Promise your heart — but not your nest egg. The insider’s guide to protecting your hard-won assets and living together in peace (of mind).
Protect Yourself
Before I started researching this story, I bought a whole box of reporters' notebooks. I assumed that after interviewing the experts on my list -- lawyers, leaders of women's advocacy groups, financial planners, even therapists -- all my notebooks would be filled with instructions, rules, strategies, and guidelines, a multifaceted plan for keeping your precious assets safe wherever your life and, more specifically, your love life, might take you.
I was wrong. One lonely word appeared on the page, the same word I'd heard over and over. The uncontested winner when it came to asset protection was..."prenup."
I told the experts I wasn't writing about divorce, that this was a story for women who wanted into, not out of, relationships. A story for women who have careers and stock portfolios and 401(k)s and great credit and stuff they worked hard for -- and who want to protect all of it. And what about second marriages, not to mention children from previous marriages? Is it less complicated just to live together? I wanted financial advice for women in their 40s who are marrying for the first time, 30 percent of whom would be earning more than their husbands. And how does a woman, long-married or not, protect money she's inherited or expects to inherit or wants her children to inherit?
I told them I was writing for women who have a lot at stake. They listened. They nodded. And they said "prenup."
Courtney Knowles, of the Equality in Marriage Institute, says women should think of a prenuptial agreement as an all-purpose safety measure. "Here's a simple analogy," he explains. "Every day when we get in the car we put on a seat belt. Not because we're convinced we're going to crash that day, but because we've learned accidents happen."
He has a point. Eighty percent of Americans buckle up before they hit the road, but anecdotal evidence suggests that only 5 to 10 percent of us sign prenups before walking down the aisle. Since 50 percent of all marriages and 60 percent of second marriages crash and burn, clearly driving is the safer activity.
Yet when Teresa Heinz Kerry declared, "You have to have a prenup," the vast majority of American women went, "Nuh-uh." More American women than ever have their own money. They're marrying and remarrying, inheriting and blending families. Sure, they want to keep what they've got when they marry or remarry; they just want to do it without a prenup.
But here's the rub: Unless you take specific action to protect what you've worked for, your spouse might be able to lay claim to half of your worldly goods should you decide at some point to divorce.
Though you can't make your intentions legally binding without putting them in writing, there's still a lot you can do to protect your assets as if you had a prenup. The first and most important item is understanding the distinctions between what's yours alone and what belongs jointly to you and your partner. Knowing those differences and setting up a system to protect what you've got (whether you're just starting out or coming late to the game) can ultimately mean the difference between living on your own financial terms -- or at the mercy of someone else's.
Come Clean
When two people start a relationship in their 40s, 50s, or 60s, they're likely to bring a lot of financial baggage to the union. "Number one, full disclosure," says Harriet Newman Cohen, a divorce lawyer whose clients include Patricia Duff, Alison Stern, and Andrew Cuomo. You have to be willing to show each other exactly what you're packing: assets, liabilities, debts, credit reports, loans, insurance policies, property deeds. Discussing financial particulars will undoubtedly be a mood-killer, but it's crucial that you persevere. If the guy you're about to marry is avoiding the money conversation before the wedding, he's probably sending a warning about your future. Heed it.
A week before they got married, Mary Marlborough (names of the non-experts quoted in this story have been changed), 45, an account executive, told her fiance, a civil engineer, that she thought they should discuss their finances. "He said he didn't know what I was talking about," Marlborough recalls. When they were dating, he had told her nothing. "All we came to was that I would keep my account, he would keep his, and we'd open a third for joint expenses."
Ten months into their marriage, Marlborough says she's still largely in the dark. "I have no idea if he has a savings account," she admits. "I'm not even sure how much money he makes." None of this bodes well for their marriage. "Talking about these touchy issues in advance makes your marriage more likely to succeed," says matrimonial lawyer Arlene Dubin, the author of Prenups for Lovers. "Plus, full and open disclosure is the key to preservation for a woman."
Why? Because if he has a problem, you need to know about it before it becomes yours as well, which is what tends to happen when women don't keep their assets separate. If you know he has debts, for example, you can come to an agreement about who's going to be responsible for them after you marry.
Moreover, if you're heading into a second marriage and you've both got kids, untangling this Gordian knot before embarking on blended-family bliss is arguably the most important financial challenge you'll face.
Get Hitched, But Don't Merge
Harriet Cohen leans in close to my face. Speaking slowly, loudly, and clearly, she says: "Do not commingle a single premarital dollar." At her behest, I underline the words several times. Women are getting married later than ever before. They make up more than half the workforce. Most midlife brides-to-be have spent a decade or more building their own considerable nest eggs. Yet many are still tempted to merge their assets.
"I've worked a long time and really hard and I've been really responsible with my money," says Diane Murray, 44, an advertising sales executive who's been in the field for 23 years. "It's always been my plan to get married, and my gut says if his assets are equal to or more than mine, I'd merge. If he has less, I'd rather keep it separate."
That's deeply flawed thinking. Murray needs to keep her assets separate no matter which partner is up or down financially at any given time, because you never know what the future will bring. You may think that all money is alike, especially yours and his; after all, you're partners, right? Wrong.
"Women need to think of what they own in three groups," says Eva Sachs, a financial adviser at Money Concepts in Toronto. Most critical are the differences among premarital, nonmarital, and marital assets, and knowing how to keep them completely separate. Commingle in the bedroom, but never at the bank. Otherwise, if the marriage dissolves, you could lose your shirt.
"Every dollar earned after you're pronounced man and wife is a marital dollar," says Martha Cohen Stine, a powerhouse matrimonial lawyer like her mother, Harriet. "Even if it's in your own name, it's his and yours." That includes pension plans, 401(k)s, and other assets accrued during the marriage.
If everything you make while you're married and all the stuff you buy are considered marital assets, why hassle with two or three different accounts and all those checkbooks and bank statements?
"It saves a lot of arguments," says Lucy Jackson, 40, who, like her husband, Mark Pomerantz, 45, runs a successful financial-management firm. "I wouldn't presume to tell him what to do with his money. And while he tried to tell me, for example, not to spend money on decorating, I chose not to listen to him."
Jackson and Pomerantz took the "three pot" approach to handling their finances. Each has an individual checking account for personal expenses, and they have a joint account for the household. They split family expenses 50/50 -- regardless of who comes out ahead at the end of the fiscal year. "We have a budget, and we fund the joint account equally," Jackson says. Their budget covers school tuition, clothing, childcare, food, household maintenance, camp, and family vacations.
Recalling the inequities in her parents' "traditional" marriage, Jackson has always made financial independence a priority. "Before we got married I said that I didn't want to buy a big house if I couldn't afford my half," she says. Because she and her husband are equal financial partners and contributors in their marriage, "We don't have those resentments and fights about power," she says. "We can both be truly supportive and really happy for each others' successes.
Keep the Peace -- and the Pieces
After you've committed to keeping certain accounts separate and "untainted," figuring out how to meet all your obligations -- expenses for children, stepchildren, ex-spouses, dual-mortgage payments, insurance, car payments, basics like food and clothes -- can feel like trying to get a bill through Congress: Who's going to pay for what? What happens if one of you comes up short? Will either of you contribute anything when it comes to your spouse's children? Will your estate go to your kids? Regardless of what your will says, if you die before your spouse, a big chunk of your estate automatically goes to him -- one-third in some states, half in others -- unless he has waived his rights in writing.
Not only do you have to agree on who gets how much, you need to decide which account the various checks will come from. Keeping your money separate will make sure it doesn't end up in his ex-wife's pocket. Yes, it could happen.
"Let's say he guarantees a loan during his first marriage or as part of the divorce agreement," says Wynne Whitman, a tax lawyer and coauthor of Shacking Up: The Smart Girl's Guide to Living in Sin and Not Getting Burned. "Let's say it's to pay off his ex-wife's school loans, or whatever it might be. She then defaults on the loan and they come after him. They could conceivably come after the joint assets."
Nancy Freelander, a university professor, is telling me her story. It's not a happy one. She was 39 when she married Rick Korso, then a 37-year-old consultant, 11 years ago. It was the second time for both, and Korso was still battling with his ex-wife over custody and visitation rights for his 5-year-old daughter.
Sometimes his legal bills piled up and he couldn't contribute his half toward their expenses. Freelander covered for him, and on occasion paid his legal bills as well. That was her first mistake. "For him, financial solvency is like having a dick, you know?" she says. "He's not a man without it."
While the course of her marriage has hardly been smooth, Freelander now finds herself in a classic bind: stay in an imperfect relationship, or see her quality of life decline. She chose to stay. For, as Korso's income from consulting improved, so had their lifestyle. "Now I'm the one who can't make the payments," Freelander says.
Studies by the National Center for Women & Retirement Research confirm what Freelander already knows: A woman's standard of living typically falls 45 percent in the first year after a divorce. A man's, on the other hand, rises 15 percent. In my head I can hear Harriet Cohen saying, again and again: "Do not be pressured into spending your own separate money! Never spend your money to save his money!"
Surviving the Endgame
For many of us, learning the nuts and bolts of asset protection is easy. Getting over the guilt when we have the money and our spouses don't -- that's the hard part.
"There is a whole complicated psychology about being a woman with money," says Maya Deitch, 41. "In even the most open-minded of communities, it is still presumed that men are the ones overseeing the economics of family life."
Deitch, then a teacher, and her ex-husband, who is an engineer, were young graduate students when they got married. He had very little money. She had a lot, and her parents insisted on a prenup. So a friend of a friend found a generalist lawyer in North Carolina, who drew up a contract that said, essentially, if the marriage ends, each partner leaves with the same assets they brought to it.
Nevertheless, Deitch supported the family -- by herself. "All of the money he made, he kept," she says. "It never occurred to me that what we really should do is have a joint bank account where he gives some and I give a lot. He never gave any."
They bought a big, expensive house -- with her money -- which she put into both their names. Then she deposited over a million dollars into their joint-equities account. She laughs, shakes her head and stares at the floor. "Be aware that as soon as you put things into joint," she says, "it perpetuates a feeling of 'This is our money.'"
"I guess if you're in a relationship where everybody brings the same number of toys into the sandbox," she continues, "there's probably less of an issue in terms of protection." But she'd brought most of the toys, "and because you're a woman you're not going to remind him of this in a regular way."
Moreover, as Deitch would learn, it's crucial to keep complete financial records; you may well need to trace the separate money you contributed to a joint-securities account all the way back to the date of your marriage or inheritance. Only then can you consider taking your money out of the joint account and putting it into your own separate one.
Fifteen years later, she wanted out of the marriage. But the prenup had gone AWOL with all those papers we pack and unpack every time we clean out our closets or move from one home to another. Today, Deitch still feels she made a costly mistake by not hiring a matrimonial specialist to draw up the papers. Her ex-husband ended up with a major financial settlement that includes property and securities she alone paid for.
Another couple had a considerably more civilized outcome when they split up. Anna Reed, now 50, an East Coast doctor, married Henry Fritsch, a media consultant, now 60; it was a second marriage for each of them. "By the time we got married we were both established, independent, financially solvent people," Reed says. "I had my own 401(k) and pension, he had his. I had my stock portfolio, he had his. We came to the table with our own nut and eventually we walked away with our own nut."
Reed and her husband kept separate checking accounts, paid their own bills, and took what she calls an ad hoc approach to sharing joint expenses.
"So, for example, he bought the car and I would buy the furnishings for the house. It felt equitable."
When they decided to get a divorce, some of the things that they had acquired together over the course of their seven-year marriage had to be divided up. They had split the down payment on their weekend home on Cape Cod, and shared the mortgage payments equally, as well. They were faced with the same limited options as most divorcing couples who own property together: either one person buys the other out (which they often cannot afford to do), they sell the property (which often no one wants to do), or they fight over it for years (which only the lawyers want to do).
Reed was spared that dilemma.
During the divorce proceedings, it came out that money her husband was supposed to be depositing into a savings account for their son had been spent on other things to support the household.
So she got the house. "We had a son, and we both agreed he would be the inheritor, and the house couldn't be sold before he inherited it. I took on the mortgage payments. He gave me his down payment." Because they had set financial safeguards in place at the beginning of their marriage and managed to stick with them, the divorce was relatively painless. Most important, Reed was solvent when it was over.
Maya Deitch admits that youth played a part in the financial mistakes she made. But being a woman, she insists, was the more significant factor, and she's not alone in that thinking. Some of the women I spoke to said they have a special financial asset they want to pass on to their daughters -- something they worked hard for and want them to inherit. "I'm going to advise my children -- especially my daughters -- to make their own money if possible," Lucy Jackson says. "Because to always have to ask for money is a recipe for disaster."
Maya Deitch won't make the same mistakes again, and she's equally determined not to pass them on.
"If you have a daughter, it's really important to figure this stuff out," she says. "Because whatever screwy mistakes get made in one generation get handed down to the next. It's not that you explain it to her when she's 7, but she needs to know the road she's walking."
Juliann Garey is a Manhattan-based writer specializing in finance and women's issues.
Assets: A Primer
You have three kinds of assets, and it's essential to know what they are and how to keep them separate.
Premarital assets may be money and property a) acquired before the marriage; b) kept in your name only; c) never mixed ("tainted") with any asset that has passed through an account that has ever held marital assets; or, d) never combined with anything that is considered to be a marital asset.
Nonmarital assets include premarital assets, plus any gifts and inheritances that you alone receive during or after marriage. Keeping nonmarital assets from becoming marital assets can be tricky. If you inherit while married, that money must be put directly into a new, separate account in your name. Not your individual checking account, because even though your name is on that account, it's chock-full of marital assets: paychecks, anniversary gifts, refunds from Banana Republic. So it's tainted. And because most states are dual-property states (they recognize and honor the difference between separate and marital property), that means if you deposit an inheritance into your individual checking account because, for example, you haven't decided how to invest it, that money becomes a marital asset.
Marital assets are everything you and your spouse acquire jointly during marriage, including earned assets -- such as pay from your job, property you buy and, yes, your 401(k). In addition, in dual-property states, if you allow nonmarital or premarital assets to come into contact with joint assets, they are considered to be tainted and deemed marital assets. Divorce and estate laws differ in both fundamental and subtle ways from state to state. How much do you know about your state? Is it an equitable-distribution or community-property state? What automatic death benefits does a spouse receive? Better bone up. Your state's laws will be the final word.
How to Fix What You've Screwed Up
Whatever your previous financial transgressions, follow Harriet Newman Cohen's advice today and your money will be a lot safer tomorrow.
- Get a credit card in your name to establish your own credit history.
- Open a checking account to which only you have access.
- Open another account to stash separate nonmarital assets. Third-party gifts or inheritances deposited into this account may then be yours alone.
- Never throw away any records. In the event of a legal challenge, you need to be able to trace everything back to the earliest transaction.
- Make sure your name is on the title to all jointly owned property and/or leases. Not just homes, but your boat, your car, your storage locker.
- Consider drafting a letter of agreement with your spouse. This is not a "postnup." It doesn't even have to be notarized, though it's also not as legally binding. It's an indication of intent between spouses, made in good will, without the prospect of divorce, that includes information such as: how much each of you contributed to the down payment of your home, to your investments, what intentions you have regarding inheritances either of you might be expecting, etc. It's also a way of indicating that you agree about these things, even if you no longer have the documents.
- Never sign a joint tax return without first reviewing it, copying it, and putting it in your personal files.
- Protect your enhanced earning ability. If you've gone to business or law or medical school during your marriage, your degree and license (i.e., your earning potential) could be worth a million dollars or more. Ask your husband (nicely) to waive any claim to their value.
- Make sure you've read and understood your state laws. You can look them up on these Web sites: divorcecentral.com/states/laws/divorcesource.com/info/divorcelaws/states.shtml
- If you are collecting a deceased spouse's Social Security benefits, check with the Social Security Administration before you remarry to make sure you won't be jeopardizing your benefits.
Originally published in MORE magazine, June 2005.