Do we need a prenuptial agreement? If so, what might we want it to say?
June 4, 2013 5:40 PM   Subscribe

Long-time couple finally getting married, and we think we might want a prenuptial agreement. What should we know about the practical aspects of creating and adhering to a premarital agreement? Same-sex couple in Massachusetts, more snowflakes inside.

My partner and I plan to get married in October, we’ve been together for eight years. We have never had any significant disagreements about money and communicate well. Our finances are semi-shared (we have a joint checking account for rent and shared expenses but keep everything else separate) and we have no clear ‘policies’ on how our shared finances should work. Our differing assets/debts and incomes are a source of some discomfort and we think we might want to create a contract to clarify our desires and possibly customize our legal situation, but are overwhelmed by the options. We’ve read the Nolo Press book but are still confused about whether we should have a prenuptial agreement, or what it might or should contain.

So: if you could write a custom contract to outline finances in your marriage or in the event of divorce, and you were us, what might you want to consider? You are obviously not our lawyer, or our accountant. We do plan to hire such if we can do so inexpensively and have a good idea of what we want beforehand. To be clear: not looking for discussion on whether prenuptial agreements are a “good thing” or what they may imply about trust or marriage. Let’s assume they are just legal contracts that are useful for clarifying a couple’s financial situation in certain circumstances.

Snowflake details:

Same-sex couple in Massachusetts.

I am 30 years old, income $40,000/year gross. I am naturally frugal and most months I save 40-60% of my net income. Right now I have ~$35,000 in assets, including cash savings of >$15K, a Roth IRA, and principal in a public employees’ retirement plan (defined benefit pension system, I am not yet vested). I am a state employee and my employer will recognize her as my spouse if/when I ever collect a pension. My only debt is $14,000 in federal student loans, 2% fixed rate. I am earning a master’s degree in something similar to/related to public administration, it will never get me lucrative positions but I could expect to earn $50-65,000 eventually if I leverage it correctly or have good luck with jobs. I am an only child; my parents are poor and may someday need my help.

My partner is 28 and has less than $1,000 in assets. She has huge private student loans--$80,000 at an average of 4.5% (variable rates), some of this is capitalized interest. Her income is less than mine, I think around $28,000/year. She has a liberal arts bachelor’s degree, works a retail job, and because of her debt is reluctant to pursue any further education that would increase her income. She is sensible about money IMO but because of her student loans, she has trouble making ends meet on her own. Her family is comfortably middle class but don’t support her, although we think there may be some small inheritance or trust from her father eventually (details unknown to us). She has siblings who will probably help care for her parents as they age.

We don’t own any property together or separately but we might like to buy a house someday. Neither of us has consumer debt. We split rent and utilities 50/50 and I pay for most additional expenses, including groceries, any travel, etc. Our wedding and honeymoon will cost about $10,000 and I am paying for the majority of it with some contributions from her family (after the wedding is paid off I expect my savings to grow much faster).

Reasons why we are considering an agreement:

-I am mostly okay with paying “extra” for things but occasionally I feel resentful that her debt keeps me from accumulating wealth. I know her loans are not mine to pay off, but I have been helping by paying for the larger share of our expenses, and this makes us both uncomfortable. I’d like a more formal agreement on how separate or shared our finances should be. She knows how I feel and agrees that this is a good idea but we’re fuzzy on how this might work.

-Her debt is significant enough that if bankruptcy was an option, it would be a real possibility. If her situation gets worse, we would both be better off if my finances were protected.

-Given our different educational levels and incomes at this point, I think there is a possibility our financial situations may diverge further, although who knows what the future may bring.

-We are lucky to live in Massachusetts where our marriage is legal, but are unsure of what the financial ramifications of such. Assuming DOMA will be around for awhile, are there ways we can mitigate the financial impact of it via our agreement, and is that something we might actually want to do?

Any ideas appreciated, thanks for reading.
posted by anonymous to Work & Money (12 answers total) 5 users marked this as a favorite
I absolutely love prenups because they tend to be written at a time when each partner has the other's best interests at heart and it's the most gracious and generous time to plan against a breakup. Marriage is first and foremost not a declaration of love but a contract with the State. And as Erik Newton points out, you already have a pre-nup, it's just that by default it's written by the statutes of Massachusetts. It makes sense to tailor it if one size doesn't fit you.
posted by DarlingBri at 6:18 PM on June 4, 2013 [10 favorites]

I am married in the state of MA, with a pre-nup. You will both need independent counsel for the pre-nup to be legally binding. It makes sense to ask your lawyer the technical questions directly, but the emotional ones you NEED to hammer out before lawyers get involved.

If you want to maintain separate assets that seems fair, but keep in mind that this will only come into play if the marriage were to dissolve. You need to figure out how to BE married first, in terms of finances. If you're unhappy with how the expenses are divided now, there is no pre-nup in the world that will help your marriage. You need to have a financial discussion before you have a pre-nup discussion.
posted by lydhre at 6:29 PM on June 4, 2013 [5 favorites]

I don't think a pre-nuptual agreement can absolve you of any financial responsibilities that getting married would thrust upon you. Plus, I'm pretty sure the point of a pre-nuptual agreement is to settle upon the terms of divorce, should it occur. Not to settle differences within the marriage- the only way to "use" the contract would be to sue for divorce because the other side hasn't lived up to her agreement.

As for finances, take a long view. Maybe the next 4 years will be tough financially. But 10 years from now? Assuming nothing bad happens, you'll probably done with those loans and well settled into your new house. You are the breadwinner now, so embrace that- help your spouse get out from under her debt and build a stronger future together. Maybe in 10 years she will be the breadwinner and support you similarly.

As for not taking on new debt to increase earning power, you'd have to run the numbers. If it costs another $10,000 to increase her yearly income by $10,000, it seems like that would be worth it. She's back to even within a year, and has a lifetime of greater earning power for you both to enjoy. If it costs $100,000 to earn another $10,000 a year, that might not be quite worth it. (On the other hand, the debt is incurred in today's dollars, and the increased income keeps going up. So what was a $10,000 boost now might be a $15,000 or $20,000 boost in 10 years. So it's paid off in 10 and there are still another 20 years of work to save up for retirement.)
posted by gjc at 6:35 PM on June 4, 2013 [1 favorite]

Keep in mind that a prenup is not going to protect your income/assets in the case of financial trouble on the part of your spouse. It is meant to outline what will happen if you get divorced, not to separate your debts/expenses/etc. while you are still married.

Also - most student loans are NOT dischargable with bankruptcy, so if that's the majority of your fiancee's debt, don't plan on going down that path.

That said, it looks like MA is a common law state, which means the debts of each spouse stick with that spouse - you're not legally taking on your spouse's debt by marrying her, regardless of whatever you put in a prenup. (IANAL - you should get this checked out yourself, of course!)

Most of all, though, it sounds like you guys need to have a more serious discussion about what getting married and combining your finances will look like. A prenup is not going to make feelings of resentment over unequal earnings disappear, nor will it give you a clear plan of how to combine finances moving forward - you'll need to figure these things out yourself.
posted by rainbowbrite at 6:44 PM on June 4, 2013 [1 favorite]

And as Erik Newton points out, you already have a pre-nup, it's just that by default it's written by the statutes of Massachusetts.

Yeah, this is the same as saying that everyone already has a will called the intestacy statute. It is still recommended to have a will.

As you may have gathered, the pre-nup is not to set forth who is going to pay for groceries or the water bill while you are married. You cannot whip it out if you think she is not holding up her end of things regarding how you share finances while you are married. It is not to settle tiffs about who is supposed to unload the dishwasher. If you think the pre-nup is going to solve any of your current issues about relationship finances, you need to put marriage on hold or you may need that pre-nup sooner than you think.

Rather, the purpose of the pre-nup is to address how your property will be divided if you divorce - nothing more. If you divorce, you can have a judge decide how your property is divided, or you can decide right now with a pre-nup agreement. An agreement is better.

By the way, please don't think that a pre-nup does much in terms of bankruptcy protection. If your spouse incurs debt during the course of the marriage, you can still be on the hook regardless of any pre-nup. Debts that is in her name only that was incurred before the marriage should not affect you.

If you want to have a pre-nup, you want to have a lawyer.

(IAAL. You know all the disclaimers)
posted by Tanizaki at 6:45 PM on June 4, 2013 [3 favorites]

Honestly, it sounds like you need financial/legal advice in the context of relationship/couples counselling to help you both articulate your goals and expectations around money. There is an imbalance in your relationship you (and maybe your partner) are uncomfortable with and you both need help in either righting that imbalance or accepting it
posted by saucysault at 7:13 PM on June 4, 2013 [2 favorites]

Right now, you have a prenup. That prenup comes in the form of the marriage laws of the state in which you reside and the laws of any state in which you might later separate. That's your prenup. It was written for you by a bunch of bureaucrats who have never met you and know nothing about your relationship or your life. It tells you who gets how much money or property if you divorce, and it tells you who is next of kin for whom, and it tells you how disputes over property and such should be adjudicated, and it tells you what expectations there will be for you going forward. That's the prenup you have right now.

I suggest that you start by reading that prenup. Read up a little on what your state has to say about the division of debts and assets after a couple splits. Who bears what debts? Is it a community property state, or can people pretty easily come out with what they came in with? Figure out what the law says and how that law applies to you. Then, decide together whether or not you like that. Do you disagree with it? Do you think it's not specific enough to address real issues that might come up in your relationship? Do you want something in your marriage that the marriage laws don't give you?

Then it's time to start thinking about drafting a custom prenup just for you to either supercede (where possible) or work with the prenup the state writes for every couple. And for that, you need a lawyer. But you can figure out a lot of whether you need one and what you'd like yours to say just by perusing the sample prenup that is (in a format that is terribly unhelpful and not-user friendly) laid out in the statutes and court decisions governing family law in your jurisdication. Because that's how you know what you're actually saying "I Do" to.
posted by decathecting at 7:41 PM on June 4, 2013 [1 favorite]

Although not the only scenario, a prenuptial agreement is most suited to a second marriage where one or both partners have children from a previous relationship and they want to ensure that a certain percentage of assets accumulated before the marriage will pass to the children rather than all to the spouse in the event of death.
posted by megatherium at 4:52 AM on June 5, 2013

It doesn't sound like a prenup will address your concerns. The most common scenarios for wanting a prenup are when both parties are starting with a major imbalance in assets, or one or both parties have significant obligations to other people. Neither of you has a ton of assets. If you want to decide now that there will be no spousal support upon a divorce, you could put that in a prenup. In general, if you imagine that ten years from now you're going to get divorced, is there anything you are certain of now about the way you want your assets to be divided? If so, you could consider a prenup. If not, you probably don't need one... with the caveat that I think all long-term same-sex couples should see a lawyer to figure out the DOMA-related issues, and you may need some documents like medical directives regardless of whether you have a prenup.

It does sound like you're puzzling through how to handle shared finances during your marriage. You could certainly write that down, but it doesn't have to be an official signed contract. It could be something you revisit once in a while as a couple to make sure it still works for both of you.
posted by chickenmagazine at 8:47 AM on June 5, 2013

I went through this process recently with my boyfriend---I live with him, have for over a year, some finances are unequal, he has some debt and much is similar to your situation. I can't speak to your legal questions because I don't live where you do, but as for managing the money given your unequal incomes, might I suggest proportional budgeting? We did, at first, as you do and split the bills 50/50 but it really wasn't fair because that left one person with way more left over than the other. So what we do now is each of us contributes a percentage of our take home pay, then keeps the rest for personal spending, debt, retirement fund etc. Right now, we are each contributing 50% and keeping 50%, but we have a frugal lifestyle and as our incomes go up, we could fiddle with that.

This is a fair system because it recognizes the value of each person's contribution, irrespective of who earns what. 50% of my take home pay is a smaller amount than 50% of his, but it represents the same sacrifice on my part as his did. It's a big enough chunk that we can have a nice life together, and it also gives us each enough left over to fund our savings, investments etc. and pay off personal debts and bills.

At some point, the discrepancy, given our careers, may be huge and he'll have so much money left over that we may move some of the joint expenses (e.g. the car, which he uses more) out of the joint and into his personal side. But that is a ways off yet!
posted by JoannaC at 1:09 PM on June 5, 2013

I think there's a limit to how much you can truly separate your finances when you're married. Legally, yes, but also realistically. For example, you have money saved for retirement. She doesn't and doesn't seem to be on track to be able to do that. How will you two live when you retire? Your income disparity will be even more stark--she may be forced to continue working while you are able to retire in comfort. How will you both feel about that? You also don't know what the future may bring. You could continue to be the high earner, or you could become disabled or sick in a way that didn't allow you to work. If you were making, say, $15K yearly, would you want her to contribute to your lifestyle? Would you be upset if she didn't?

If I were you I would stop saving for four years or so, help her to pay off her debt, and then you'd both be in a better position financially. Then you could accumulate wealth together. Or, if I loved her, but didn't want to be responsible for her in any way, I wouldn't marry her.
posted by chaiminda at 2:48 AM on June 6, 2013

1) Infidelity clause with a harsh monetary penalty.
2) Debt clause with a time limit and harsh monetary penalty for every day she fails to pay her bills on time.
3) Any other clause you feel is necessary in the event of a divorce.
posted by lotusmish at 10:54 AM on June 17, 2013

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