How to prepare and help protect your assets before marriage

No couple wants to consider a divorce before they exchange rings. However, nearly half of all marriages end in divorce, with the average length of marriage being 12 years¹.

While the following ideas regarding divorce planning may be challenging to discuss and implement, an open and honest discussion can benefit both parties. There is wisdom in hoping for the best while preparing for the worst in so many aspects of life, including marriage, especially for families with substantial assets. Couples may also learn more about their partner by discussing how assets would be divided in the event of a divorce.

Before “I do”

There are many strategies that can be used to protect assets before marriage, including business interests. The intersection of finances and relationships can evoke strong emotions. Framing discussions in a positive, constructive and transparent way can increase the likelihood of productive outcomes. Consider this kind of planning as a step toward avoiding future strife.

Because laws regarding “marital” and “separate” property vary by state, it’s essential to build a qualified team of legal, tax and financial professionals who are familiar with the rules in your state.

Equitable doesn’t always mean 50/50

Chances are both individuals will not bring equally valued assets to the marriage, especially for a couple that’s more financially established. A couple in that position should not feel obligated to design a plan that divides assets equally, but may want to instead choose an approach that reflects what each party brought to the relationship. That said, each couple should create a distribution plan tailored to their individual circumstances.

What is a prenuptial agreement

A good first step is the sometimes maligned and misunderstood “prenuptial agreement,” often referred to simply as a “prenup.” Prenuptial agreements are fairly common and are not limited to the rich and famous.

Generally speaking, a prenup specifies how certain assets will be divided in the event of a divorce, what monetary support is payable and often some aspects of child custody. A couple may prefer to view it as a marital financial plan, one that can be as important as a personal estate plan. Avoiding the most emotionally charged terms can help set a better course for peaceful and constructive discussions. In fact, well-crafted prenups also include elements of a well-structured estate plan.

A well-drafted prenuptial agreement provides a clear framework for asset division and generally cannot exclude a court from exercising jurisdiction over a division, though it can effectively resolve many of the typical issues that arise in divorce. An effective prenup allows both parties to reach a consensus on how their assets, including investments and retirement funds, real property, business interests and expected inheritances will be distributed.

A prenup can also allocate debts between divorcing spouses. Importantly, each state has unique rules regarding the division and allocation of debt.

A post-marriage agreement, sometimes referred to as a “post-nup,” may serve as a couple’s first agreement or as a revision of a prior prenuptial agreement. Post-nups are often executed when the parties wish to amend a prenuptial agreement to include additional rights or adjust the property distribution. They can also be used to create a fairer and more equitable distribution of assets incident to an actual divorce.

Other steps to consider

Prenuptial agreements are not the only way for a couple to organize and protect their assets in anticipation of a marriage. Other tools can also be effective.

Trusts

When drafted and properly funded, an irrevocable trust may help shield assets from third-party creditors. In some jurisdictions, this includes former spouses. One downside of irrevocable trust planning is the difficulty of making changes after creation.

Maintain separate assets

One basic method of asset protection in a marital setting is to avoid commingling separate assets. However, there are potential downsides. Some states provide creditor protection for jointly held assets. As part of a pre-marriage plan, couples can discuss which assets should be kept separate and which may be combined. This may be challenging for couples who have a mortgage signed before marriage.

Maintain separate accounts

For full transparency, it may be helpful to establish separate savings, checking and investment accounts. If any funds are commingled or shared, a couple could agree to divide by the percentage of contribution upon divorce.

Record-keeping

Keeping important documents, such as wills, trusts and powers of attorney, secure and organized is a sound practice in any situation. Tracking who contributed specific assets, particularly above an agreed-upon threshold, may also help prevent or resolve future disputes.

Maintain transparency

Divorce can be an emotionally draining and potentially prolonged process. Regardless of the circumstances, it’s important to handle all asset matters as transparently as possible.

Planning your approach before marriage

Couples preparing for marriage should think about how they would be financially impacted in the event of a divorce. Although it’s not a particularly pleasant topic, because nearly half of all marriages end in divorce, it is worth the effort to consider.