Many people believe that fortune controls everything, so that there is no use in trying to act, but fortune controls only half of one’s actions, leaving free will to control the other half. Fortune can be compared to a river that floods, destroying everything in its way. But when the weather is good, people can prepare dams and dikes to control the flood.
–Niccolò Machiavelli, from The Prince
Quoting Machiavelli to discuss the merits of a prenuptial agreement may seem like it’s in bad taste. However, in my view, the forefather of political realism had some important and useful things to say about planning. And make no mistake — the prenuptial agreement could be one of the most important plans you devise in your lifetime.
How does Machiavelli relate to marriage and divorce?
He argues that ‘fortune’ is a river that floods, and that when the weather is good, we must construct dams and dikes to control its flow in the event of disaster. It’s critical to understand that dams and dikes — or marriage laws related to divorce proceedings — have already been constructed for you by the government, and differ depending on the state that you live in.
Here is the major issue: the laws that your local governments have devised to create a “fair” situation in the event of a divorce may be tremendously mismatched to your own personal life situation. This is where the prenup comes in — it is simply a legal tool that you can use to ensure that “true” fairness is achieved between yourself and your partner, in the event that the rivers of marital fortune flood inopportunely.
Let’s take a look at three major situations that could cause long-term and debilitating financial damage in the event of a divorce, and how you can protect yourself from the flood.
Flood damage #1: Debt & credit
When it comes to marriage, debt is frequently the elephant in the room that no one wants to acknowledge. According to a recent GoBankingRates report, the average American individual owes over $225,000 in debt, between mortgage loans, auto loans, student loans, and credit card debt.
If you or your partner possess debts reaching even a fraction of that amount, you should understand how it will factor into your marriage, especially in the event of a divorce. Not only could a divorce increase your debt load, you also may be left in a situation where your credit takes a serious hit.
Here are a few ways that you might find yourself on the hook for paying debts you don’t benefit from, and how to avoid that fate:
- Don’t pay off debts with a joint account
Technically speaking, any debt accrued before you were married remains separate. However, if you pay off debts via a joint account with your spouse, creditors will legally be able to target you in the event of a divorce – even if they were accrued before you were married. A prenuptial agreement can help clearly specify who will be paying which debts, avoiding a protracted legal dispute.
- Living in a community property state? Get a prenup
If you live in a community property state – you will be on the hook for any loans taken out after you marry, even if just one spouse takes out the loan on an individual account. Getting a prenup in these states will help sort out who is responsible for debts and loans accrued during your marriage.
- Don’t co-sign on a loan or title
Adding your name to, or co-signing on a loan or title will make you legally liable for those debts. Whether you should co-sign on a loan is a highly situation-dependent calculation, although some say that it’s always a bad idea. Cosigned loans can particularly turn into a nightmare in the event of a divorce.
Take this situation: You co-sign a loan, but a divorce court says your spouse is responsible for paying the debt. If they fail to pay it, your credit will be still be negatively impacted should you also refuse to pay.
- Make good decisions about how to manage your credit
Here are the basic facts: any purchases or debts that your spouse has entering the marriage do not impact your credit. However, as soon as you co-sign on loans, or open joint accounts, your credit will be affected.
Deciding how to manage this is highly situation dependent. For instance, you may get a better rate on a loan if you apply individually (since your credit is good), but then you’ll be left on the hook in the event of a divorce.
- What to do in the event of death
Should your spouse pass away, your misfortune will not sway debt collectors from first claiming what is left of their estate, and then coming after your assets. A prenup, or a living will, can resolve these issues, saving you money and a huge headache.
Flood damage #2: Your inheritance
A messy divorce can have the unintended consequence of splitting an inheritance that was meant only for you. A prenup can help mitigate the issue.
According to LegalZoom, “If one spouse (or both) expects an inheritance during a marriage, a prenuptial agreement can include provisions that state the inherited assets will remain the property of the inheriting spouse — so long as the inheritance is kept separate from community property.”
The Wall Street Journal warns that in this regard, prenuptial agreements are not always airtight. To ensure that your prenuptial agreement is held up in court, they recommend three courses of action.
- Keep your documentation
Save all of the relevant paperwork related to your inheritance indicating that it was intended to go to you.
- A gift tax return
- A letter or card from the donor explaining that the gift is for you alone
- Keep separate accounts
As stated earlier in this piece, keeping separate accounts is a good idea when it comes to paying debt, and it’s also a good idea if you’re going to receive an inheritance. Pouring your inheritance into a shared account will cause problems, even if you save the documentation related to the nature of your inheritance showing that you alone were the intended receiver.
- Keep titles in your name only
If you’re inheriting an automobile or a property, do not put your spouse’s name on the title or deed. In the event of a divorce, this evidence will muddy the proceedings and work against you.
Flood damage #3: Checkbook & sanity
If you are the breadwinner of your marriage, you may find yourself giving away half of your assets and making monthly alimony payments to support your ex-spouse. Before we move on here, it’s important to acknowledge that no one should be left living a pauper’s life in the event of a divorce.
However, entering marriage without a prenup can put you into an equally outrageous situation, where you are responsible for making payments to your ex to support a lifestyle that they themselves are capable of achieving without your assistance. It is worth reading this Elle article in full, written from a woman’s perspective (Karen McCullah, screenwriter of 10 Things I Hate About You) about her divorce – but here is the main takeaway.
After getting married without a prenup at age 24, her career took off. Her divorce ended up not only halving her assets, but she was also responsible for cutting a $6,000 check to her ex-husband monthly for seven long years. The sanity-destroying kicker – he has a master’s degree with fully marketable skills.
Here is what you can do in your prenup to ensure this does not happen to you:
- Create a fair division of assets based on percentage of income earned
Instead of an automatic split-down-the-middle, you can tweak your prenup to divide your assets based on a percentage of your earned income.
- Give up the right to alimony
According to Nolo, it’s possible in most states to include a clause in your prenup that eliminates alimony, although there are some states that limit your ability to do this. Again, the prenup document you construct should entail a fair split at the end of a divorce, not entitle you to a victorious rout.
Much like constructing dams and dikes, prenuptial agreements are decidedly unromantic, and the details are definitely not exciting to discuss. However, if you value planning, fairness, judiciousness, and your sanity, remember this about your relationship: the weather is good, and the sun is shining, and with good fortune and hard work, it will always be.
And with that in mind, get to work.
Mark Slack is a legal writer for https://legaltemplates.net, which provides a state of the art online legal document builder and helpful legal explainers. He has been writing professionally for nearly a decade, and deeply loves the craft. He also speaks Mandarin fluently — feel free to contact him at [email protected] if you want some tips!