Given my financial situation, should I explore the idea of a prenup with my partner before we marry?
I'm 35 years old and getting married next year. My partner and I earn roughly the same income and have roughly the same net worth, but I still feel the need to explore a prenup. To me it feels like insurance. Should people in our situation explore a prenup? And if so, how do you discuss it without upsetting your partner?
Yes, it is more than appropriate that you consider a prenup. And your analogy to insurance is excellent. I often point out to people that, although they have no plans to burn their house down, they do have homeowner's insurance.
Hopefully, you and your partner are able to have open and frank discussions about money, you fully understand each other's money attitudes and habits, and you are planning how you will handle money during the marriage and how financial decisions will be made. If, for any reason, you cannot have these discussions, then that is a red flag. If you are going to any kind of pre-marital counseling, these discussions, as well as considerations for a prenup may be discussed in that context. "Here is what we have, here is what we will do with it...." Who owns the house you will live in? How is it titled? Will it be retitled? Maybe not. How do one of you preserve your investment to date? A prenup would address all asset ownership issues, both current and future. Promote "Yours, Mine, and Ours" in a positive context but with clear definition. "I have this and would like to keep it as mine. I will contribute this much to a new home, furnishings, vacations, etc. Can we just write this all down, then put it away and not need to rehash it all again?" Or, "I really do not want to repeatedly debate about money. Can we just decide some things, write it down, then move on?"
If you hear something like, "What's the matter, don't you trust me?" run the other way. I realize there is much more to your relationship than this, but I have a specialty in the finances of divorce and that one phrase was usually the initial battle cry that signaled trouble.
If your partner simply will not participate in this discussion, then you can still protect yourself. Consult with an estate planning attorney who also does family law and place your assets in a trust, preferably an "Asset Protection Trust." There are states that have particularly strong asset protection trusts, and may be able to serve out-of-state needs, that were designed to protect against claims by spouses in divorce, as well as creditors. As an alternative, there are strategies to how you manage your finances that can help protect them from claims in divorce, but this is not a do-it-yourself project. Most people read a little something online and think they are benefiting themselves but end up doing more harm than if they had done nothing at all. Call me if you need further help.
You’re not alone in feeling like this is an awkward topic to broach with your partner - many people feel like money is a taboo topic to discuss. Think about it this way - would you plan the rest of your life with someone before determining if they want children? Asking about money is no less important.
It’s a common misconception that prenups are just for couples who come into a marriage with one spouse being significantly wealthier than the other. However, a prenup is something almost any couple with assets or debts should consider, even if they are on a relatively level playing field. For example, Millennial couples may not have significant assets, but many bring significant liabilities to a relationship in the form of debt (e.g., student loans). Do you both agree on who is responsible for debt repayment? If one person owns a house, do you both believe the house will or will not become a joint asset?
If you’re concerned about addressing a prenup head-on, a third party can help facilitate the conversation, laying out the pros and cons of various scenarios and nudging both sides to be completely honest about their current financial situation and their future expectations regarding finances. A prenup discussion, even if a formal prenup is never created, is a valid discussion for every couple.
While we never go into a marriage wanting it to fail, being prepared for that potential outcome is an important step to take. A well-written prenup is a great way to ensure that both partners are on the same page when entering into a marriage, and ultimately protect the wishes of both parties if a divorce should take place. Remember that prenup agreements can be customized and are different in each state, so make sure you discuss your specific circumstances with your financial advisor and estate planning attorney.
I don't think you should consult an investment advisor with this question. I think you should consult an attorney. There are lots of variables -- the law in your state, your (unknowable) future incomes, inheritances that you or your spouse stand to get, etc.
And besides, you hit a nail on the head when you mentioned "upsetting your partner." I don't think Investopedia should be in the business of relationship counseling. You are asking clearly because you fear getting taken advantage of, so I think you'd better talk this over with your partner now, before it gets worse. Lack of trust, particularly where money is concerned, is one of the most corrosive forces in a relationship. A prenup is a corrosive force unless both partners see an advantage in having one, and you haven't said how your partner feels about this. By all means discuss this with him/her, if for no other reason than to discover that you don't trust each other enough to have a successful marriage.