How to prepare and help protect your assets before marriage

No couple wants to consider a divorce before they exchange rings. But according to Brides magazine (can there be a better source?), nearly half of all marriages end in divorce, and the average length of marriage is currently eight years^†.

While the following ideas regarding divorce planning are challenging to discuss and enact, an open and honest discussion will benefit both parties. There is wisdom in hoping for the best while preparing for the worst in so many aspects of life, including marriage — especially for families with substantial assets. Couples are also likely to learn more about their partner by discussing the division of assets in the event of divorce.

Before “I do”

There are many strategies that can be used to protect assets including business interests. The intersection of finances and relationships evokes strong emotions. Framing discussions in a positive, constructive, and transparent way increases the odds they will be fruitful. Consider this kind of planning as a step toward avoiding future strife.

Because laws regarding “marital” and “separate” property vary by state, it’s essential to build a qualified team of legal, tax, and financial professionals.

Equitable doesn’t always mean 50/50

Chances are both individuals will not bring equally valued assets to the marriage, especially for a couple that’s more financially established. A couple in that position should not feel obligated to design a plan that divides assets equally, but may want to instead reflect a division of assets that honors what each party brought to the relationship.

What is a prenuptial agreement

A good first step is the sometimes maligned and misunderstood “prenuptial agreement,” often referred to simply as a “prenup.” The prenup is fairly common and is not limited to the rich and famous. A 2022 Harris Poll found that 15% of those surveyed signed prenuptial agreements designed for asset protection^§.

Generally speaking, a prenup specifies how certain assets will be divided in the event of a divorce, what monetary support is payable, and often some aspects of child custody. A couple may prefer to view it as a marital financial plan, and as important as a personal estate plan. Avoiding the most emotionally charged terms can set a better course for peaceful and constructive discussions. In fact, many prenups include elements of a good estate plan.

A well-drafted prenuptial agreement lays a clear framework for asset division and generally cannot exclude a court from exercising jurisdiction over a division, though it can effectively resolve many of the typical issues that arise in divorce. An effective prenup allows both parties to reach a consensus on how their assets, including investments and retirement funds, real property, business interests, and expected inheritances will be distributed.

A prenup can also allocate debts between divorcing spouses. Importantly, each state has unique rules regarding division and allocation of debt.

A post-marriage agreement, sometimes referred to as a “post-nup,” is sometimes a couple’s first agreement and can be a revision of a prior pre-marital agreement. Post-nups are often executed when the parties wish to amend a pre-nuptial agreement to include additional rights or adjust the property distribution. They can also be used to create a fairer and more equitable distribute assets incident to an actual divorce.

Other steps to consider

Prenups are not the only way for a couple to organize and protect their assets in anticipation of a marriage. Other tools can be highly effective.

Trusts

When drafted and funded correctly, an irrevocable trust may be effective to shield assets from third-party creditors. In some jurisdictions, this includes former spouses. One downside of irrevocable trust planning is the difficulty of amendment after creation.

Maintain separate assets

One basic method of asset protection in a marital setting is to avoid commingling separate assets. However, there are still downsides to separate assets. Some states provide creditor protection for holding them together. As part of a pre-marriage plan, soon-to-be spouses can discuss what assets should be kept separate and which can be made joint. This may be difficult for couples who have a mortgage signed before marriage

Maintain separate accounts

For full transparency, it might be wise to establish separate savings, checking, and investment accounts. If any funds are commingled or shared, a couple could agree to divide by the percentage of contribution upon divorce.

Record-keeping

Keeping important documents (Wills, Trusts, POAs) secure and organized is a solid move in any situation. Keeping track of who contributed what assets, especially over an agreed-upon threshold ($500? $1,000? $5,000?) will likely be helpful to avoid or resolve future issues.

Maintain transparency

Divorce is always an emotionally draining and potentially long, drawn-out event. Regardless of why the split occurs, it’s important to handle all asset matters as transparently as possible.

Getting the advice you may need

Couples preparing for marriage should think about how they would be financially impacted in the event of a divorce. Although it’s not a particularly pleasant topic, because nearly half of all marriages end in divorce it is worth the effort to consider. To learn more, please contact your Huntington Private Bank team to see how we can help, or to find a Huntington Private Bank Office near you.