Many couples today are managing their finances separately. They may be doing this because of dual income households, second marriages or relationships with children from a prior relationship.
This arrangement may work well while the couple remains unmarried and as long as the relationship remains strong. However, what happens if the couple gets married and then decides later to divorce?
In New York, during marriage, all income earned and accumulated is deemed to be “marital property,” and as such, is subject to distribution in the event of divorce. This is true even if the couple has been managing their finances separately – maintaining their own savings accounts; holding individual retirement and investment accounts; and keeping separate credit cards and other debt.
As a family and divorce attorney, I see this fact pattern reoccurring more and more often. When clients have been managing their finances separately learn that their hard-earned savings and retirement funds are subject to division in divorce, even though they have been managing their finances separately they get visibly upset. It is even more disturbing when they learn that their spouse can claim up to 50% (and sometimes more) of their assets – even assets that they had accumulated prior to marriage because of rules of commingling. This positions these clients in a defensive and weakened position with their spouse. In order to preserve as much of a client’s assets and minimize the distribution of hard-earned money to a soon-to-be-ex-spouse, both parties engage in strategic and complex negotiations. Unfortunately, depending upon the length of the marriage, the cost of litigation, and how much is at stake, their spouse may elect to pursue his/her claims in court – something that carries with it a likelihood of success for the spouse with lesser assets much to the chagrin of the client looking to maintain the status quo.
Is there something that these couples could do to protect and preserve their plans to maintain separate financial standing?
Simple answer: Financial planning.
Just like a business partnership in which partners enter into written partnership agreements that preemptively spell out legal obligations, including their respective ownership interests in the business, financial obligations, and what would happen if the business fails or is sold, a marriage partnership is not only an emotional union, but also a financial partnership. The financial partnership aspect of a marriage has substantial legal significance, particularly in the event of a breakup. This legal reality is often overlooked by many couples, perhaps because relationships and marriage have been “Hollywood-ized.”
What this means is that if business partners do not enter into written partnership agreements then in the event of a business dispute, breakup of the partnership, or the death of a partner, the courts have no choice but to apply the relevant statutes and case law without a partnership agreement that would dictate otherwise. The same is true in the event of the future breakup of a marriage. Without a written agreement between spouses, the courts have no choice but to apply the relevant statutes and case law.
So what is the equivalent of a partnership agreement for a couple planning to marry?
An essential aspect to financial planning for couples preparing for marriage and who want to manage their finances separately is the execution of a prenuptial agreement.
A prenuptial agreement is an opportunity for the couple to get closer and create more intimacy in the relationship. Many of my clients feel that their relationship is strengthened as a result of having to talk about their finances, their credit scores, and even their debts and having truly honest conversations about how they intend to financially support their lifestyle when they get married. These kinds of conversations are also an opportunity for the couple to opt-out of states’ domestic relations laws and instead create their own set of rules regarding their money and finances.
It is very empowering for a couple to decide how they want to manage their finances together, rather than leaving it to a judge, court, or lawyers to decide for them in the event of a future breakup. Now, while the couple is in love, they can decide together to keep all of their finances separate, or they can agree to a blend of some jointly managed funds as well as maintenance of separate finances. The best way to ensure that the couple’s wishes are carried out both during the marriage and even if it later falls apart is to execute a prenuptial agreement.
While the idea of a prenuptial agreement does not appeal to some couples for various reasons, the use of a prenuptial agreement in this situation is crucial.
One of the most underrated and under-appreciated aspects of a prenuptial agreement is that every couple can and should discuss their finances together. They should decide how they want to manage their finances, whether together, separately, or in some combination thereof. In an ideal world, a couple’s wishes would be followed and enforced whether or not the marriage is working. But the reality is that when a couple decides to marry, they agree to the benefits and all of the burdens of marriage.
For instance, when people get married, they get to file joint tax returns. They can transfer unlimited amounts of assets to their spouse at any time, free from tax, including leaving assets to your spouse without estate or gift tax. Each partner can qualify for their spouse’s benefits, including receiving Medicare, disability, veterans, military, and pension plan benefits; they get legal decision-making benefits such as claiming next-of-kin status for hospital visits and the ability to make medical decisions if their spouse becomes sick or disabled. In addition, when a couple gets married they also agree to the domestic relations law statutes in the jurisdiction where the couple resides. These are just a few examples of the benefits and burdens of marriage.
The only way to opt-out of the statutes that govern what happens in the event that a couple seeks to dissolve their marriage is to enter preemptively into a prenuptial agreement that describes and sets forth the agreements and terms relating to the couple’s finances.
The bottom line is this: if you want to maintain your control over your finances, then you must take all of the steps to ensure that this can be possible for you in the event of a change in your marital status. And just as you would create a last will and testament to declare how you want your assets and debts to be distributed upon death, rather than leaving it to the state legislature where you die to determine how your assets will be distributed, you must enter into a prenuptial agreement to say how you want your assets and debts to be distributed in the unfortunate event that your marriage results in divorce, rather than leaving it to state legislature to determine how your assets will be distributed. At the very least, prenuptial agreements serve as a game-plan for how you and your spouse will manage your marriage partnership together.
If you are curious about whether a prenuptial agreement is right for you and your relationship or if you’re seeking guidance about how to discuss finances with your partner, contact attorney Sabra R. Sasson at Sabra Law Group today at (646) 472-7971. To review more blog articles and similar information, visit our website at www.new-york-divorce-mediation.com
