Pre-nuptial agreements are not just for the rich–they are for the sensible

Making a prenuptial agreement is one of the most loving things you can do.

A pre-nuptial agreement, or “pre-nup” is a legal agreement between spouses about the division of assets should divorce come, or should one of the parties die before the other.  Given that over half of marriages end in divorce, and that you are pretty much guaranteed that one partner will die before the other, thinking through what you want to happen is a good idea.  Contrary to popular belief, it is also the respectful thing to do.  And believe me, the time to do this is at the beginning of a relationship, when you are both in love, and feeling charitable towards one another, not as things are falling apart.

Pre-nups are for the rich?

As the dissolution of my own marriage looms as an increasingly likely possibility, I am grateful that we put one in place along with our wills before we tied the knot.  Neither of us were “rich”.  We were both working professionals, making similar incomes.  She had the more prestigious job, higher flying career, and every expectation for that to continue.  One of her friends made the suggestion and I am glad that we did it.

There are some misconceptions about pre-nups that are worth debunking.  The first is that pre-nups are only worth it if you are “rich”.  Not at all, and you will see from the examples below, this is not the case.  But more importantly, if you don’t write one and both sign it, that doesn’t mean you don’t have one.  Effectively you do—it is called the law of the state where you reside.  And like most things in the US (or whichever country you reside in), state laws can differ quite dramatically from place to place.

Think of it as a marriage agreement.  So many couples don’t speak about the issues that need to get spoken in these types of agreements—and not surprisingly, these types of disagreements are the most common causes for divorce.  What might such an agreement cover:

• Each spouse’s right to property (either owned individually or separately);
• The distribution of assets and debts during marriage or in the case of death or divorce;
• Each spouse’s right to buy, lease, sell, transfer or “control” property;
• Each spouse’s rights in and management of a family business or other joint “stock” endeavour;
• The distribution of family assets or estates and inheritances coming into either spouse;
• Child support and custody—religious or spiritual upbringing, schooling, etc of children following divorce;
• Each spouse’s entitlement to death benefits from the other’s life insurance policy.

These are just some areas.  You might already see the applicability to your own situation—and see that you needn’t be rich or have a lopsided financial relationship for these issues to matter.

Examples of State Plans

Every state is different, and it is worth finding out what the rules in your state are and thinking through their implications.  Some anomalies:

• In North Dakota, if you inherit from your parents, your estate can be distributed to your spouse…and this can happen after divorce.  Minnesota can be similar.
• In New York State, a professional degree or license can be considered joint property, and can be valued by a court (and its earning potential)—doctor, lawyer, nurse, accountant…you think that’s fair?  Who supported who while the degree was earned, or an internship was had, or qualification, and who did the extra lifting on the home front so that the intense hours required are “balanced out”?
• In Alabama a wife may retain all property she owned before the marriage, and after the marriage, but a husband does not have that right

At its simplest, a pre-nup governs your financial arrangements in marriage and after: property acquired before or during, education debts or degrees acquired before or during, and ongoing spousal obligations.  It is an opportunity to make legal promises about how you will treat one another through thick and thin.  Sounds like a good idea.

Is it really cold and calculating?

This is a bit how I felt.  Maybe because I made less money than my then-future-wife, maybe because she had already been on the front page of the leading newspaper for her work, maybe my pride suffered at the potential trajectory of her career v. mine.  Silly boy.  It wasn’t that my career or earnings potential were so much worse, it was just that my profession was “boring” and hers was not.  Thankfully I outgrew that.

In the act, however, what I discovered was that working through the things that a good pre-nup covers is one of the most loving things that a couple can do.  Yes, the topics are sensitive, but that means that talking about it is a good thing.  The number one reason cited for divorce is financial issues which arise—essentially that reality diverges from expectation.  What better way to have this out in the open than to discuss it like mature adults and to put it down on paper—expectations, ground rules, what-ifs?

Other Misconceptions

Many people think that pre-nups are designed to protect a rich man from a gold digger—that is certainly the stereotype.  While such an application is a possibility, the reality is much more nuanced than that.  Consider these situations where a pre-nup might have made sense:

• You like to control your own affairs
• What about your kids: what if your child is getting married and you don’t want the spouse to receive half the estate you will leave behind if they get divorced?
• What if you are on your second marriage and you have children from your first marriage, but none from the second.  You might wish that your kids receive the fruits of your labours, not your spouse or your spouse’s children.  Without a pre-nup you lose control of where this money goes—usually to the spouse and then to their children—particularly if you pre-decease.  And without a pre-nup there is nothing you can do about it.  Even if the second spouse is wealthy and/or doesn’t want or need the money, they could get it anyway—and worst case your own kids end up resenting the step-parent or their step-siblings for no fault of their own—suspicion is corrosive.
• What if you earn more than your partner?  You might not be rich, or at least not yet, but things are going your way.  Don’t you want to be able to enjoy the fruits of your labours should your marriage fall apart?
• What if your partner stopped working and became a stay-at-home parent?  What if their support is what enabled you to fly?  Shouldn’t the stay-at-home parent be entitled to half of your income?  What about the future?  The trajectory that their support put you on is one that will keep paying dividends for years to come.  What is fair in that situation?
• What if you own a business?  Should your spouse get half of it?  What if they don’t have anything to do with the business?  What if you both have worked in it and poured heart and soul into it?  Who gets it in case of divorce? Are you both going to stay working in it?  This is a valid question even if the business is not a for-profit.  What if you both created a charity?  What if you have a farm?  Who gets it?  What if you have kids and they don’t get along?  Does the farm get divided or is there an obligation to keep it together?  Just imagine for a moment that you own a farm and the farm is productive—but when you sell, you will have to buy out your spouse—buy all the assets and equipment over again.  Is that what you want?
• What if your partner has debts?  What if there are student loans still left unpaid?  This is a real problem in the US—some people carry these debts into their 60’s.  What if there were borrowings against a 401k, or there is a home mortgage?
• What if your partner develops unhealthy behaviours?  Addiction?  A shopaholic (cough-cough)?  Many marriages fail for reasons of mental health, with gambling and other compulsive behaviours figuring commonly among the root causes.
• What if your partner gets sick or has an accident or makes choices that lead to unplanned medical bills?

This is just good planning

Just consider for a moment that you might not come from a wealthy family, but that your mother is a concert pianist.  Let’s also say that your spouse is the one who makes more than you do.  You get divorced.  Your mother dies.  She leaves you her most prized possession, her Steinway grand piano.  Maybe it is quite valuable.  Without a pre-nup specifying what happens with inheritance, the state may decide that your former spouse get’s half of it.  If you don’t make a lot of money, but you really want that piano because you are taking care of the kids, but you can’t afford to pay your ex what is “his share” of same, boy would that suck!  Of course, people can be reasonable…but what if as happens in most separations, there is little desire or willingness to be reasonable, and instead there is a nastiness present?

What about other family heirlooms: should a former spouse get things which may not have financial value but might have enormous sentimental value?  What if they hate you by then and just take them to hurt you?  Or to destroy them?  Stranger and worse things have happened.

What if you start a business together, but over time, your spouse steps back and pursues other interests.  What if the value of that business grows because of the direction you take it in?  What if it was going nowhere until you stepped in and took over?  And then your relationship sours, but you have a decade of sweat equity poured into a business that your spouse has had nothing to do with for so long, none of the employees even remember?  And they get half?  Does that feel right?

The entrepreneur’s dilemma

Maybe when you start out, you have no idea how successful your business will be.  Maybe it begins on a kitchen table or over eBay.  Maybe your spouse has beyond nothing to do with it.  But what if it takes off while your spouse is doing their own thing?  What if to support your business as it expands, you buy a shop to trade from (or a restaurant, or an office, or whatever).  But then you get divorced.  Would you want your spouse to end up owning a chunk of the business just because you were married, the buildings?  I don’t think so.

Marriage is a sacred bond

Getting married is one of the biggest and most rewarding things we ever do.  It is beauty to feel the love of a permanent tie to another person.  It is beauty to make the kind of commitment that marriage entails: “to have and to hold…in sickness and in health…until death do us part…so help me God.”  Pretty heady stuff.  And yet, the romantic reality is often crushed by the fact that people change, that we diverge.

It is so important to think these things through

On a very personal level, although my wife and I discussed all of this, started a business together, and had very different career paths, it was an enormous help to spell out expectations and behaviours.  You would be amazed, but some really “trivial” things can blow everything up.

• Who pays the rent?
• Who pays the bills?
• Who does the shopping, cleaning, cooking, gardening?
• Who does what in your joint business?
• What if your joint business starts losing money, but you don’t close it down?  Who puts in the capital to keep it afloat?
• What if one person puts in more “sweat equity” than the other?  Does that mean that they should get more of it?

The complication of children

There has been nothing more beautiful in my life than to have children.  After a recent weekend with the nasty brother, I was reminded of just how sweet they are and how fulfilling it has been in my life to have had kids when he said after spending a few hours with them, “It’s good to be reminded how happy I am to have never had kids.”  Thanks bro.  That was after he shouted at one of my nieces, resulting in her locking herself in a closet…

While some professional women do manage to go back to work relatively quickly, and they do this for many wonderful reasons, the fact remains that the choice and burden of having children falls primarily on the woman.  What happens then?  Does she stop her career?  Does she become a stay-at-home mom?  What happens if the dad is the one with the smaller paycheque?  Does he become a stay-at-home dad?  How does that work practically particularly in that crucial first year?  And I ask this against a backdrop of a society that clearly still punishes women for being the primary child-rearer.  What is the value of that work?  What is the value of the earnings foregone by the lower or non-earning partner?

What happened in my own life and marriage

I started out with a political ideal: that both parties contribute 50% of their respective incomes to a common pot which covered all of life’s common expenses.  What a common expense is can be separately defined.  While that might seem generous as a spouse with a substantially greater income than the other—but what when the tables are turned, does that make it look like I was angling for something I didn’t deserve?

What about a claim on the other half of the income?  What if I make less, a lot less, because I’m a teacher or some other beautiful, wonderful profession, and my spouse is a raging capitalist?  Do I have any hold on the 50% of the money that is not pooled?  In the absence of a pre-nup, almost certainly.  Is that really fair?  What is fair?  Who decides?

Bad agreements

The point is, that what has to happen is agreement.  And it has to be arrived at in an even-handed way.  First consideration is that both parties have independent legal advice.  In the case of my own parents this did not happen.  My mother gave up her career to support my father and got nothing when they split—an unfulfilled promise for alimony, which in the telling ended up being not enough for us to live on.  In her second marriage, she again gave up what was now a much more vibrant career and became a housewife and supporter to an executive husband and a much larger family.  For two decades she supported his career and earnings growth, but she also signed a pre-nup.  She never had independent legal advice; she was not the most sophisticated; and she came from an era where the husband was lord and master…and in the end, she and her children got screwed.  

I remember a conversation with a sibling who wanted to sue.  He had taken legal advice and had found that the pre-nup was not legal.  This is an important point, as a pre-nup has to be “fair” and arrived at with independent counsel.  This one was not.  But to challenge it would cause untold bitterness, break apart a very good family dynamic—after all it wasn’t the step-siblings doings that meant they got everything.  But faced with ongoing happy relations or faced with years of bad blood and no more family gatherings, my counsel was “if you do this, you are on your own.”

My mother before her death said, “oh this agreement just makes me sick.”  The point of all of this is not the money, but rather that they must be done properly and with due consideration.

How to do it right

Sit down with your future spouse and discuss all aspects of joint finances.  Will we have a joint bank account?  Who puts in how much?  What happens if one of us loses our job?  How long is that an acceptable situation?  What happens if we have kids?  Who gets the family home if we divorce?

Plan for a rainy day

It isn’t cruel or cold to think that you and your spouse might one day drift apart.  Nor is it cruel or cold to think that your spouse might die and that there are considerations that could be planned ahead.  Imagine that your spouse has an accident or develops a chronic illness and you end up being on the hook for their debts racked up on the heels of crippling medical bills.  We cannot predict what will happen, but we can plan for risks and take steps to mitigate.

Taking advice, ring-fencing assets, making sure that you have a nest egg so that you can always walk away if you need to, that you have your “f-u” money.   This is just as important at work as it is on the home front.  I have always wanted my partner to be able to walk, to have the money at her disposal to be able to walk away if I was no longer the right partner for her…what a horrible idea that you might be keeping someone tied to you simply because they can’t afford to leave. Because of how rigged our system is in favour of the man, ironically it is the woman who most benefits from the clarity of a pre-nup—because of all the sexist reasons (that she is more likely to give up a career to raise kids, that she becomes the primary care-giver), but even more so when the shoe is on the other foot, and she is the primary bread-winner or inheritor?  Can you imagine the injustice of being a mother, taking custody because you have been an active mother, and also been a provider, and then having to pay state-mandated alimony because you didn’t do this?  What about buying the family home off of the spouse who is moving out?  Even if you bought everything in the first place?

My own case

I made a commitment to my wife through the vows of marriage.  We also made a pre-nup.  We have not followed it, but this has allowed for ongoing mature conversation instead of a resentment that most likely would have been the cause of divorce a long time ago.  By having the ground rules laid out from the beginning, who was going to do what, contribute how much, and so on, we have been able to put what has actually happened into context, and continually review for fairness—allowing frustrations to be dealt with early, rather than allowing them to fester.

If my wife decides to end our marriage because I am trans, then I can also walk away knowing that I have kept up my end of the bargain…and after all, what is a marriage if not a bargain?

Pre-nups may not just be for marriages

“Well, what if we just don’t get married” you might ask.  Depending on where you live, the State may regard co-habitation as equivalent to marriage, and accord your partner the rights of a married partner.  I’m just saying.  It pays to be aware, pays to plan.

Do yourself a favour, both of you a favour, have the talk.  Or however many talks it takes.  Nobody wants to stay in a relationship because they have to financially.  Nobody wants to get stung on the way out.  And you know what, infidelity, for example, does not change the law on division of assets.  Be a mature adult, and make decisions about these scenarios when you are in love and have the ability and heart to do so with generosity, so that you don’t have to do it, heaven forbid, when it is not any longer a time of giving.

A marriage is a grand bargain, an understanding, a sacred contract…and if you don’t treat it as one, then you are asking for trouble.  Making a prenup is the most respectful thing you could do.