Erin is a 63-year-old widow who just got engaged to her high school crush after reconnecting on Facebook \u2014 and she\u2019s wondering if it makes sense to combine her finances with her soon-to-be husband.<\/p>\n
Erin, who lives in Washington D.C., is also planning to sell her house and move back to the Midwest, where she grew up and where her fianc\u00e9 currently resides.<\/p>\n
Her hesitation? Her fianc\u00e9 is $180,000 in medical debt from what he says is a botched surgery. And while she already has significantly more money than her fianc\u00e9, she\u2019s also set to inherit between $4 to $5 million from her parents when they pass.<\/p>\n
So she called into The Ramsey Show to ask for advice [1].<\/p>\n
\u201cThis is one of the rare moments when I\u2019m going to strongly recommend you walk in with a prenup,\u201d said co-host Dr. John Delony. Here\u2019s why.<\/p>\n
A prenuptial agreement is a legal contract between two people about to marry that addresses how they\u2019ll divide their assets if the marriage ends in divorce or death [2].<\/p>\n
If, for example, you divorce without a prenup, you \u201cmay be legally required to divide property you brought to the marriage and consider solely yours,\u201d according to Fidelity [3]. \u201cYou may also have to pay alimony if you\u2019re the higher earner, or you could find yourself responsible for your former partner\u2019s debts.\u201d<\/p>\n
Even if Erin\u2019s fianc\u00e9 is \u201ctotally on the up-and-up,\u201d Delony said he might have a kid or a cousin who thinks they just won the lottery. And, if he\u2019s not on the up-and-up and disappears after she inherits this money, \u201che\u2019s going to take half of it.\u201d<\/p>\n
Half of U.S. adults support the use of prenups, according to a Harris Poll survey conducted for Axios [4], and about one in five married couples actually have one.<\/p>\n
While prenups used to be associated with the ultra-wealthy, there are a few reasons why they might be more commonplace these days. First off, people are getting married later in life and, at that point, they may have built up more assets \u2014 and more debt.<\/p>\n
Plus, as the Axios survey points out, 40% of marriages in the U.S. end in divorce.<\/p>\n
Before getting married, particularly if one person has significantly more assets than the other, it\u2019s well worth a conversation with your financial advisor and a family law attorney about how to combine finances. For example, if you want to leave an inheritance to your children, that should be clear in your estate plan and your prenup [5].<\/p>\n
A prenup can protect your assets during a divorce or after death, and it can also potentially provide protection from creditors. If you move to another state before or after getting married, it\u2019s important to understand the property laws in that state and if (and how) they could impact you.<\/p>\n
In the U.S., states generally fall into one of three categories:<\/p>\n
Community property states (9):<\/strong> Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In these states, most assets and debts acquired during marriage are considered jointly owned, regardless of whose name is on the title.<\/p>\n<\/li>\n Opt-in community property states (5):<\/strong> Alaska, Florida, Kentucky, South Dakota and Tennessee. Couples can choose to classify their assets as community property if they want.<\/p>\n<\/li>\n Separate property states (the rest):<\/strong> In all other states, property is generally treated as belonging to the spouse who acquired it.<\/p>\n<\/li>\n<\/ul>\n For example, in separate property states, if the wife owns the home, her husband \u201cmay have certain rights to that property \u2014 or at least to the value it represents \u2014 in a divorce or upon her death,\u201d according to JPMorgan [6]. (That is, unless there\u2019s a prenup or if the spouse was gifted or inherited the home.)<\/p>\n By contrast, in community property states, assets are treated as shared regardless of who holds title. In other words, they\u2019re considered a \u201cmarital community.\u201d<\/p>\n \u201cBy extension, the marital community is generally responsible for debts incurred by either spouse, and creditors of either spouse can satisfy a valid claim from any community property,\u201d according to JPMorgan.<\/p>\n That\u2019s where a prenup can make a difference. Kelly Chang Rickert, a family law attorney who provides advice on prenups, said in a blog post [7] that she had drafted a prenup for a client whose husband has since passed away. Prior to his death, he had racked up \u201castronomical hospital bills.\u201d<\/p>\n \u201cLuckily, she had a prenup, and thus, the debt was not community debt, and the creditors couldn\u2019t come after community property, as the prenup waived community property,\u201d she said.<\/p>\n Read more: Rich, young Americans are ditching stocks \u2014 here are the alternative assets they’re banking on instead<\/a><\/strong><\/p>\n Delony told Erin she needs to do her due diligence, such as pulling their credit reports and walking through them together.<\/p>\n While it\u2019s unclear if Erin is moving to a community property state, her fianc\u00e9\u2019s debt would still impact her life. For example, she plans to buy a new house that he will then move into, so she could end up footing the bill for everything [8].<\/p>\n It could also impact her down the road. While your credit report remains separate from your partner even after marriage, if you open a joint account, any late or missed payments could impact your credit score as well as your partner\u2019s.<\/p>\n Chang Rickert recommends getting a prenup at least three months before your wedding.<\/p>\n Prenups are governed by state law, so different states have different laws. For example, in California, there\u2019s a minimum seven-day waiting period before the final draft.<\/p>\n While some people may feel awkward approaching the subject with their fianc\u00e9, Chang Rickert has some sage advice: \u201cLike online dating, there is no longer a stigma surrounding a prenup. Get over it!\u201d<\/p>\n Stay in the know. Join 200,000+ readers and get the best of Moneywise sent straight to your inbox every week for free. Subscribe now.<\/a><\/strong><\/p>\n At Moneywise, we consider it our responsibility to produce accurate and trustworthy content people can rely on to inform their financial decisions. We rely on vetted sources such as government data, financial records and expert interviews and highlight credible third-party reporting when appropriate.<\/p>\n We are committed to transparency and accountability, correcting errors openly and adhering to the best practices of the journalism industry. For more details, see our editorial ethics and guidelines<\/a>.<\/p>\n [1]. Youtube<\/a>. \u201cI’m 63 And Getting Re-Married, Should We Combine Finances?\u201d<\/p>\n [2]. ACTEC<\/a>. “What is a Prenuptial Agreement?”<\/p>\n [3]. Fidelity<\/a>. “When to get a pre\u2014or post\u2014nuptial agreement”<\/p>\n [4]. Axios<\/a>. “America embraces prenups: 50% of adults open to signing”<\/p>\n [5]. RBC Wealth Management<\/a>. “Wealth planning for couples: How to wisely merge your financial plans”<\/p>\n [6]. J.P. Morgan<\/a>. “Relocating? Your new state\u2019s property rules may surprise you”<\/p>\n