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It’s time to rethink the prenuptial agreement.
Instead of seeing it as a way to simply protect your assets in the unfortunate event of a divorce, consider treating it as a tool to build a long-term financial plan with your partner before entering into marriage. Couples marry later in life and many bring debt with them, so prenups aren’t solely for millionaires. Rather, they can be a way for couples to have an open and honest conversation and get on the same page financially.
Talking about combining your finances might reveal surprising differences or even concerns, such as how you want to live your retirement years (think traveling the world versus playing golf all day), who (if anyone at all) is expected to be a stay-at-home parent, or a spouse’s fear that one of you dying well before retirement age will be detrimental to the family’s financial stability. By having the prenup conversation before saying “I do,” you have the opportunity to get your financial plans in sync for today and decades down the road.
Feeling overwhelmed? Try these three ways to get started:
1. Evaluate your current and future financial picture
The average age for first marriage in the United States is 27 for women and nearly 30 for men (compared with 20 and 23, respectively, in the 1950s), which means one or both parties may come into the marriage with more debt from student loans or credit cards, or more wealth accumulated from past investments. For better or for worse, a prenup can help ensure financial assets and liabilities that occurred before marriage are separated amicably should the marriage end.
Now go beyond that traditional view. This is also an important time to discuss joint and individual long-term financial goals as well as how you want to spend your money on a day-to-day basis. For example: Who is accountable for any debt? Will you fund your children’s college, and if so, how? How do you intend to handle an inheritance? At what age do you want to retire and where? How do you prioritize your savings – vacations, retirement, or children’s education?
2. Position the prenup discussion as a way to prevent future conflict
Bringing up a prenup can be a difficult, but don’t fall prey to the common mistake of avoiding the conversation altogether just because it’s awkward or not romantic. When approaching this topic with a partner, position the prenup as one way to avoid future conflict or controversy and reframe it as a concrete step toward building a long and successful life together, not as a signifier of lack of commitment or trust.
A prenup may even be used to prevent the unfortunate end of a marriage. For example, couples can write in clauses about required counseling or getaways that must be completed should they get to the point of wanting to dissolve the marriage.
A prenup also forces you to think about your future family. How do you and your partner want to handle dissolution with or without kids? If one of you took a step back in your career to better support your family’s needs at home, how would that person be compensated for that in the event of dissolution? Finally, make sure your existing assets and debts are taken into account in any agreement so there is a clear distinction between what is owned as an individual and what is owned as a couple to avoid potentially nasty negotiations if the marriage ends.
3. Think beyond dollars and cents and more around how you want to live your life
The prenup discussion isn’t all about dollar amounts. Rather, it’s a time to align with your partner about how you want to live your life together. Whether it’s moving to a new city, having children, or retiring at age 35 to focus on a passion project, having these discussions early on allows you to plan for your dreams. Your priorities will likely shift as you age, so learning to have these conversations will give you the skills to continue having them throughout your marriage.
Once the prenup is done, continue to think about financial planning in the same way you think about your career or business. Create a long-term strategic plan on an annual basis, schedule check-ins to assess your goals and progress, and provide feedback to your partner so you can make any necessary tweaks to ensure a long-term successful partnership.
Getting your expectations and goals on paper now can help avoid pain and conflict later on by helping you prepare for the unexpected, stay the course through hard times, and be confident in what the future holds.
Cynthia Loh is vice president of digital advice and innovation at Charles Schwab, where she leads the team responsible for overseeing the client experience for Schwab Intelligent Portfolios®, the firm’s robo advisory service. This article was first published in January 2019.
