Flowers, invitations, photographer, prenuptial agreement . . .
More couples are adding “prenuptial agreement or premarital agreement” on their wedding planning checklist. Couples are getting married later in life or entering their second marriage. With this, they are bringing in their own accumulated assets and debts into their new relationship.
Many people have found that prenuptial agreement mediation can be the friendliest approach to an often uncomfortable topic. It allows couples to work together in coming up with an agreement that they both believe is fair. Furthermore, it allows couples a chance to learn communication skills, which will benefit them far into their marriage.
Below you’ll find a checklist of issues clients should think about in preparation of premarital mediation.
1. Premarital Assets and Debts: You’ll want your clients to make an exhaustive list of their assets and debts that are currently in their name. It’s required for prenuptial agreements, and it’s also good practice for couples in being up front and straightforward about financial issues with their new marital partner. Below are some questions couples should think when discussing premarital assets and debts:
- How will you handle premarital assets and debts in the event of a divorce?
- Will the assets and debts remain separate property, meaning that they will go back to the person who accumulated them before the marriage?
- Or will your separate property be inter-mingled with your marital property?
- What if one person’s pre-marital property is used to pay off the other person’s pre-marital debts (i.e. school loans)?
- Will the paying party need to be reimbursed, or is it a gift?
- What if you use premarital property to buy a home you’ll own together?
- Will the paying party need to be reimbursed, or is it a gift?
2. Marital Property: Marital property describes the assets and debts that couples will accumulate together once they are married. Below are some questions couples should think about regarding marital property:
- How will you handle the income and assets you accumulate together?
Will they be joint, and 50/50?
- Will you use another arrangement?
3. Management of Assets and Income: People tend to be either spenders or savers. Given that opposites tend to attract each other, it’s typical for a couple to have very different money styles. That can work out just fine, provided that they each know about the other’s priorities and goals and provided that they can work out a way for each person’s needs to be met. For example, one partner might be concerned about retirement savings and future security. The other partner may feel that money is to be enjoyed and spent for things like vacations and luxury vehicles as part of a well-lived life. Can these styles be reconciled? The answer is yes, of course, provided that they have a plan for what will be set aside for retirement and what’s available to use for enjoyment. Some questions for couples to consider regarding the management of assets and income are:
- Who will make the financial decisions and handle the checkbook?
- Will you do it together, or will one person be the primary financial manager?
- What about large expenditures?
- Does your spouse need to ask you before buying that plasma TV or designer gown?
- How will the household bills get paid, and whose responsibility is it to pay them?
- Will you have joint bank accounts, separate bank accounts, or both?
- Do you have similar money styles?
- With respect to debt?
- With respect to savings?
- Have you discussed your long-term financial goals, and how each of you will contribute?
- What about retirement savings?
- Will the decision-making authority be different for pre-marital property or debt that belonged to one of you before the marriage?
- If one of you owes spousal support or child support from a previous marriage, how will those payments be made?
- From joint property or income, or separate property?
- In the event of a separation or divorce, would the other spouse want or expect a reimbursement for these payments made during the marriage?
- What if the obligation is informal—like voluntarily paying for an adult child’s college?
4. Credit and Debt: Has the couple seen each other’s credit reports? Now might be a good time to have a serious talk about credit scores and priorities with respect to paying off old debt or accumulating new debt. Some things for couples to consider are the following:
- Is it likely that either of you might over-borrow? Or refuse to borrow no matter how much sense it makes to the other person?
- Consider joint credit issues, as well as issues like pledging your home as collateral on business, or using a home equity line of credit to fund a business or tide it over in an economic downturn.
- Does either of you have bad credit? Will you and your spouse jointly sign on new credit obligations?
- Are back taxes owed? If so, how will they be paid? Jointly, individually, and from which checkbook?
5. Working: What are the couple’s views on non-monetary contributions, like raising children or managing the household? Most states recognize these types of contributions during a marriage, but it’s important that they share the same attitude, and that they know the other person’s attitude about these types of roles in a marriage. Below are some questions to think about in regards to work:
- What is your expectation about the kinds of jobs and income you will each have?
- Do either of you anticipate a career change at any point in time?
- Some jobs are riskier than others, like firefighters, military personnel, and stunt performers. Changing your job can impact the other spouse, especially if you become disabled due to an on-the-job injury.
- Other jobs pay less but are very personally rewarding. Teachers and non-profit positions typically don’t pay very well. How would you feel if your spouse changed careers?
- When do you plan to retire? As early as possible, or do you plan to work as long as you’re able?
- Do you anticipate both of you continuing to work after having children? Or would one of you stay home? For how long?
- How will you handle move-away decisions?
- What if one of you was transferred for your work and had to move to another state?
- What if one of you wanted to move closer to extended family after having children?
6. Spousal Support and/or Alimony: How do the individuals feel about spousal support? In most states, the rights to claim support go to both the husband and wife. Couples don’t have to address this in their agreement if they don’t want to, but it makes sense to talk about it. Some issues they may want to talk about are the following:
- Will there be any limitations on the amount, terms and duration of support?
- Do you want to make terms about spousal support or alimony that are different than what your state law allows?
- Do you both expect to work, and to contribute to the household?
- What are those expectations?
- Even if you think you’re in agreement, it’s worthwhile to make sure you’re both going into the marriage with the same expectations about earnings and work.
- Would there be a circumstance that would lead to one partner not working, such as a health problem or birth of a child? What about going back to school?
- Does that change your mind about how you feel about spousal support or alimony?
7. Gifts from Families: Sometimes one set of parents or relatives gives a couple a large monetary gift, loan or a home down-payment. It is important to make clear what kind of gift this is. Below are some questions to ask when faced with this situation:
- Would the gift from the family be marital or community property, or the property of the spouse whose family gave the money?
- If it’s a loan, who would be responsible for repaying it, and how and when?
- How formal will you be with the documentation if it is a loan?
Being clear between each other as well as with their own family will help them avoid conflict in the future.
8. Taxes: Once a couple is married, their finances will be intertwined for tax purposes unless they agree otherwise as part of their premarital agreement. It is important to be clear on what their attitudes and opinions are in regards to paying taxes. Some questions they may want to ask each other:
- Will you file separate taxes, or joint taxes?
- Does either partner have questionable tax deductions or a lighthearted attitude toward filing taxes at all? Does that worry the other partner?
- Is there old tax debt?
- Who will be responsible for that debt, knowing that a refund while you are married could be seized to pay an old, premarital debt?
9. Higher Education: Sometimes one spouse will want to or need to return to school. This situation may leave one spouse to support the other while he or she pursues a degree. In this situation, it is important for the couple to communicate clearly with each other the expectations of each party. Some helpful questions to ask:
- Will one of you be attending college, graduate school, or professional school during the marriage?
- Will one of you have to support the other while he or she is in school?
- How will you deal with this sacrifice made by one person if the marriage doesn’t work out?
- How will student loans be repaid?
- Would the expectations about income and earnings change if one person wants to go back to school after you’ve been married several years?
10. Duration of the Premarital Agreement: It is up to the couple to decide how long a premarital agreement may remain in effect. Couples can ask themselves if the agreement will stand forever or if it will expire at some point:
- Does having children change your opinion on how your agreement should work?
- What about being married 10 years, 20, 30, or 50 years? Would the agreement ever expire or be renegotiated?
- If you separate, does it matter who chooses to end the marriage? Does it matter why?
- Would you want for the agreement to be renegotiated at a specific time, like 5 years after the marriage, or after the birth of the first child?
11. Business ownership: If one or both spouses own a business separately, there are special issues they should consider.
- Would your prenuptial agreement include an indemnification on the business debts and taxes—business, personal, back taxes, payroll taxes?
- Are there issues with the type of business entity, like a subchapter S corporation or d/b/a, and how the corporate spouse determines his or her own income?
- Many small corporations have a lot of discretion with how much of the corporation’s income is taken as salary or income for the corporation’s officers or employees.
- Do you want to make provisions for forensic accountant or auditing books in the event of a separation or divorce?
- Do you want an agreement on how much income will be contributed to the household and how much might be kept separate?
- What if a premarital business starts a new business or subsidiary after the marriage?
- What if one or the other of you works for the other person in a pre-marital business? There can be many “out of job market” issues, so negotiating your terms of employment with your spouse before joining the business can be an important step.
12. Fault: Fault can be defined as who is to blame for the divorce. Fault can be evidenced by an affair, drug or alcohol abuse, among other things. However, most state laws either won’t consider fault, or barely consider fault, in dividing property or awarding spousal support in a divorce situation:
- How do you and your fiancé feel about fault?
- Would it make a difference to you in your property settlement or spousal support if you felt one person contributed more to the breakdown of the marriage than the other person?