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Love and Money: Is a Postnuptial Agreement
Right for You and Your Spouse?
Valentine's Day might not be the best time to focus on money,
but some married couples are taking the unusual step of
re-setting the clock on money issues both good and bad with a
legal document called a postnuptial agreement.
A postnuptial agreement is a contract between spouses. It is
similar to a prenuptial agreement except it is signed during
marriage to protect assets in case of divorce or separation.
Prenuptial agreements get plenty of press when high-profile
divorces happen, such as the media frenzy over golfer Tiger
Woods and his marital troubles. But postnups can be seen more
positively as a reset button to accommodate wealth that's
accumulated since the marriage or as a way to add transparency
and correct past money behaviors that were tearing the marriage
asunder. In some cases, this kind of "divorce
planning" might actually create harmony in a relationship.
Under what circumstances are postnups written? Triggers could
include:
- One partner — or
both — handling money poorly. A postnup might be used to
force full disclosure on both sides and establish a new
system for managing money responsibly in the future.
- The building of a
significant business or other acquisition of sizable assets.
A postnup could be part of an overall financial and estate
review for a couple that's worked hard to start a business
together or inherited wealth. They might want to set certain
protections in place that weren't in existence when the
couple married or started the business.
Postnups can be expensive to arrange. Both sides generally
need to engage separate legal counsel to review the legality of
the document as well as coordinate with accountants and tax and
estate attorneys. They may even delve significantly into
business operations as well, requiring an examination of
strategy of valuation and succession planning.
If you and your spouse are considering whether a postnuptial
agreement is right for you, it makes sense to talk with a
trained financial expert first, such as a CERTIFIED FINANCIAL
PLANNER™ professional. If the problem is money, it's best to
talk through options with an objective professional who handles
financial planning for a living. It might be possible to work
out those issues without a need for a document that will take
significant expense to produce due to the need for attorneys as
well as tax and estate professionals.
Some common questions to ask in preparation of a postnuptial
agreement:
What problem are we trying to fix or what behavior are we
trying to change? This is the central question when trying
to remake a financial life. A CFP® professional can help a
couple determine the root causes for the financial issues
they're facing and determine how much support they really need.
A CFP® professional can help both sides come to the table with
disclosure of debt, assets and other business, employment and
investment issues of relevance.
What about our families? Minor and adult children are
part of any new financial agreements you make during your
marriage. If there's a family business at stake, there needs to
be a discussion about how a postnuptial agreement will affect a
split of assets that might affect their future inheritance or
career options. There may be alimony and other support
arrangements already in place for ex-spouses and children from
earlier marriages as well as elderly parents to support. All of
these financial requirements need to be part of the discussion.
Is there debt? And if so, how much? If one or both
sides in the marriage have been hiding this information,
disclosure is part of the process. Both sides must be willing to
reveal their savings, investments and debt figures — every dime.
Both should start the process of talking about how that debt
should be paid off — by the person who accrued it, or by both
potential spouses. Couples also need to decide how they will
handle debt going forward — jointly or separately.
Are there investments? Again, this might be a
disclosure issue, particularly if one or both sides are hiding
assets or simply have lost track of them. There might also be
wide differences on how investments should be managed and even
what types of investments are appropriate.
What about the business? If one or both spouses run
their own companies or partnerships and there has never been a
serious effort at succession or estate planning, all of these
efforts need to be linked. If there is a fear that the marriage
may fail, both sides may want to have a plan in place for
disposition or purchase of the assets. This is particularly
necessary if the goal is to keep the company in the hands of the
founding family so those assets can be passed on to the next
generation.
What about everyday expenses? If one or both sides
believe that certain expenses are a burden, it's time to talk
about reallocating responsibilities. This might be as simple as
consolidating bank accounts in both names so there's
transparency over everyday finances.
What about insurance? Life, health, home, and
disability — all coverage that singles hold separately needs to
be reviewed and consolidated to make sure that coverage is
adequate going forward.
What about our estates? There should be separate wills
and supporting documents on who will get what investments,
personal and business assets with updated beneficiaries —
particularly when children from first marriages are involved.
This new look at finances might benefit from an examination of
various trust agreements to protect and direct assets for future
generations, particularly for blended families or families that
might blend after a breakup. And no matter how young or old the
couple, healthcare directives need to be made.
What about retirement? Retirement discussions go
beyond money. Couples should decide how they want to live in
retirement, whether they'll continue to work and how they'll
deal with illness. This is a particularly important discussion
if one spouse is significantly older than the other and may
retire years ahead.
When done correctly, a postnuptial agreement can benefit both
spouses. The very process of working on this arrangement can be
a positive exercise for many couples. Whether or not the
marriage ends in a divorce, couples can breathe easier knowing
they can protect what they each own.
February 2010 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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