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June is the most popular month of the year for weddings.
But, along with all the talk of something borrowed and something blue, I can’t help but interject a few words of practical financial advice for all those women about to be walked down the aisle.
After all, the harsh reality is this: A large number of this month’s marriages will end in divorce. Today’s brides need to be prepared for that possibility; they need to be smart about their finances, so that they can avoid potential pitfalls later.
Don’t get me wrong. I’m not a pessimist, and I wholeheartedly believe in the many wonderful rewards of a healthy marriage. (My wife and I have been married for nearly 28 years!)
Even so, The Divorce Financial Strategists™ here at Bedrock Divorce Advisors™ have seen how devastating it can be for a woman to be ill-prepared to deal with financial concerns, whether these concerns emerge during the best of times, or even worse, after a marriage turns sour.
As I see it, clear expectations and a shared understanding of financial issues help form the cornerstone of a successful union.
What can a bride do to better prepare herself as she embarks on this new chapter in her life?
For me, it boils down to five things. A bride-to-be needs to:
1. Communicate about finances. Brides, before you say, “I do,” make sure you know your fiancé’s finances inside and out. You can’t be shy about this. Discuss the full range of topics, from spending habits and current credit card debt to future plans and how your accounts will –or won’t –be blended after the Big Day. Do not wait until the last minute to get answers to important questions such as:
- How much money do you earn?
- What are your assets and liabilities
- Have you ever filed for bankruptcy and are there any judgments against you?
- Do you pay alimony and/or child support?
- If we purchase a home or make other investments, will these be held jointly?
- What about pre-marital assets and liabilities – will they also be shared jointly or will they remain separate?
If your husband-to-be owns a business or professional practice, make sure you understand its revenues, expenses and net income. Does the business have assets/liabilities? Is he personally liable for those liabilities? Review all tax returns for the business or have a professional do so on your behalf.
Having these conversations well before the wedding minimizes the risk of financial surprises later. It also helps establish the good habit of sharing financial information, expectations and worries.
2. Consider a prenup. In many circumstances, a prenup (short for “prenuptial agreement”) is warranted — especially now that people are getting married at a later age and many already have their own assets. By using a prenup, both parties can decide in advanced what property will be considered separate property, what property will be considered marital property and how that marital property should be divided. You may want to seriously consider a prenup if you:
- Have considerable assets such as a home, real estate investments, stock (including stock options) or retirement funds that make you (or have the potential to make you) much wealthier than your fiancé
- Own all or part of a business or professional practice
- Have children and/or grandchildren
- Have loved ones, such as elderly parents, who need care
- Are expecting an inheritance
- Have (or are pursuing) a degree or license in a potentially lucrative profession
For a prenup to be effective, both parties must have their own separate attorney. Plus, the prenup must be:
- Written. Oral prenups are not valid.
- Executed voluntarily and without coercion. A prenup that’s signed the day before the wedding can easily be invalidated.
- Executed only after full disclosure. If you hide assets and/or liabilities, you run the risk of invalidating the prenup.
- Conscionable. A prenup cannot be unconscionable. In other words, the prenup could be invalidated if the agreement is too lopsided, with one party awarded almost everything and the other receiving only a pittance.
- Executed by both parties, preferably in front of witnesses (or a notary). Some attorneys even recommend having a judge witness the signing to make sure that neither party was coerced into signing.
- Written in a recordable format, such as a real estate deed.
The process of drafting a prenup can be enormously complex, so give yourself plenty of time to carefully consider it, along with other options to divorce-proof your assets.
3. Preserve a measure of financial independence. Not all assets have to be shared jointly. In fact, I strongly advise you to maintain a separate bank account. Keeping at least some money in your name only can prove enormously beneficial. For instance, suppose that someday your marriage takes a turn for the worse. If you have a separate account, you’ll have immediate access to funds that can’t be “cut-off” by your husband.
Unfortunately, I’ve seen too many “wealthy” women run into trouble because they don’t have cash available to hire a divorce attorney and financial professionals. Instead, these women have to take money out of a joint account or charge their expenses on a credit card –both of which can immediately tip off a husband.
Preserving your financial independence also means you’ll need to be diligent about establishing credit in your own name. The federal government is cracking down on who can and cannot own credit cards, and that means it’s going to get even harder for stay-at-home moms, retirees and asset-rich, but income-poor women to get credit.
4. Weigh options for filing tax returns. Most married couples file a joint tax return –but that doesn’t mean a joint return is necessarily the best option for you.
If your husband owns a business or professional practice and the profit or loss from that business is declared on your personal tax returns (as is usually the case with a sole proprietorship, partnership, limited partnership, LLC, or “S” Corporation), you are responsible for the veracity of that information. If you are not privy to the finances of his business, you could be setting yourself up for a disaster. No matter how innocent or ignorant you may be of this type of activity, if you file jointly, you are equally responsible in the eyes of the I.R.S. and your state’s taxing authority.
(There is an I.R.S. and state exception called “Innocent Spouse Relief” that can apply in certain circumstances. However, this exception is very limited and difficult to acquire.) In short, if you will be filing joint tax returns, be aware of what you are signing.
5. Maintain access to all marital money. Many women shy away from dealing with money after they are married. Don’t be one of them. If you feel that your combined finances are too complex for you to keep an eye on by yourself, hire a financial advisor who can help you.
Follow this basic rule of thumb: Even after you’re married, YOU need to know where your money is and how it’s being spent or invested. Don’t rely solely on your husband’s word. Make sure your name is included on accounts, as well as on any LLCs or private partnerships you may be using to purchase houses or luxury goods.
Although it sounds terribly unromantic –especially in June, arguably the most romantic of all months –marriage is, in large part, a business relationship. You wouldn’t start a company with someone if you were unsure about their personal finances. Don’t start a marriage that way, either.
Jeffrey A. Landers, CDFA™ is a Divorce Financial Strategist™ and the founder of Bedrock Divorce Advisors, LLC (http://www.BedrockDivorce.com), a divorce financial strategy firm that exclusively works with women, who are going through, or might be going through, a financially complicated divorce. He also advises women business owners on what steps they can take now to “divorce-proof” their business in the event of a future divorce. He can be reached at Landers@BedrockDivorce.com.