LIVING BY THE RULES THESE AMBITIOUS NEWLYWEDS HAVE SIGNED A 16-PAGE CONTRACT OF MATRIMONIAL DOS AND DON'TS COVERING EVERY ASPECT OF THEIR LIVES. NOW THEY'RE...
(MONEY Magazine) – Newlyweds Rex and Teresa LeGalley are not, by any means, difficult to get to know. Rex, 39, a communications engineer at the Sandia National Laboratories in Albuquerque, is an outgoing man with a hearty handshake, a hefty diamond bracelet and an air of self-confidence nearly as imposing as his six-foot-two-inch, 280-pound frame. Soft-spoken Teresa, 31, is a computer engineer at Kirtland Air Force Base who dreams of raising a family in their modern, three-bedroom colonial home in an orderly neighborhood at the base of the Sandia mountain range just east of town.
But if you really want to understand the LeGalleys, head down to Bernalillo County courthouse in Albuquerque. At the clerk's office there, anyone who cares to look at the public records will learn that Rex and Teresa:
--Always pay cash unless they both agree otherwise.
--Never leave anything on the floor overnight, unless they're packing.
--Never follow the car in front of them by less than one car length for every 10 miles per hour they are traveling.
And, oh yes,
--Always have "healthy" sex three to five times a week.
Why on earth is this information on the public record? Because the LeGalleys filed it there last year as part of an extraordinary--some would say bizarre--prenuptial agreement. The majority of the roughly 50,000 legally binding prenup contracts drawn up each year--typically by couples planning a second or later marriage--confine themselves to how partners will divide assets in case of divorce or death. But the LeGalleys' 16-page, single-spaced document goes way beyond the norm. It prescribes in detail how the spouses are to behave in virtually every area of their lives, from how many children they will have to what kind of gas they will buy (see the box opposite for excerpts). "I've never done or seen a prenup like theirs," says New York City matrimonial lawyer Millicent Greenberg. "It seems a little extreme."
Most people would agree. After news of the contract first appeared in Harper's magazine in February, hundreds of media outlets profiled the LeGalleys as the oddity of the week. Over the past three months, Rex and Teresa found themselves defending their prenup to several newspapers, more than 100 radio interviewers--and even to Michel McQueen on ABC's Good Morning America.
Neither LeGalley, however, seems much swayed by the now-we've-heard-everything drift of the press coverage. Rex, a former part-time construction worker from Buffalo, Texas, is the only child of entrepreneurial parents (they owned a supermarket), and his natural bluster hasn't been dented by two failed marriages. Teresa, an accomplished volleyball player, learned discipline and self-confidence from her father, a career Air Force officer. More important, the couple have an abiding faith in their power to control their futures by setting goals and thinking positively--a belief they feed constantly through motivational books and tapes with such titles as The Psychology of Winning and The Bondage of Low Self-Esteem. Their prenuptial agreement applies the same philosophy of planning and positive thinking to their marriage. The couple decided the way to head off marital discord was by hashing out every potential conflict in advance and then recording a mutually acceptable solution for it in the prenup.
"We talked about a lot of things when we were dating and realized we had different needs," explains Teresa, who graduated from Wright State University in Ohio before moving to New Mexico with her first husband in 1989. The two divorced in 1991 after three years of marriage. "I didn't want to repeat my mistakes," she says.
So far, the LeGalley Guide to Marital Bliss seems to be working. "We knew what we were getting into," says Rex on a recent Sunday morning, as the couple headed off to services at nearby Sandia Presbyterian Church. "We worked out all the things that usually cause fights--sex, kids, pet peeves and money." Teresa agrees: "We haven't had a fight since we got married."
Few couples seem to share the LeGalleys' enthusiasm for programming a harmonious marriage. Since their media appearances, the couple have received nearly a dozen crank phone calls from outraged citizens. What's more, lawyers add that the LeGalley prenup itself is legally unenforceable. "I'd love to see any court reach a decision about what constitutes healthy or unhealthy sex," says renowned New York City matrimonial lawyer Raoul Felder. (For more on prenups, including when drafting one is worthwhile, see the box at left.)
For all its possible shortcomings as a design for living, however, the LeGalleys' penchant for planning has unquestionably had a healthy effect on their finances. Many of the resolutions in the couple's prenup--to pay cash, to pay off credit-card debt first, for instance--are certainly prudent. The couple have no problem setting specific financial targets. For inspiration, they regularly tape photos of many goals--including a Hummer all-terrain vehicle, several exotic sports cars, a water-sports bike and a multimillion-dollar beachfront estate--on their refrigerator door. And the couple's minute attention to detail allows them to design and stick to a budget, a feat many couples never even attempt.
Even so, the LeGalleys may not be as much in control of their financial destiny as they think. In particular, the couple may be inadequately prepared for emergencies. Rex is also wildly optimistic about the returns he is likely to earn managing the couple's 401(k)s and IRAs. "I'm very confident in most everything I do," says Rex. But in investing, say the experts, a little humility might serve him better. Financial markets, like marriages, don't always go according to plan.
To be sure, Rex and Teresa are doing a lot of things right. With a combined annual income of $116,000, they sock away roughly $6,300 a year into their retirement plans at work. Their employers match that with an additional $4,588 and also offer generous disability and life insurance benefits, which Rex and Teresa wisely supplement with a $1 million umbrella liability policy (annual premium: $181). The couple's combined net worth is an impressive $493,000, including their paid-off $208,000 home; a three-bedroom, $169,000 rental home in Albuquerque that Teresa lived in before their marriage, and more than $111,000 in retirement savings. Described by Rex as "techno-weenies," the couple closely monitor their finances on side-by-side PCs in their home office above the garage. Custom spreadsheets follow their income and tick off monthly expenses as minor as postage stamps ($15) and checking account fees ($2). Says the self-confident Rex: "We've thought of everything."
Well, almost. Rex has two sons from his second marriage--Robert, 11, and Brandon, 9, who live with their mother in Las Vegas (monthly child support: $670)--and he and Teresa hope to have at least three children together. Although the prenup includes a promise to pay for all their kids' college education, the LeGalleys haven't saved a dime for tuition, which could cost upwards of $600,000 (in today's dollars) before the youngest's diploma is framed (Rex also has an adopted daughter from his second marriage--Jennifer, 18--who's financially independent.)
Even more serious, the couple have set aside a mere $1,481 in savings for emergencies, or less than one month's worth of their expenses. Financial advisers generally recommend that two-income couples park at least three months' expenses in cash to see them through illnesses or layoffs. Teresa and Rex believe their jobs are secure, but in these days of corporate and military downsizing there's no guarantee: Just this past December, for example, Sandia National Labs eliminated 350 jobs out of its 8,400 work force.
If either Rex or Teresa were to lose their engineering jobs, however, they'd have a fallback, which the couple see as their road to riches. Both Rex and Teresa are gung-ho members of Amway, the $6.3 billion multilevel marketing giant. In the Amway system, participants receive commissions when they sell any of the roughly 6,500 brand-name household and personal-care products and services marketed by the company. But the real money is made by recruiting new salespeople, because members also earn a share of any commissions garnered by someone they bring into the Amway fold. Enlist enough successful sellers, and you can break away from your distributor or sponsor to become a distributor yourself. In fact, during a three-day period in March, Rex launched into his Amway pitch to at least half a dozen strangers, including a waitress at a Shoney's restaurant and the three financial planners recruited by MONEY to advise the couple.
The LeGalleys now devote 20 hours a week to Amway, including meetings with potential recruits, bookkeeping and listening to motivational tapes. Indeed, Rex and Teresa budget $43 a month to add to their collection of inspirational listening, which nearly fills the trunk of one of their two Lincoln Town Cars ('81 and '89). Proclaims Rex: "The back of this car can make you rich."
Amway, in fact, has played a central role in the LeGalleys' relationship from the beginning. The couple met two years ago when Rex was recruited into Teresa's Amway cell by a mutual friend, and their romance blossomed on frequent road trips to company meetings throughout the Southwest. They whiled away the long desert drives by listening to motivational tapes and by reading to each other from such books as Think and Grow Rich or The Magic of Thinking Big. Also sharing past marital problems and future plans, the couple's discussions ranged from sex (Teresa wanted to make sure they "shared the same needs and expectations") to pet peeves (Rex thought Teresa drove "recklessly"). In the course of these long talks, the two discovered that they shared a passion for detail. "On one trip," says Rex, recalling their courtship, "I just turned to Teresa and asked her what she thought an ideal budget should be."
After Rex proposed in October 1994, both were advised by friends and family to write a prenup to avoid financial fights in case of divorce. But Rex and Teresa decided to expand the contract to solidify their marriage--by discussing, analyzing and sorting out virtually every possible area of conflict. Rex, for example, was raised in the Church of Christ, while Teresa is Catholic. So the prenup lists a promise to find a church in which both are comfortable. They also contracted to divide household chores, typically along traditional sex-based roles. "The Bible says the man is the head of the household," says Teresa, who buys all the groceries and is directed in the prenup to "work off a list every time she goes to the grocery store." Rex ("king" in Latin) maintains the exterior of their house, while Teresa attends to the spotless interior. Other prenup guidelines: a promise to "accept each other unconditionally" and to "spend time together doing things 15 to 20 hours per week."
Meeting that last requirement is a snap, given the time the LeGalleys spend together on their Amway business. The couple are counting on Amway to generate a six-figure annual income within five years--enough, they hope, to liberate both of them from their jobs. "Working for someone else sucks," says Rex. Perhaps, but Amway is hardly a surefire ticket to independence: A meager 1% of participants earn more than $26,000 each year, according to an Amway spokesman.
As they work and wait for their business to pay off, Rex manages their 401(k)s and IRAs with the cocksure attitude he brings to most endeavors. His goal: to earn 20% a year for the next 15 years. That's a performance even legendary investors like Peter Lynch would have trouble maintaining. But Rex remains confident: "I follow a foolproof system."
The "system" is the market-timing strategy of Fabian Domestic Investment Resource, a Huntington Beach, Calif. investment newsletter founded by Dick Fabian in 1977. Essentially, Fabian measures stock market valuation trends by comparing an index of current mutual fund prices with their average over the past 39 weeks. When the current trend falls below the 39-week average, Fabian subscribers are advised to switch out of stocks and into cash or money-market funds. When the current trend rises above the 39-week average, subscribers are told to pile back into stocks.
Despite Rex's confidence in Fabian, the timer's ability to meet the stock market average is mixed, according to an investment newsletter tracker, Mark Hulbert. Measured solely on a market-timing basis, the newsletter has posted an impressive 14.4% average annual return over the past 15 years, vs. a 14.1% annual return for the benchmark Wilshire index of 5,000 stocks. However, when Fabian's specific mutual fund picks are included, the newsletter's performance lags the overall market: 12.3% a year for the past 15, vs. 14.1% for the Wilshire 5000.
The LeGalleys' funds, selected from Fabian's approved list, include $19,000 in the Fidelity Contra fund, $19,000 in Fidelity Growth & Income and $12,000 in Founder's Growth. "From March '95 to March '96 my funds returned anywhere from 31% to 48%," boasts Rex. When reminded that stocks in general rose 31% during that period, Rex is unbowed. "I don't think we'll have any trouble making 20% a year," he says.
Come October, the couple will have an extra $20,000 a year to invest when they finish making the $1,700 monthly payments on a home-equity loan (current balance: $11,849) that they took to pay off credit-card debt and to install garage shelves for Amway products. Eventually, they hope to use some of that money to acquire the items on their refrigerator-door wish list. "Goals are nothing more than dreams put down on paper," says Rex. "We have a lot of things down on paper with a date on them."
Indeed. So pleased are the LeGalleys with the success of their formalized marriage contract that they fully expect to be able to expand the prenuptial agreement over the years. "It's a living document," says Teresa.
Although the LeGalleys initially declined our offer of free financial advice, figuring they didn't need any help, MONEY convinced the couple to sit down with three local pros: Santa Fe financial planner Dee Boyer of American Express Financial Advisors, Albuquerque investment adviser Donald W. Hurst and University of New Mexico finance professor Gautam Vora. Their recommendations:
--Beef up the emergency fund. Boyer suggests the LeGalleys set aside roughly $800 a month over the next year to build their emergency reserves to at least $9,720, or three months' worth of expenses (not counting the home-equity loan payments). The cash should be held in a tax-free money-market mutual fund such as Calvert Tax-Free Reserves (3.4% five-year average annual return; 800-368-2748).
--Shelter the Amway profits. Setting up a Keogh plan or a simplified employee pension (SEP), says Vora, would help defer taxes on their Amway savings. Both plans are available to people with unincorporated small businesses. The Keogh plan can be funded up to 20% of annual taxable compensation or to $30,000 a year, whichever is less. For a SEP, maximum funding is $30,000 a year or up to 15% of taxable compensation, whichever is less. Another key difference between the two plans: You can generally borrow against a SEP account but not from a Keogh.
--Leverage the real estate. Because roughly half of the LeGalleys' portfolio is invested in real estate, Hurst thinks they should sell the rental property and invest the proceeds--an estimated $72,000 after the mortgage is paid off. He recommends growth-stock mutual funds, such as T. Rowe Price Growth Stock (14.8%; 800- 638-5660) and Oakmark (21.7% three-year average annual return; 800-625-6275). "Their home," says Hurst, "will probably appreciate at between 3% and 5% a year. They can do a lot better than that in the stock market, and the interest payments on mortgages is tax deductible."
--Get real about investments. "Given that stocks have historically returned about 10% a year, Rex's expectation that he can generate a 20% annual return in the market is unrealistic," says Hurst. Boyer suggests the couple enroll in a financial planning or investing course at a local community college. "Rex and Teresa are doing very well," Boyer says, "but they need a broader perspective."
--Start saving for college. If Rex and Teresa have three children of their own as planned, Boyer projects the couple will need at least $585,000 for college costs, beginning in seven years when Robert graduates from high school. She recommends the pair put away $16,000 annually in no-load mutual funds, with this allocation: 40% in a large-company stock fund, such as Vanguard U.S. Growth (14.5%; 800-851-4999), 40% in a small-company stock fund, such as T. Rowe Price New Horizons (22.6%; 800-638-5660), 15% in an international stock fund, such as Warburg Pincus International Equity Common (12.1%; 800-257- 5614); and 5% in an international bond portfolio, such as Scudder International Bond (7.2%; 800-225-2470).
Several weeks later, the LeGalleys don't think they need a Keogh or SEP plan for their Amway business, nor will they consider selling their rental house in order to balance their portfolio, as the advisers suggest. One change, though: Rex and Teresa do acknowledge their need to save more. "We will more than double our savings by the end of the year," says Rex, noting that paying off the home-equity loan will free up significant extra cash.