Prenups & Beyond: 6 Tips for Money and Divorce

June 25, 2011

When you go through a divorce, you not only endure emotional bankruptcy, you could face financial bankruptcy as well.  Divorce is actually a common cause for bankruptcy in the US, more often for women than men. 

Although divorce is the probably the last thing on your mind when you get engaged and get married there a few things to keep in mind before you start merging your finances with your new husband or wife.  Since almost half of marriages in this country end in a divorce (many of them due to problems or fights over money) it’s worth your time to think these money issues through.  Obviously I’m not a lawyer so this isn’t legal advice, just a few things to be aware of before you get married or if you find yourself contemplating divorce.

Prenuptial Agreements
Prenuptial Agreements are a step some people consider before getting married. They tend to only protect what you come into a marriage with–so anything earned during the marriage likely will still be subject to marital division. However, since each jurisdiction likely has different laws and regulations, you should seek an appropriate expert in your jurisdiction. Many people find prenuptial agreements somewhat unsavory and some might be insulted if you ask them to sign one. I think the obvious reason is that people probably don’t want to start a marriage already contemplating the possibility of divorce.

Debt
When you get married it’s best to have a plan as to how you will pay your individual debts. Some people will decide that the debt they enter a marriage with should never become a joint responsibility. Others will jump right in and commingle their debt. It’s really a potential problem, however, when there exists a great disparity in each party to the marriage’s debt load. The same goes for money brought into a marriage. Sometimes it can be easiest to get married when you’re both young and poor : )

If you’re not careful, you might end up like my friend who’s wife brought 50K of credit card debt into their marriage, convinced him to pay it off with a second mortgage in his name, then left him shortly after.

Inheritance, Gifts, Family Money
This is another issue that can cause problems in a marriage or during a divorce. Do you decide to commingle your inheritance or do you intend keep it separate to perhaps protect it in the event of a marital breakdown? When your parents put the down payment on a house are they still alright with that arrangement if your marriage doesn’t work out?

Wills
What about your will? Have you made sure you have kept it up to date both when you get married and afterwards in the event that you divorce?

Paperwork
Are you both familiar with how the bills are paid, the state of your finances, and how to access the money? People tend to get hostile or suspicious during a divorce. You’re both going to want to know where the marital funds have been kept and that neither party is hiding money from the other.

Attitude
I have an acquittance who’s a divorce lawyer and he says the most costly thing in a divorce is the parties dislike of each other. He’s seen clients waste a lot of money rather then settling–and they pay out of their anger. Having a great attitude and trying to stay friends even after a divorce can make both parenting and your finances easier to deal with post-separation.

Divorce and Money
Divorce is a difficult subject to write about, and I know it’s not the most fun topic to read about either. However, I’ve seen friends go through a divorce and think it’s important that anyone who is married or contemplating marriage at least know some of the issues that could come in to play if later on the marriage doesn’t work out.

Everyone says “that would never happen to me,” and I hope it doesn’t, but it may save both of you a ton of time and money in divorce legal fees if you have an idea of these types of considerations even when your marriage is going great. I should mention again that I’m no expert in law so I’d suggest getting expert/legal advice if you’re facing a divorce.

That said, I hope this will help you understand some of the issues in this oftentimes sad but still important part of personal finance. What are your thoughts and experiences on money and divorce?  Did you/would you ask for a pre-nup?

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Ben

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Ben
Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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5 Responses to Prenups & Beyond: 6 Tips for Money and Divorce

  • Jordan White

    Because of the money I inherited from my parents when they died, over 300,000 I refuse to legally marry ANYONE who doesnt sign an pre-nup. In my opinion that money I got is MY retirement in the future and no one elses PERIOD! I got that when I was 31 sadly but becuase of how I got it, I mentally cannot love a women enough to share that with her or support kids with.

  • Seth

    If you do get divorced be sure to switch your life insurance beneficiary from your ex to a family member, especially if “attitude” is a problem between you. Often people forget about this step, especially if you only pay for your life insurance once a year.

    Divorce may be the time to reassess your insurance needs as well.

  • Big-D

    I have lost two fiance’s due to insisting on a prenupual agreement. I have a child from a previous relationship and I insisted that his college fund stay out of the family “money” as well as I will keep my 401k and Roth separate until which time we retire. Each of them had their own retirement funds, but mine were substantially higher, which drew ire as they thought I was trying to hold out on them. Not to get into too many details, but most of women think prenups are “not romantic” and “planning the exit strategy” or what ever words you want to use. Oh well. Providing a house, a majority of the income, and my sterling personality, if that wasn’t enough – then sorry.

    I think that planning and being straight forward is a good thing. The issue becomes how do you protect yourself. This is not a matter of trust. I trust you as I am marrying you, however, that does not mean I want to make sure that I and my son are not protected. Should your motives be true, there should be no issue with a prenumptual.

    Good article, just wish people would realize this is rational, and purposful, not hurtful and distrusting.

  • Kirk Kinder

    Great article, Ben. Always begin with the end in mind…even if you hope a particular ending may not happen.

    Finances are something every couple should discuss before marriage. It tends to cause more friction in marriage than just about any other topic.

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