The Importance of Prenups
By Brian Famigletti, Managing Director & Head of Marketing
Protecting Your Financial Future
Gone are the days when the importance of prenups only applied to billionaires and celebrities.
A recent Harris Poll conducted in 2023 for Axios found that nearly half of married U.S. respondents – especially millennials and Gen Z couples – had signed prenups. That compares with just 3% in a Harris Poll from 2010.
What’s driving the attitude shift? Several trends could be at play. Today, 70% of retail investors are under 45. Additionally, individuals are getting married later in life: the median age at which women and men marry in the U.S. is 28 and 30, respectively. Couples are also committing to one another amid a historic transfer of wealth from parents and grandparents.
Read More: What the Multi-Trillion Wealth Transfer Means for Markets and the Economy
These trends have had a domino effect: They heighten financial awareness and a desire to build on generational wealth. They also increase the likelihood that individuals bring entrenched spending and investing habits, personal goals, or even businesses to the table when starting a new marriage.
Although pre-marital assets and debt are ring-fenced in divorce, the generational shifts in debt and wealth accumulation have undoubtedly raised couples’ interest in discussing their financial future together. This conversation can open up a deep dive into what debt or wealth they want to keep separate during their marriage.
The Importance of Prenups
Historically, prenups have carried with them some negative connotations concerning lack of trust and doubts about the strength of a relationship. But objectively, they are a testament to a mutual desire for respect, balance, and honesty. In outlining each party’s financial rights and responsibilities in the case of a divorce, the contract requires a deeper conversation about personal, financial, and family goals during marriage.
Prenuptial agreements give couples control over how they want assets and debts divided in a divorce. They can also detail how a primary caregiver is compensated upon divorce. The most critical factor is that without a prenup, the courts would make those decisions.
Individuals’ assets are combined upon marriage to form a marital estate. Anything the individuals acquire during the marriage becomes joint property. How the assets are treated in a divorce without a prenup varies from state to state.
Nine states observe community property law, and the other 41 follow common law, which encompasses equitable distribution.
In community property states, spouses are considered joint owners of nearly all assets and debt incurred during the marriage, regardless of which individual took out the loan or owned the car’s registration.
In common law states, the courts typically keep each spouse responsible for individual property ownership and debt. However, there are some exceptions. A judge might make both spouses accountable for one spouse’s student loans if both benefited financially from the outcome of that education.
The Conversation
Although an increasing number of couples are drafting prenups, it doesn’t mean the conversation is an easy one. Here are some tips on how to take some of the anxiety out of the discussion:
- Timing is everything when setting the mood for a prenup conversation. Ensure it’s well ahead of your wedding date; at least three to six months in advance.
- Emphasize that a prenup benefits both parties and ensures that neither will be at the mercy of the courts. Prepare, and give your partner time to prepare points of discussion before the conversation.
- Plan to consult a third party with your individual interests at heart. Having a wealth advisor is crucial to ensure you both have proper financial management procedures for your future.
Talking about the importance of prenups before getting married is never easy. Still, if the conversation is approached in the spirit of preparing for the future and identifying financial goals, you’ll know where you stand on your wedding day.
Interested in setting up a prenup but don’t know where to start? Reach out to Griffin Asset Management today.
Sources:
Davi Law Group: How does a prenuptial agreement affect debt division?
Experian: What Is a Community Property State and How Does It Impact Finances?
Nolo: Common-Law Property States: When Can a Creditor Take Property?
