The Real Way to Plan a Wedding: Keep Yours, Mine and Ours in Mind by Sandra Perez, CPA/ABV/CFF, CFE
Posted on August 21, 2018 by Sandra Perez
Wedding planning can be an exciting time. However, the anticipation of preparing for one’s big day should not be overshadowed by the fact that marriage is a contract involving a broad range of legal and financial obligations defined by the state where you live. In addition to shopping for a dress, selecting floral arrangements and creating seating charts, spouses-to-be should recognize that they and their future spouses have a right upon divorce to an equitable distribution of property and financial support. While it is difficult to think about the potential end to a marriage that has not yet begun, failing to plan properly for this can spell disaster for your future financial well-being.
When you say “I do,” you not only vow to join lives with another person for better or for worse, you are also promising that you will share the assets you and your spouse acquire during the marriage, and you will give up your rights to half of those marital assets in the event of a future divorce. All too often, couples do not recognize that the non-marital assets they bring with them into a legal union can later become marital property, which the courts can and will divide in divorce proceedings.
For example, if you own a business or a home before saying your marriage vows, those assets and the income they generate can become marital property subject to equitable distribution in the future. Similarly, if you are the recipient of a significant inheritance or gift during your marriage, your spouse may have a right to claim half of the value of those assets, including any appreciation in value, when the marriage ends. Avoiding these challenging issues requires couples to understand the concept of comingling non-marital and marital assets.
Comingling Marital and Non-Marital Property
Under Florida law, non-marital assets are not subject to equitable division upon divorce. You may leave the marriage with the property you brought with you, along with any appreciation in the value of those personal possessions. However, if you “comingle,” or combine, your non-marital property with that of your spouse, or with property you both acquired together during marriage, it can become a marital asset subject to equitable division for which your spouse is entitled one half of the value.
Unfortunately, a very thin and easy-to-cross line exists when trying to distinguish between marital and non-marital assets. At the most basic level, once you withdraw money from your individual, premarital savings account and deposit it into your joint marital account, you are comingling funds. Consider what would happen if you owned a condominium prior to your wedding day. If you sold that premarital apartment during your marriage and used the sale proceeds towards a new home for you and your spouse, you essentially comingled the value of that premarital condo and turned into a marital asset. Likewise, if, during your marriage, you receive a gift of interest in a family business that you help grow during the marriage, the increase in the value of that gift will be subject to division upon divorce.
How to Protect Pre-Marital Assets
While no one wants to begin a marriage with thoughts of it terminating, the unfortunate realty is that half of all marriages end in divorce. Pretending otherwise can have damaging financial consequences. The best way to protect yourself and your assets before getting married is to consider a prenuptial agreement that details what will happen to you and your spouse financially in the event of a divorce.
Prenups are no longer reserved just for the uber-wealthy. In recent years, they have gained in popularity across all income levels, especially as both spouses increasingly share in the responsibilities as family breadwinners. In fact, couples can agree in a prenup how they will use their respective incomes earned during their marriage. Moreover, with the high rate of divorce, many well-established individuals are entering into second and third marriages, blending families and bringing with them significant assets, including established businesses and retirement savings as well as the financial care for minor children. Therefore, a prenup would be important to protect your premarital assets for the benefit of your children from a previous marriage.
Prenuptial contracts open the door for couples to share detailed information about the income, assets and debts they bring individually into a marriage. The prenup helps to ensure that neither party enters into a marriage financially blind. It creates a dialogue between the spouses-to-be to share their financial goals, values and expectations. This is especially important when considering that financial issues are one of the leading causes of divorce.
Couples should remember that people and circumstances could change over the course of a marriage, whether it be a few years or many decades. The decisions they make permanent today, before they marry, will undoubtedly affect their future – together or separately. Therefore, when preparing a prenuptial agreement, couples should look down the road and consider if the decisions they agree to today, under current circumstances, will still make sense and be considered fair to them in five, 10 or 25 years, after they have children and their assets appreciate in value. A well-drafted prenup with the benefit of experienced legal and financial counsel can include language that anticipates these factors and can even feature a “sunset provision” that voids the agreement automatically after a certain period of time. These advisors, which may include CPAs, should also have experience in family law and be able to run the numbers to help you understand the current and future financial implications and tax consequences of the decisions you agree upon in a prenup you sign today.
In the current legal environment, it is not easy to challenge or break a prenuptial agreement, especially if there was full financial disclosure and both parties had separate legal representation. However, couples may agree, at some point during their marriage to terminate a prenuptial contract. This should be done formally, with caution, under the guidance of legal and financial counsel.
While even the idea of a prenuptial agreement can be uncomfortable to bring up during an engagement, the truth is that by being proactive and addressing the ugly side of marriage statistics up front, couples can protect themselves and their ability to maintain their financial independence – whether together or apart – throughout the remainder of their lives.
About the Author: Sandra Perez, CPA/ABV/CFF, CFE, is director of the Family Law Forensics practice with Berkowitz Pollack Brant, where she works with attorneys and individuals with complex assets and income to provide expert witness testimony and assistance with settlements. Her expertise includes valuing business interests, analyzing income, determining net-worth, preparing financial affidavits, and calculating alimony and child support obligations and litigation support in all areas of divorce proceedings. She practices in the tri-county area of South Florida and can be reached at (954) 712-7000 or via email firstname.lastname@example.org.