For many people talking about their relationship and money can be difficult, but the importance of having a conversation about finances with your partner always remains. One tool in the relationship finance toolbox is the prenuptial agreement, which can dictate property division at the end of a marriage. While everyone may not need a legal document that outlines their finances, the discussion of whether a prenuptial is appropriate can be the start to a continuous conversation about finances.
A prenuptial agreement is a legal tool that demonstrates what each partner's financial situation was before marriage and what each partner would receive if the marriage ended. Generally, there are six situations when a prenuptial is most advised. The first is a great difference in the amount of assets each partner holds.
One partner may come into the relationship with a home and a large amount of savings or a large mutual fund. The prenuptial agreement can demonstrate whether the assets will be kept separate or how the assets would be divided at the end of the marriage. Another common situation is divergent debt and applies more so to younger couples than older couples.
Young couples may have more debt to divide than assets, and a prenuptial agreement can help ensure one partner's debt does not become the other's debt. Individuals should be aware if the debt is owed to the federal government in the form of student loans or unpaid taxes. Sometimes marriage can make one partner liable for the other's debt no matter whether there is a prenuptial agreement. Rules regarding debt should be understood before marriage. Next time we will continue to talk about the other four common scenarios where a prenuptial may be appropriate.
Source: Los Angeles Times, "Six situations in which you may need a prenup," Kathy M. Kristof, 4/24/11