This was a summer where prenuptials arrived in profusion, and what made it interesting is that just about all of them involved folks who were either beginning or in the middle of their earning careers. Most prenuptials involve couples who already have kids from former marriages and money they want to preserve for those kids. But we also see prenups for young people who have wealth already transmitted from their parents; parents who want that wealth to stay on their child’s side of the column even after a marriage occurs.
When going through this process with young folks or even people who are in their forties, lawyers ask lots of questions that can be uncomfortable. No one ever really asks a couple how they want to live their financial lives together and yet as McKenzie Frankel, a financial planner in Wayne, PA has observed, a lot of relationships would work far better if those questions were addressed. When it comes to how we manage family and money our expectations are often hard baked into our personalities by our own life experiences. Millennials can be especially interesting to work with because many of them are raised to eschew family and money stereotypes (e.g., mothers stay at home and dad’s do the financial stuff).
I read the Money Personality Quiz developed by Frankel and her partner Joslyn Ewart with interest, but I also considered some far more basic questions that young people in love should be asking each other. I also believe that the answers to some of these questions might be worth incorporating into agreements. Permit me to try my hand at my own “personality quiz:”
- How important is it to your relationship that you have children, with a “0” reflecting no interest in raising a family and “5” indicating that it was indispensable to agreeing to marriage?
- Indicate the optimum number of children you would want to have with your intended spouse.
- Indicate the outer limit of the number of children you think you would want to have.
- If fertility becomes an issue for either of you, would you be prepared to incur the expense and physical challenges which fertility treatments may involve?
- If fertility is an issue, indicate your receptivity to adoption and whether there are limits to how far you were willing to adjust to the alternative options adoption may require.
- If you had a child who suffered physical, intellectual or emotional limitations that prevent one of you from being able to work outside the home, how would you decide which of you would make that financial sacrifice and how would that sacrifice be compensated if the marriage were to dissolve?
- If your child(ren) had no limitations but you decided that one of you did not want to return to work in order to devote energy to full time parenting, how should that be compensated if the marriage were to dissolve? How should you reduce or limit your lifestyle/expenses once the decision is made and the household income is reduced?
- If you both had jobs earning equal amounts of money and one of you was offered employment that would require relocation to another city, how much more compensation would the spouse offered the job have to receive before you would agree to move, especially if no substitute job was immediately available in the new market.
- How important is it to you that your child have the benefit of private school when a reasonable public school is available?
- Do you see it as your responsibility to provide children with either vocational or academic training after they have completed high school? In a day (today) when a four year public school undergrad degree costs $80,000 and a private school $160,000, what should be your contribution and how do you want to finance the parent portion (e.g., savings or when it comes)?
- In a day when the average social security benefit for a retiree is about $17,000 a year and the maximum benefit, if you contribute the maximum ($8,000 per annum) and defer to age 70, is $44,000 a year, what kind of retirement income do you hope to have and when do you intend to start financing that via savings? Can you agree now that a portion of your earnings go into some form of retirement and that you would continue that percentage?
- How important is it to you that you own your home rather than rent a dwelling, “0” being of no consequence and “5” being an absolute necessity?
- If you earned $30,000 per annum what do you consider a reasonable amount for a monthly auto payment excluding any trade in value (i.e., “0” down)? If your income doubled, would your expectations change and by how much?
- Is there a level of income where you would prefer to devote additional energy to non-income producing endeavors like charitable work, creative work or occupations which sometimes pay lots of money but typically are low on the income ladder (e.g., acting, writing etc.)?
- Between 1 and 5, rank your future spouse’s financial stability in terms of their approach to money. If your intended could earn $100,000 but would likely spend more than he earned, that’s a low rank. If your spouse would earn $30,000 but be more likely to still have money for savings he/she is more toward a 5.
- What is your intended spouse’s current credit rating and what does the credit history look like? Shakespeare said it best: Past is prologue. And it’s a delicate subject, but have tax returns for recent years been filed?
- Hobbies and collectibles are often a tell-tale signs of financial distress. Gambling, sports or clothing addictions and “collections” (whether cars, handbags, guns or memorabilia) can often take even solid wage earners over the edge. The latter expense often masquerades as an “investment.” We have worked with clients who have tried this. Very few profit from their efforts and many owe large sums on what they do own.
- What’s the child support situation? Don’t be surprised to find out that a prospective mate who otherwise seems an honorable person owes tens of thousands in back support. There can be many explanations for this and some may be more reflective of neglect than malice but it won’t make any difference, when the $10,000 bonus you deposited to the joint bank account for a trip to Orlando is seized to pay his past due support.
- Criminal background. This can be a painful look but today Pennsylvania has data online about prior criminal history. It does not include juvenile offenses (which occur before age 18), but any adult bad behavior tends to linger. Make certain you are looking at the right name and verify if possible with a birthdate and/or a social security number. You may be planning a driving honeymoon while your future bride is juggling her second DUI arrest.
So there are two stories here. Know the past of the person you love and talk about the future and how to address it. And while you are discussing the future you may want to think about an agreement that protects you with some promises that could be legally enforceable.
When you marry you usually take on obligations of support for each other. The property you acquire (except by gift) is divisible in divorce. The debt is as well. Most people file joint tax returns which means that any monkey business with the return affects both monkeys even though only one monkey was cooking the books. And except for credit card debt, lots of consumer debt including mortgages are “joint and several.” That’s legalese for “you’re on the hook for the mortgage even though you consistently gave him cash to make the payment.” He just had other priorities.
The author has plenty of real life stories to back up the scary things he just described. What makes the stories tragic is that they were actually avoidable if someone had asked some of the questions before. We have all heard the stories about people online creating an avatar; an identity that does not reflect who they really are. Don’t allow a love-based fantasy to ruin your otherwise stable reality.