Get a fair prenuptial agreement

As a matchmaker with Perfect Search, I am in the business of getting high-net-worth men married off. This has made me uniquely privy to the all-important, and often contentious, prenuptial agreement. Even saying the word can sour many love-struck couples. But in reality, prenups are important and should be handled with an open mind and an understanding from each side’s perspective.

Several of my clients have told me of the horrors they experienced during divorce, sans a prenuptial agreement. One in particular was so disturbing, I even wanted to go to court for him. Jonathon was a successful surgeon, who fell in love and married a nurse on his floor at work. She was already 35 when they married, and they never had children during their rocky, five-year marriage. Because California law states that married couples split assets 50% - 50% upon divorce, she was entitled to half of his money, half of his properties, monthly alimony payments, and also, half of his practice. These were all assets that he had before their short marriage.

One’s business is an asset just like any other, so in the case of a divorce, the business is split as well. Not only did Jonathon have to share the ownership and control, with his bitter ex-wife, but Jonathon’s partner did too. If Jonathon would have removed, or limited, any claim to the value of the business in a prenup, he would have saved himself, and his partner, and his practice.

It is one thing when you marry young and neither has money. You build a family together, buy a house, and accumulate wealth, with one supporting the other through school, or one manning the house, while the other works. This is a case where the 50% - 50% asset division makes sense. But in the case where one, or both persons, already has assets before coming into the marriage, then communal property doesn’t make sense, and a premarital agreement is important.

Protecting the wealth you’ve worked so hard to accrue, from falling into the hands of an ex, who now hates you, is just a smart thing to do. No matter how much you love someone before marriage, and no matter how sure you are that a split will never occur, you have to protect yourself from the ‘what if” scenario. Even the most wonderful man, or woman, in the world can spin out, and become miserable to live with over time.

If both parties have assets before entering into the marriage, it can be pretty straightforward. If they divorce, they only get what they brought into the marriage, and they divide equally, or quit claim each other, from what they accumulated during the marriage. - Not too complicated. But when one person has assets, and the other doesn’t, that’s when it can get tricky.

Would it be fair for a woman to spend her youth with a man, building a home with him, only to have him boot her out penniless, for a younger woman when she gets older? This is the risk of having a flat-out prenup that says, “You get nothing in the case of divorce” scenario.

I had a client who married one of my candidates with a prenup that waived her claim to all assets, and alimony, and all future claims to, or ownership of, any property they acquired throughout the marriage. This prenup was good for the husband because it gave the bride incentive to be a good wife, but bad for the bride, because it didn’t give the groom any incentive to be a good husband. He could leave her high and dry at any moment, and she wouldn’t have anything more than years and tears on her face. Like any deal, it has to be fair and ethical for both sides.

Then there was Peter, a client who presented a prenup to his bride-to-be, a month before the wedding. She burst into tears. His prenup kept her from all his assets, any future property they acquired, any alimony payments, and it kept her out of his will, if he should die before her. He preferred to leave his assets to his three children, from a previous marriage. This was complicated by the fact that the children were minors, and the assets would essentially be in the hands of the contentious ex-wife. Peter was so paranoid about his future wife using him for money, that he was destroying the marriage before the wedding. He ended up causing irreparable harm during the negotiation cycle, and the prenup was never signed. The marriage plans were abandoned altogether.

These are all examples of premarital agreements, or lack thereof, going awry. There are good examples however, that can be used as templates, for crafting a protective prenup that is fair, compassionate and honorable for both.

Some prenups have milestones in place, so that if the spouses stay married for five years, for example, the wife may be awarded more money, and even more, if they stay together for 10 years, and so on. That gives the wife an incentive to stay in the marriage and be a good wife. There is a danger, however, if the husband starts getting bored with the marriage at the five year mark, he would have an incentive to divorce, rather than hang in there, because the longer they stayed married, the harder his fiscal punishment would be in the case of a future split.

Another kind of prenup could be drafted with milestones that stipulate the wife doesn’t get anything if she leaves him, but gets incrementally more alimony over the years, if he leaves her. This would deter both parties from initiating a split. However, one could argue that he could just behave badly and force her to leave him, rather than leave her. I had one candidate who signed a prenup like this, and her ex husband simply quit coming home rather than legally filing for divorce. Therefore, he wasn’t actually “leaving her”, and didn’t have to give her anything according to the prenup. She left him anyway and got - zip.

A “Sunset Clause” is where the prenup states that the agreement is going to go into effect after a certain amount of time, say, ten years. This rides on the assumption that if the couple makes it this far, they’re gong to make it the distance. This is a good faith measure, showing the spouse with lesser assets, that trust and faith will evolve over time. This can be dangerous however, if an unhappy wife waits until the 11th year, and then leaves her husband, getting half of his assets, and cashing his monthly alimony payments.

Drafting the right prenup for your relationship should be an individual document, according to individual circumstances. Women planning to marry a man with assets, should be open minded about his need for a premarital agreement. And the men they plan to marry, should be fair about drafting one that would not leave either party destitute. Each party should have their own lawyer, and there should be ample time for negotiation before the wedding date. Make sure the agreement is legally sound enough to hold up in court, should there be a split, otherwise, what is the use of the document?

The number one thing to remember is that the time before a marriage is supposed to be romantic, and negotiating the details of the prenup should not take an emotional toll. Honesty about what you each have, and what you each want, coupled with compassion for the other’s interests, are all critical for drafting a fair, protective agreement for both.

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Top conversations you should have with your soon-to-be spouse to be sure you are on the same page financially

1. Discuss and Be Honest About Debt Levels: When you marry someone, you also marry their money and their debt. Everyone brings financial baggage into a relationship but it's important that each of you disclose exactly how much debt you are carrying so you can develop a picture of your financial responsibilities after marriage. It's also not a good idea to hide some of your debt from your future spouse. As the old adage goes, "it's never good to start a marriage on a lie" and it will just create negative energy between the two of you once the secret is out.
2. Examine your credit scores: If one person's score is below 700, consider keeping your finances separate for awhile until you can work to improve the score. Work as a couple to help the person with the low credit score pay off debt and take care of overdue bills. Do not apply for any joint credit cards. Instead, put the cards in the name of the person with good credit and make the other person an authorized user.
3. Set Goals Together: It's important that you both have a clear vision of your financial goals so you can help each other achieve them, or talk about the differences before trouble starts. Create a complete picture of your financial situation in the following three areas. It is easier to stay on track when you understand your full financial situation.
• Past - Review and discuss all of your past choices and work to pay them down now.
• Present - Review your current monthly bills and purchases and set a budget that fits into your allotted incomes. Try to live the quality of life you want today on a cash basis, not a credit basis.
• Future - Plan for your short-term, mid-term and long-term financial goals and make them a priority. Enlist the help of a financial planner who can help you set up savings and investment accounts that will help you reach all your life goals.
4. Make Choices for Two: Once you have created your complete financial picture, make sure you agree that you will both clear a space in your life to obtain these goals and make life choices that align accordingly.

ChicagoHealers.com, Practitioner, Financial Planner, Julie Murphy Casserly, CLU, ChFC, CFP

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