says Martinez. “That can inform if a prenup is necessary and what it should address.”
Prenup prep: Questions for you and your partner to discuss
Prenups can be tailored to your specific needs, Cairns says, so it’s important to discuss your goals and practices in advance of planning your financial future together.
“There are as many ways for couples to structure their finances as there are couples,” she says. “There’s no right or wrong, just what’s comfortable for both of you.”
Here are a few questions Cairns and Martinez suggest couples ask as they consider their prenup needs:
- What debts and assets are you bringing into the marriage? It’s important to know where you stand before you decide to commingle your finances. It’s also important to address going into the marriage how you’ll handle any inherited assets.
- How would you want premarital assets to be handled in the case of divorce? Each of you should create a list of your personal financial assets — from savings and property to businesses and investments — and how those assets should be treated.
- Will your separate property be commingled with your marital property? If the goal is to keep separate certain assets brought to the marriage, then that should be addressed in the prenup.
- How do you want debts incurred in the marriage to be handled in the case of a divorce? Some couples may want to include a debt protection clause in case one person incurs debt without the other person’s knowledge or consent.
- What about intellectual property? Just like physical assets, you may want to decide how you’ll handle intellectual property like business ideas, music, films, and social media accounts, both individual and shared. “Social media accounts are often governed by the provider’s terms of service agreement (such as Facebook),” reminds Cairns, “so it is good to know those provisions.”
- Are there assets from your family of origin that need to be protected? You may not want a business or heirloom that’s been passed down through the generations to leave the family in the event of a divorce.
- How will inheritances and gifts be treated? Like intergenerational wealth, these items might need additional protection under a prenup, and couples might need guidance during the marriage to keep these funds separate if they want them to remain separate property.
- Do we want to be able to amend this document later? In many cases, a prenup cannot be changed after the couple is married. However, you may have other options if you’d like to make changes — for example, a postnuptial agreement or other type of contract.
An important step is to consult a lawyer who can help shape your prenuptial agreement. This is the best way to help ensure that your prenup both follows the letter of the law and maps out your intentions and your overall wealth plans, Cairns says.
“A prenup is a chance to write your own rules,” Martinez says. “It really gives you the opportunity and the freedom to create your life together.”
Wells Fargo Advisors and its affiliates do not provide legal or tax advice. Any estate plan should be reviewed by an attorney who specializes in estate planning and is licensed to practice law in your state.