Financial Planning Trends: First Comes Love, Then Comes Marriage…Then Comes the Postnuptial Agreement?
Many people have heard of or even have signed prenuptial agreements. We have even discussed the topic of prenups in the context of financial planning in this previously published Summit Brokerage blog, quoted below:
“To prenup or not to prenup? A prenuptial agreement (or “prenup” for short) is a written contract two people enter into before their marriage. The content of prenup agreements can vary greatly, but in general a prenup sets forth what will happen to you and your partner’s assets and income in the event of your marriage ending. Prenup agreements aren’t just for celebrities and high net worth individuals. While a prenup may not be the most romantic idea, more and more couples are opting for one. Prenups can both help manage the expectations of each party and prevent surprises in the case of a divorce. It’s highly recommended that you discuss this issue with your financial advisor and attorney.”
While you may know about prenups, have you ever heard of a postnuptial agreement? A postnuptial agreement is similar to a prenuptial agreement, except it is made after the couple gets married. Postnuptial agreements are a legal contract between spouses on what happens if their marriage ends. Each state has its own legal requirements for postnuptial agreements: whereas some states have clearer rules, others are on shakier legal ground because of the newness of postnups and the resultant lack of legal precedent and case history.
According to an American Academy of Matrimonial Lawyers 2015 survey, postnuptial agreements are becoming more popular. The survey found that “Half of divorce attorneys cited an increase in spouses seeking postnuptial agreements during the past three years” and that the top three items most commonly covered in postnuptial agreements were selected as “property division by 90% of respondents, alimony/spousal maintenance at 73%, and retirement accounts with a 45% total.”
There are a couple main reasons why couples seek out postnups. One popular reason is that the couple ran out of time or didn’t want to deal with the stressful, unromantic task of signing a prenup before their wedding. (Note: from a financial planning and legal perspective, this is a risky mistake given how much harder postnups are to enforce than prenups). Another main reason a couple often wants to create a postnup is because they are having marital problems and want to use the postnup as some form or an ultimatum for their marriage or a couple is estranged and living separately but wants to be able to still stay married—whether it be for the kids, financial reasons, or to just avoid a messy divorce—and want to have an agreement that hammers out their financial rights and obligations. Also, sometimes a couple will sign a postnup if one spouse has had a major financial change after he or she got married—for example, one spouse received a large inheritance or major gift such as a family home and the spouse wants to be able to claim this asset as his or her own rather than a shared marital asset.
If a married couple wants to sign a postnup agreement, it is recommended that each spouse hire their own separate attorney to help advocate on their behalf. Additionally, a financial advisor can help clients avoid common pitfalls of these agreements such as when not all equally valued assets are actually equal. Some assets may produce different amounts of income at different times, which may mean tax treatment of the assets will not always be equal.
Examples of this could include a client’s investment portfolio that contains securities with varying levels of unrealized capital gains. Also, when an asset such as a home that requires cash flow to maintain gets sold after a divorce due to lack of income, the capital gains exemptions will be different for a single owner of the house instead of a married couple owning the house together. Your financial advisor can help you take long term financial planning considerations into account when considering a prenup or postnup agreement. For example, your advisor can help advise you on whether the postnup agreement would be able to support your financial goals for the next five years, or ten years, or even through retirement. Since Social Security benefits are not negotiable in a postnup agreement, a financial advisor can help advise you as to how this issue fits into your overall financial plan.
Postnups and prenups are not romantic but they are pragmatic—as Maya Angelou says, “Hoping for the best, prepared for the worst, and unsurprised by anything in between.” Getting married (as well as getting divorced) can have serious financial ramifications. Prenups and postnups can ideally help couples avoid costly, drawn-out, and intensely stressful divorce settlements and negotiations. Strive to have complete financial transparency with your partner and be open and honest about all aspects of your financial life. Working with a financial advisor can help facilitate healthy and honest communication about money and marriage and help you and your spouse best prepare for your financial future.
Summit Brokerage Services has been voted the #1 boutique independent broker dealer in the country. To experience the Summit difference and learn more about our independent financial advisor network, visit https://www.summitbrokerage.com or call us at (800) 354-5528.
About Summit Brokerage Services, Inc.
Summit Brokerage Services is part of Cetera Financial Group. Summit Brokerage provides a broad range of securities brokerage and investment services to primarily individual investors. Summit Brokerage also sells insurance products, predominantly fixed and variable annuities and life insurance through its subsidiary, SBS Insurance Agency of Florida. Summit Brokerage also provides asset management services through its investment advisor, Summit Financial Group, Inc.
About Cetera Financial Group
Cetera Financial Group® (“Cetera”) is a leading network of independent retail broker-dealers empowering the delivery of objective financial planning advice to individuals, families and company retirement plans across the country through trusted financial advisors and financial institutions. Cetera is the second-largest independent financial advisor network in the nation by number of advisors, as well as a leading provider of retail services to the investment programs of banks and credit unions.
Through its multiple distinct firms, Cetera offers independent and institutions-based advisors the benefits of a large, established broker-dealer and registered investment adviser, while serving advisors and institutions in a way that is customized to their needs and aspirations. Independent financial advisor support resources offered through Cetera include award-winning wealth management and financial planning and advisory platforms, comprehensive broker-dealer and registered investment adviser services, practice management support and innovative technology. For more information, visit www.ceterafinancialgroup.com.
*”Cetera Financial Group” refers to the network of retail independent broker-dealers encompassing, among others, Cetera Advisors, Cetera Advisor Networks, Cetera Financial Institutions, Cetera Financial Specialists, First Allied Securities, Girard Securities, and Summit Brokerage Services.
All information herein has been prepared solely for informational purposes, and it is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular trading strategy.
Content created by Summit Brokerage Services, Inc.