NEW YORK (Reuters) - With a flurry of Valentine’s Day marriage proposals over, it could be time for new fiancees to take a financial reality check.
Four million Americans got engaged on Tuesday, as estimated by an American Express survey released in January. Unromantic as it may seem, everyone needs a frank conversation about finances before they walk down the aisle, including one that touches on whether or not to sign a prenuptial agreement.
“All marriages terminate, whether it is in divorce or death,” says Patricia Annino, a Boston-based attorney and estate planner. “Signing a prenuptial agreement is assurance your assets go where you want them to.”
Money issues are one of the most commonly cited reasons for marital strife. So, adding a candid financial assessment to one’s wedding to-do list might go a long way toward minimizing disagreements down the road.
A common misconception about prenups is that they only apply if one partner brings in significantly more assets to a marriage, or in the case of May-December romances, where there’s a wide age gap. But they should also be considered by those marrying in mid-career, or those remarrying.
“Statistics tell us that couples are marrying later in life, after they’ve had careers and separately built their own wealth. Or people are marrying for the second or third time,” says Steve Hartnett, associate director of education at the American Academy of Estate Planning Attorneys. “These are the exact situations where prenups are critical.”
Equally important are situations where there are children from a previous marriage. “Parents will often want to be sure their children are provided for in case of their death,” says Elaine Morgillo, a certified financial planner in North Andover, Massachusetts.
For younger couples, prenups are often sought when one partner stands to receive a large inheritance or holds a stake in a family business. Morgillo recalls one couple who had never been married and had similar incomes, but the bride-to-be expected an inheritance and the groom owned several rental properties.
“Inheritances aren’t always sacred, but she wanted hers protected and it helps to show intent,” Morgillo says. “She knew he felt the same way about his properties.”
When her boyfriend of six years sat her down on their living room couch last Valentine’s Day, Christen Petitt Hailey thought she was about to get a vacuum cleaner. Instead, he proposed and the Tampa, Florida, couple were married last November.
“Before we were married, we came up with an arrangement where I always covered the mortgage and utilities, and she paid for groceries or entertainment,” says Shaun Hailey, 36, a mortgage underwriter. “She had slightly less income, so this division seemed to work out to be the fairest.”
Indeed, this kind of ad hoc divvying up is how most modern couples handle their finances. Many are realizing this might not be the smartest route, however.
“We like to say marriage vows today have become ‘love, honor, merge your finances,'” says Anthony Fittizzi, a wealth advisor for U.S. Trust, which recently launched a financial empowerment program to counsel clients ages 20 to 35. “Couples don’t necessarily take into account issues like the start-up costs of marriage, insurance, cash management or dividing property.”
Fittizzi’s motto: Sign on the bottom line before you say “I do.” Nearly a third of single Americans said they would ask their significant other for a prenup, according to a February 2010 poll by Harris Interactive. A second poll, by the American Academy of Matrimonial Lawyers, found that 73 percent of divorce attorneys had seen an increase in prenups signed from 2005 to 2010, with more women initiating the process than ever before.
No doubt the high divorce rate has made prenups more acceptable, but the economy may be playing a role, too.
“With this uncertain economy, there is more insecurity about assets,” says Arlene Dubin, a New York City attorney and author of the book “Prenups for Lovers: A Romantic Guide to Prenuptial Agreements.” “Clients see prenups as vital to protecting what they’ve built.”
Prenups generally cover real estate, estate planning, division of bank accounts, and alimony, in case the marriage should end. Child custody or support can’t be included, and protecting retirement or pension benefits may require extra steps. There are also steps that should be taken to ensure that the prenup holds up in court. These include:
Many lovebirds might find asking their betrothed to sign a prenup awkward, but waiting until the last minute can backfire. “You shouldn’t be bringing it up in the limo on the way to the church,” says Evan Sussman, a Beverly Hills-based divorce attorney. “From a legal standpoint, you don’t want the other person to be able to claim duress later.” Sussman recommends the subject be broached before wedding invitations go out, or at least several weeks before the event.
Prenups aren’t for every couple, but considering one often brings forth key financial questions that bring more honesty into a marriage. A 2010 poll by the non-profit CESI Debt Solutions found 80 percent of spouses spent money their partner didn’t know about.
Some attorneys recommend asking for a credit report. At the very least, Dubin says, “You need a line-by-line statement of assets and liabilities so you can deal with the ramifications.” Student loans, credit card balances, and IRS liens are some of the debts a spouse can later be held responsible for.
Still, Dubin says, “Before you start this process, prepare yourself for whatever may come. And know at what point you’d have to walk away.” The same, of course, goes for asking for a prenup and having your partner turn you down.
A second means to challenge a prenup in court is if the couple are not represented by separate attorneys. This is to guarantee that one spouse, usually the less-wealthy partner, is not taken advantage of.
“Imagine if Mark Zuckerberg wanted to marry his housekeeper who didn’t speak English and he insisted she sign a prenup,” Hartnett says. “Having a competent lawyer on both sides of the table means each party gets a fair agreement.”
That said, when choosing legal representation, be sure the attorney you choose understands this is the start of a marriage, not the end.
“When a lawyer is overly adversarial, it can lead to a lot of distrust and ‘do you love me’ questions,” says Cicily Maton, partner at the Chicago firm Aequus Wealth Management. “You should choose an advocate, but do your due diligence about their style.”
Of course, prenuptial agreements can always be renegotiated as a marriage evolves. “The first draft can always be torn up,” says Ginita Wall, a San Diego-based certified financial planner. “I had one set of clients on the sixth iteration of their prenup when they decided to divorce.”
For the Haileys, being engaged meant much financial discussion. They chose in marriage to keep all their finances separate, including their tax filings. They didn’t opt for a prenup, but “getting it all out on the table upfront means no surprises,” Shaun Hailey says.
Instead, he says, “We can concentrate on saving for the important things, like a honeymoon.”
Editing by Jilian Mincer, Bernadette Baum and Andrew Hay