Planning to be married is an exciting time. Many people focus on the romance and the excitement of the wedding. When one partner wants to inject finance and relationship discussion into the many tasks to be completed, there can be pushback from the other partner. However, discussing your financial future and your expectations of the marriage is good planning.
Many people think because you are in love, that your partner and you will think alike about important family issues. Unfortunately, this is not true. Statistically, disagreements about money is the number one stressor in marriages. Such stress can be avoided if couples talk about and explore each other’s views of money and possessions. Planning a prenuptial agreement is a great way to find out more about your prospective marriage partner’s priorities and determine whether you are really compatible. Since you may find that you have serious differences, it’s best to have such discussions early, preferably with the assistance of an attorney, so you understand all the issues. Try to avoid presenting a prenuptial shortly before the marriage.
Prenuptial agreements are both a tool to inventory the assets and debts that both partners bring to the marriage and to plan for the future. They also permit you to vary the law that applies to property distribution and spousal support.
Inventories must be accurate and be disclosed to the other partner. In Michigan, they are attached as an exhibit to the prenuptial agreement.
Once the assets and debts are known, the partners need to decide how to handle this property. Many partners wish to protect the property that they brought into the marriage and will call that separate. If the marriage ends in divorce, each partner will take back the separate property identified in the agreement. Many people will also designate growth on those assets during the marriage as separate property which will be returned to the partner who owned it before the marriage, if there is a divorce. They may also specify that if some of the separate property is exchanged to obtain other property, that the succeeding assets (and debts) will remain separate.
However, there may be exceptions. For example, if one partner owns the home where they will live before the marriage, will the other partner’s name be placed on the title after the marriage? If not, what would happen if the owning partner should die prematurely? Will the surviving partner inherit the home? Will the home be sold? If it is sold, will the surviving partner receive any part of the proceeds to permit him to place a down payment on another residence? If the partners divorce after a marriage of many years during which the non-owning partner has helped maintain the home and has contributed to paying the mortgage, insurance and taxes, should that non-owning partner share in the appreciation of the home? Under Michigan law, if there is no prenuptial agreement, the non-owning partner’s contributions to maintaining the home would be recognized by dividing the appreciation between them.
Next partners should consider how to treat marital property. Many people consider assets and debts that were brought into the marriage during the marriage to belong to both partners. If the marriage ends in divorce, it will be divided equitably; usually about 50/50. Depending on the kind of property that you own at the beginning of the marriage and acquire during the marriage, there may be conflicts with dividing this unless you are careful in stating your expectations. For example, if wife owns a business and continues to work at the business during the marriage, her income would usually be considered marital. However, if she uses some of the company earnings to acquire another company, is that marital or separate? It depends on the facts and what the partners agree upon.
Partners should also consider whether each will continue to work outside the home. Are their wages similar or is one a high income earner and the other a modest earner? How will they pay their expenses in proportion to their incomes; equally? Will they pool all their income or keep separate accounts? How will they decide on major purchases? What will happen if they have children?
The answers to these questions need to be sorted through. A successful marriage and a successful agreement is dependent on people thinking through their options in advance, feeling as though each is valued and respected and on-going agreement regarding their finances and their respective roles in the marriage.
The partners also need to plan for the possibility that the marriage may end due to divorce or death. Generally, partners are more generous with each other in case of death of one of them. Clearly stating people’s expectations is important. Soon after the marriage takes place, the partners should also have their estate plan done so that the prenuptial agreement can be incorporated into their powers of attorney, trusts and wills.
Sometimes, during this process, partners decide that the general laws of the state already address their issues adequately and decide to forego signing the agreement. This is fine, though they should retain their inventory and the documents that detail the assets and debts. The process will still have been worthwhile since they learned a great deal about their partner and about how they will approach money issues during the marriage. They will have also clarified their respective expectation. Hopefully, this will provide a strong foundation for their future success together.