Here’s a quick quiz on money and marriage. Which of the following engaged couples needs a prenuptial agreement about finances?
A. He’s a wealthy celebrity with several previous marriages; she’s decades younger with no wealth to speak of.
B. Both are in their 50s, with successful careers, substantial net worth and adult children from previous marriages.
C. They’re in their 20s, just starting out, with jobs and college debt and high hopes for the future.
The right answer? D: All of the above.
Couple A, with a wide disparity in age and wealth, is the classic example of a couple that has a legally executed prenuptial agreement. Such prenups are often regarded as the province of the wealthy. They offer a way to provide for the non-wealthy spouse but protect the bulk of the wealthy spouse’s assets in case of a divorce.
Certainly, not all couples need or want this form of legal protection. All couples, however, would be well served to sit down together before the wedding and make their own prenuptial agreement about finances.
Here are some of the issues such a do-it-yourself prenup might include mutual agreements on:
Ideally, this includes the past, the present and the future.
Past: What’s your money history? This might include financial mistakes, lessons learned and childhood experiences that have shaped your beliefs around money.
Present: What are your current earnings, debts, assets and expectations? One way to share this information is to schedule an appointment to share bank statements, tax returns, records of loans and other debts, lists of assets and anything else that seems relevant to the couple’s current and future finances.
Future: A crucial part of financial disclosure is an ongoing commitment to share all financial information and make major financial decisions as a couple.
This might include a wide range of money and money-related concerns. A few examples: when or whether to buy a house, willingness to relocate for one another’s career, funding retirement plans or when to start a family.
What that method looks like — joint or separate bank accounts, for example, or who pays the bills — doesn’t especially matter. What does matter is that partners take joint responsibility for their finances and work together to consciously create a system that works for them.
Working on tough issues
This is especially important for couples with previous marriages and children or those bringing significant financial baggage (such as debt or bankruptcy) into the marriage. Ideally, a couple will agree on how to handle specific matters like paying off premarital debt or funding kids’ education in a blended family. If that’s too big a step, the prenuptial agreement might include full disclosure of potential problem areas and a promise to resolve them together.
Sharing the truth about your earnings, assets and debts is one aspect of this. Ongoing financial openness (such as no secret borrowing or lending, no lying about spending, no large purchases without your partner’s knowledge) is another. But being true to each other around money goes even deeper. Financial fidelity is a commitment to act with integrity, work together as a couple and build habits of financial health that support the well-being of everyone in the family.
Taking the time to talk about money before marriage is a wise move. Making written commitments to each other about finances, in the form of a DIY prenup, can make that money talk even more valuable.
Rick Kahler is president of Kahler Financial Group in Rapid City, S.D.