Last Updated: February 1, 2010
No, it's not exactly candy and flowers. But for couples attempting another try at marriage, a prenuptial agreement can either set the groundwork for a new and trusting relationship, or a good reason to call it a day.
It's actually not the agreement by itself that makes the difference — it's the process. When two parties sit down to formalize a prenuptial agreement with their respective attorneys or mediator, it requires both sides to make full disclosure of their current financial situation and long-term money goals.
Prenuptial agreements can be considerably more complex for couples making a repeat trip down the aisle. Money issues are not just a matter of full disclosure between two people — in remarriage, they can affect a much wider audience including parents, siblings and children from previous marriages. In some cases, there are sizable business and personal assets gathered before the upcoming wedding day that must be protected.
It is always wise to consult a financial adviser to set the ground rules for this process, though legal documents that hold up in court generally need review by respective family law and estate attorneys.
Here are the primary issues any remarrying couple should discuss:
What about our families? Note we're not just talking about kids, though they're typically the center of the discussion. Indeed, if couples are bringing children from previous marriages into a blended family, it's necessary to establish not only how they will be supported and educated, but also what percentage of the family assets they will be entitled to in case their biological parent dies. There may be alimony and other support arrangements already in place for ex-spouses and children from earlier marriages as well as elderly parents to support. All of these financial requirements need to be spelled out beforehand.
Is there debt? And if so, how much? The first money conversation should take place at a table with both sides showing their savings, investments and debt figures — every dime. Both should start the process of talking about how that debt should be paid off — by the person who accrued it or by both potential spouses. Couples also need to decide how they will handle debt going forward — jointly or separately.
Are there investments? If so, how will they be handled once the couple is married? Will they be held after the marriage in joint tenancy, and what will the process be to effect that? From a tax perspective, does it make sense to do anything specific with those assets before the wedding? And after the wedding — assuming debt is being dealt with — how will you maximize those investments?
What about our businesses? If one or both spouses run their own companies or partnerships, that's an urgent call for prenuptial planning since it may relate to a large asset that affects the future of many family members. Depending on the size and complexity of the operation, some advisers might encourage couples to go through a formal valuation process of those assets to establish a base of wealth going into the marriage. A prenup could spell out who will get future percentages of those assets if the couple splits — this is particularly necessary if the goal is to keep the company in the hands of the founding family.
How will we handle daily expenses? This is a universal question in any marriage, the first or the sixth. Couples need to agree on how they'll share accounts and pay bills. The most common option is to create one joint account. Others work with three accounts — one joint and then one for each individual.
What about insurance? Life, health, home and disability — all coverage that singles hold separately needs to be reviewed and consolidated to make sure the couples and their families have adequate coverage after the wedding.
What about our estates? There should be separate wills and supporting documents on who will get what investment, personal and business assets with updated beneficiaries — particularly when children from first marriages are involved. In blended families, it's necessary to spell out who gets Grandma's jewelry or Grandpa's business. And no matter how young or old the couple, health directives need to be made.
What about retirement? Retirement discussions go beyond money. Couples should decide how they want to live in retirement, whether they'll continue to work and what will happen if one or both get sick. This is a particularly important discussion if one spouse is significantly older than the other and may retire years ahead.
What about our tax status? It makes sense for couples to consider their tax status before they marry, particularly if there are sizable business or personal assets being brought into the marriage or past tax liabilities. In any event, remarrying couples should involve a tax expert in all pre-marital financial planning.