Sex is a deal-breaker¾so are assets or the lack of them! That’s why more marriages get in trouble over finances than over sex. So, if you want a closer, more open and trusting relationship with her, you’ll want to “open the books.” It’s another way to get to know each other. Nobody likes negative surprises. Disclosure now will help maintain the vital trust between you.

Remember, if serious losses arise because of a concealed a financial dilemma, no amount of romantic feelings will keep your mutual trust from being damaged.

Short of dishonesty, there is probably no right or wrong approach to the subject of money¾you can each have different values and still be right. Your task is to discover what works for both of you, what you’re both comfortable with, and how you’re going to live from now on compared to how you’ve lived in the past.

Our lives are complicated. We are different. Our children are different¾maybe one is a brain surgeon and another is a drug addict. How do we handle the financial aspects of that? How do we fund and leave money to these kids? Premarital (synonymous with prenuptial) agreements can do the job.

PREMARITAL AGREEMENTS

Premarital agreements exist for any number of reasons, including:

1.      To simplify the untangling of your financial relationship should your marriage not work out.

2.      To protect you financially from your partner’s children and your children from their new stepparent.

3.      To protect you as a couple from the outside world, such as each other’s prior tax liabilities and credit card debt.

4.      To keep you from having to rehash all the negative financial stuff.  Hashing it out once was enough.

5.      To remove the incentive for either of you to be marrying for the wrong reasons. If the relationship is going to blow up over money, you’d be better off to have that happen at the prenup than after you’re married.

6.      To help your partner recognize that she has a decent parachute should her five years with you not turn into six. Remember, the years she has invested in the marriage were an asset she contributed¾time is money. That investment deserves to be recognized should the relationship short-circuit.

My idea of a premarital agreement is one that, in most cases, doesn’t last forever. It self-destructs after five—or, at the most ten¾years. Most family lawyers I know evaluate your net worth, income, complexity of your estate, and the disparity of your net worth. If one or both of you is beyond a certain threshold, the lawyer will urge you to enter a premarital agreement to formalize your earlier handshake on the financial issues.

Whether a formal agreement is necessary is up to you. You have to consider how much financial baggage (good or bad) you have accumulated and the extent of the economic disparity between you. If you’re marrying someone who shares a similar economic status, you might not need a formal agreement. If the marriage blows up, each of you will simply fall back on what you had before the union and go on. However, the need for a formal agreement is a lot different if one of you has accumulated assets greatly in excess of the other’s prior to the marriage. 

AVOIDING WRITTEN AGREEMENTS¾MAYBE

If large amounts of money and/or substantial property holdings are not involved, a formal written agreement can sometimes be avoided if assets are brought together in stages so that funds are not commingled too early on.

For example, Bill and Joan were in love the second time around and as they grew closer in their dating and premarital experience, they discussed their finances and found comfortable solutions.

They each agreed to initially retain what they had accumulated separately. They decided that, as the marriage grew, they would allow their assets to blend slowly—which is what assets tend to do naturally anyway. While they trusted each other absolutely, they also recognized that second marriages can fail for unforeseen reasons; or sudden business reverses could wipe out both estates. They wanted time¾about five years¾to come together as a couple, to make their lives physically and emotionally stable, before they brought their finances together. As long as they did not commingle (merge) their assets, there would be no argument over who owned what. Other states may differ, but in California, if an asset is kept separate and identifiable (not commingled), it remains the separate property of its owner. Therefore, if Bill and Joan had to undo their marriage, they would need only to agree on how to split the community assets they had acquired while together. With that handled, they could go on with their lives, taking their separate property with them without controversy.

The couple agreed to live in Bill’s home. They decided to sell Joan’s family home when the market was right. Until her house was sold, she made payments on it from the proceeds of her late husband’s life insurance, since those were also her separate property.

Joan and Bill kept separate checking and savings accounts containing their individual cash assets. They decided to use his income to cover their living expenses and to build their savings out of hers. Even though they were both living in Bill’s home, he maintained the home, his business and other investments as his separate property. Most of Bill’s earnings from the business were contributed to pay for all of their expenses, income taxes, and most of Joan’s discretionary spending. Joan’s entire income from her professional livelihood went into their newly-opened joint savings account. All of Joan’s investment income remained her separate property. Occasionally she would resort to her investment income to cover additional discretionary spending.

When Joan sold her house, the proceeds were deposited in her separate savings account and later into investment accounts comprised of mutual funds held in her name.

Four or five years later they felt very comfortable putting everything together. She initiated the idea by transferring her investment accounts into community property accounts that were held in both of their names. Bill did the same with his accounts and deeded Joan a common interest in all of his real estate and businesses for her to hold in community property with him. They had delayed commingling their assets until they were really comfortable with their marriage. That doesn’t mean the marriage was without disagreement and occasional disputes¾it does mean that the marriage was without serious flaws.

(Parts of this column have been excerpted from Build a Better Spouse Trap. M. Evans, Publisher. The entire chapter on money and a sample prenuptial agreement appears in Chapter 13 and Appendix  B)