First, let me say unequivocally that having a Prenuptial or Premarital Agreement is the best thing you can do to protect your present assets and future accumulation of assets. If done correctly and attended to throughout the marriage, the prenupt is as close to a “lock” in the law as you can get. With this being said, I know the difficulty that confronts marrying couples when the ugly word “Prenuptial” comes up. Love is out the door and suddenly it becomes a business deal which doesn’t go well with picking out the wedding venue, deciding who to invite, and what do serve at the actual nuptials. In Texas, where I practice, Prenuptials are called Premarital Agreements. What I have learned is Premarital Agreements are usually reserved for couples marrying a second time or marrying later in their life. Younger betrothed couples haven’t had the time to accumulate anything of value – so the need for the agreement is not as pressing. However, if an inheritance is expected in the not so distant future, estate planning gifts from parents or grandparents will be coming, or there might be a settlement of a large personal injury lawsuit are on the horizon, young marrying couples should consult with a competent and experienced family lawyer.
So, you if you just can’t get past the first argument from your future husband or wife that “they can’t believe you trust them so little as to ask for a Premarital Agreement”, what should you do? First off, I would carry the argument to the next step which is to say back to them that Premarital Agreements can be as creative and expansive or limited as the human mind can fathom. Outside of being unable to contract for anything that deals with children of the marriage or is void against public policy and the law, they can come up with any agreement they want. I have drafted Premarital Agreements that cover everything from how much money one spouse has to pay each month for the couples’ bills to how the couple will manage new businesses that may be started to retention bonuses for how long they stay married to how many vacations they will take a year to how much sex will be allowed monthly. Yes, it can be quite a creative document.
But, if you don’t have it in you to risk your soul mate walking the relationship because you insist on a Premarital Agreement, then the second best thing you both can do is manage the finances of the marriage by religiously taking and following certain steps and rules. Here are 17 Rules you should follow in marrying without a Premarital Agreement:
1. One month before the wedding – make a copy of every statement for every bank account, retirement account, and brokerage account you have. Anything you have put in your money before the marriage. Make copies of all titles to land, cars, or boats you have. Make copies of the statements for all travel awards. Make copies of all credit cards you have and the balances on those cards as of the date of marriage.
2. Make a list of every asset and credit card you own. Try to get the same from your fiancé – including the information in paragraph 1 above.
3. The day of your marriage (or not later than 30 days after your marriage), make copies of the next statements you receive on any financial account in your name, including credit card balances.
4. Take all the information you gathered in 1-3 above, have it scanned into a computer then stored on any storage media and put it (and the original paper hard copies) into your safe, safe deposit box, or leave with a trusted family member who is good at organizing and keeping things safe. All of 1-4 is a safeguard for you to be able to prove – should a divorce occur – what exactly you owned and owed on the date of your marriage.
5. If you have a brokerage account or any kind – pre- tax or post tax – call your broker or plan administrator before the marriage and have them “sweep” the accounts of any income that is earned by moving monthly that income into another account designated as the “community” account. Use the post-tax income (“community”) account for any expenditures you might need during your marriage. Never touch the account from where the income was swept.
6. If you receive an inheritance, cash gifts from anyone not your spouse, or from a personal injury settlement NEVER deposit them into any joint account with your spouse. Deposit them into an account you designate as “Separate Inheritance” or “Separate Gift” account in your name only.
7. NEVER put your spouse’s name on property you owned before you married or property you bought after marriage with your separate funds. NEVER – even if he or she makes you feel like the worst human being ever for not having the house in which you both live titled in both your names. NEVER let your parents put anything in both your names unless this is their real intent. If you violate this rule, you or your parents may have just made a gift of at least 50% of the equity in that property to your spouse.
8. Don’t give a major purchase item to your spouse on a birthday, anniversary, Valentine’s day, or other special occasion unless you truly want him or her to have it as their separate property. Paid for cars, diamond rings, or pets are going to more than likely be determined to be your spouse’s separate property if you try to manage cash flow with special occasions.
9. Keep a log of the changes in all the financial institutions you listed when you did paragraph #2. Banks change names. Brokerage Houses (remember Lehman Brothers) merge or go out of business. The financial institution you had your money in when you got married may be a distant memory when a divorce occurs. Hard to remember what changed into what 9 years after the fact.
10. Scan or keep safe every statement you receive from any asset you own. Financial institutions are only required to keep records for seven (7) years and some will lie and tell you they only keep them for four (4) years. Nothing is more hair pulling for you or your attorney than to know you could prove certain property to be your separate property – only to be unable to get that statement from 6 years ago.
11. Be careful on refinancing the house you had before you married. NEVER let the refinancing underwriters make you join your spouse in the refinancing and then re-title the house. The consequences can be the same as in #7 above.
12. If you decide to sell the house you had before marriage and put the money into a new family home, make sure that all the equity from your first house is kept intact – dollar for dollar – into the new house. Don’t use your joint account. Have your house sale proceeds run through another account in your sole name and be sure you have the documents and can trace where all of it went.
13. If you are getting money from your parents, make sure you have documents that describe what that money is for – is it a gift to you, a gift to both of you, a gift to your kids, or a loan. Keep those documents. Invest a few hundred dollars in an attorney to get the correct documents drafted.
14. Update your lists of your property annually. Don’t wait five years then try to retrace what you have done with your assets over the past five years. You will more than likely make it all the worse.
15. Control your credit cards and what they are used for and in whose name the card is titled. There is no such thing in Texas as a “community debt” (unless it is for necessaries and that is a full topic for another day but let’s just say necessaries are very limited). So, who is responsible for the credit card that is used to pay for the vacation to Disneyworld is going to be primarily based on who originally signed the contract to get the card with the credit card vendor. This can be ferreted out in a divorce – but the expenses to do this work are going to be costly. Try and keep the cards and amount owing equal between your cards and your spouse’s cards as much as possible during the marriage.
16. If you have rental property that you had before your marriage, inherited, or purchased with cash from your separate property, you need to segregate your profits from that investment from the asset itself. This area can be complicated. Use some of the money you saved from not drafting a premarital agreement and see an experienced CPA and attorney.
17. Don’t play the stock market from an account that you had before marriage. Set up a trading account and do it there. Keep track of where the money used for the trading came from to start the trading account and pay back your separate account dollar for dollar exactly for the seed money. Never put profits back into your separate property account. Never put your paycheck into any of your separate property accounts. Never! Ever!
The above 17 things to do to make up for not having a Premarital Agreement are only a highlight of some of the important things you can do to protect your separate property, inheritances, and gifts during your marriage. Just following the 17 things I set for above will save you thousands upon thousands of dollars if a divorce ever does darken your door. However, it takes attention and follow up to do it and stay with it. You’ll thank me to the end of your days if you do what I say and then find yourself in a divorce situation.
So will your lawyer – probably more than you.