NEW YORK (CNNfn) - Spend five minutes talking to someone like Dorothy K. Phillips and just about any unduly romantic idea you may harbor about marriage goes sailing out the window. She'll remind you that the divorce rate for first marriages is still one out of every two, and the odds only get worse as you get into second and third marriages.|
She'll also let you know how ugly it gets when once-happy couples end up in divorce court and the money grab begins.
For that reason, says Philips, a Philadelphia divorce attorney, everyone should have a prenuptial agreement. Yes, everyone. Even young, happily broke couples should agree to certain monetary terms of divorce long before they part ways and start arguing over which person deserves how much of the other's now-fat bank account.
"The best way to protect yourself is by way of having the foresight to recognize the divorce rate in this country is not getting any better," said Phillips. "Get a valid prenuptial agreement."
What's mine isn't necessarily mine?
In the event of divorce, and without a valid prenuptial, there is little anyone
can do about protecting the money and assets they believe is necessarily their own. Just about anything acquired in a marriage is considered marital property, including homes, savings, stocks and bonds, and gifts. And both husband and wife are entitled to part of that in the event of divorce.
Any personal assets that were yours before the marriage can also end up being marital property. For example, if you owned stocks before you got married, but later put those assets in a joint account, they are all now marital property. Houses or apartments, too, could become marital property if you add your spouse's name to the deed.
Some personal accounts, such as IRAs and corporate pension plans like 401(k)s, are also considered marital property even though they only carry the name of one person in the marriage.
Keep in mind that the laws about what constitute marital property and that govern the division of assets after marriage vary from state to state. Some, like Connecticut, consider any assets related to a marriage, regardless of who owned what and when, as marital property and both parties are entitled to a piece of it. Others, like Pennsylvania, do not assume that both parties share equally in all money.
Assuming a "what's mine is mine" mindset will get you just about nowhere in divorce court. Esther Berger, a certified financial planner and author of "Money Smart Divorce," said the one of the best ways to keep as much of your own money in your hands and out of your ex-spouse's hands is to hire top-shelf help: a very accomplished divorce lawyer and a knowledgeable accountant.
"The division of assets is extremely complicated and if you don't have good advice it can affect you financially," said Berger.
Carol Ann Wilson of the Institute for Certified Divorce Planners agreed that it is important to get top-flight legal counsel working together with an accountant. Accountants, she said, will be able to run through settlement scenarios with lawyers and tell them how each party will fare and which will be best for the common client's pocketbook.
Get it in writing now
It may sound unpalatable, but financial planners and divorce attorneys agree that you have to get the prenuptial agreement. Couples who wait until divorce court to work out their financial situations, in most cases, have waited too long.
Prenuptials allow each party to a divorce to hold on to assets they believe
are theirs. Beyond the distribution of money and property, a prenuptial can also determine who will support children and a child's college education in the event a child comes along.
This can be extremely important, said Berger, because some states only require child support until the child turns 18. At that point, one parent may find she or he does not have enough money and help from the other person to send the children to college.
Prenuptials can also be useful to protect certain assets that one party or the other wants to protect and make sure they stay out of the hands of the ex-spouse. Generally speaking, said Phillips, these are assets that have some connection to one person and not to the other, such as a family-owned businesses or family homes.
Prenuptial agreements are becoming increasingly common, said Phillips, as are similar documents called post nuptials. Post nuptials are agreements much like prenuptials but are drafted and signed after a couple has been married for some time. Post nuptials can be drawn up at any time during the course of a marriage.
Get it right the first time
There are times when prenuptial agreements will not be honored by the court, according to Wilson, so it is important to be sure the prenuptial or post nuptial agreement is legal and valid. Wilson pointed out three different circumstances under which courts may not uphold a prenuptial agreement.
The first is if one party is coerced to sign an agreement under the threat that other person won't marry unless a prenuptial is signed. Second, courts may also invalidate prenuptials if both parties did not have legal representation on the agreement. Finally, a prenuptial may not hold up in court if one party or the other did not make full disclosure of all assets.
Although most financial planners recommend prenuptial agreements to preserve assets, they do not offer complete protection in all states. Many states require what is called fair compensation, meaning you cannot get away with paying the other party to the marriage absolutely nothing following the divorce. In those cases, however, a prenuptial agreement will allow you to determine how you pay.
For example, Phillips said, one asset people try to protect very closely is a family-owned business, because they don't want an ex-spouse to become part owner of the company in the event of divorce. In some states where all assets are considered marital property, ex-spouses would be entitled to a share of the business.
A prenuptial agreement may be a vehicle to keep that person from gaining any ownership stake in the company if you agree that the ex-spouse will receive some other form of equal compensation.
Likewise, prenuptials can keep other sentimental assets like inherited homes in the hands of the person who inherited it, so long as the couple agrees ahead of time and the fair compensation is made.
The only things that cannot be stipulated to in prenuptial agreements are things that are matters of law. For example, a couple cannot agree in a prenuptial agreement that the departing party will not have to pay child support. Child support is a matter of law and cannot be avoided just because a couple agreed upon it in a prenuptial agreement.
Avoid divorce and get started on the right foot: Money tips for newlyweds.
One thing anyone headed for divorce court should do, said Berger, is to file for legal separation. Legal separations mean neither party has any financial responsibility to the other from the date of legal separation.
If, as in many cases, the divorce takes a long time, you are not responsible for any debt the other spouse accrues after the legal separation. Likewise, they are not able to get their hands on any money you earn or any appreciation of your assets between the date of separation and the final divorce decree.
One final suggestion from Wilson is that both parties should try to keep their cool and not let emotions rule once divorce proceedings are under way. When the injured parties start acting out of anger, it almost always costs them money, she said.