Let’s talk about one of the most important aspects of the prenup process– financial disclosure. We get tons of questions daily about this process, so we thought we’d work through some of the most pressing questions about disclosing your finances in the prenup process. But first, let’s provide a little background on financial disclosure.
Financial disclosure is part of the prenup process in which both partners are required to share their assets, income, debts, businesses, accounts, and potential inheritances. It is required by virtually all states in some way, shape, or form. Most states agree that if financial disclosure isn’t done properly, it may be grounds to get the prenup thrown out! This is why making sure you include all of your financial information in a truthful manner is so important!
1. How to fill out the inheritance
So, you think you may receive an inheritance one day, and you must fill in exactly how much this inheritance might be in your financial disclosure form. You may be thinking, “How the heck should I know how much I will get in 10, 20, or even 30 years from now? If anything at all!” Great question. We’re here to clear it up for you.
How to determine the value of your inheritance
Ask. Ask Mom, Dad, Grandpa, and Great Aunt Sue. You need to ask the benefactor (i.e., the person giving you the inheritance) to get an estimate of the inheritance amount. No, it does not need to be accurate down to the penny of what you will receive in the future (how could anyone possibly estimate the exact amount of money they may or may not receive years from now?). It should be the value of the inheritance when executing the prenup.
What if I don’t include my inheritance on financial disclosure?
This is not a good idea. Why? Not including your inheritance runs the risk of said inheritance not being protected in a divorce. Even worse, if your partner can show you were purposely being deceitful in withholding inheritance information, the entire prenup could be wiped out based on improper financial disclosure. You must disclose all assets, even potential inheritances.
What if my inheritance is not cash, but a house, a piece of artwork, or something else?
You should still include it! You should include the fair market value of the property, whatever it may be. Again, this should be an estimate of its value at the time of the prenup signing.
What if my inheritance is shared with a sibling or someone else?
For example, let’s say you know your parents will pass down their $1,000,000 home to you and your siblings one day. There are two siblings, so you each get 50%. How should you list your inheritance? You should get a fair market value estimate of the asset at the time of the prenup execution and divide that asset by 50% since you are only getting half! Remember, you wouldn’t want to include anything in your inheritance that you won’t receive, hence why you don’t need to include your sibling’s portion of the inheritance.
2. Foreign assets
Should you (or can you) include your foreign assets in your U.S.-based prenup financial disclosure? The answer is a resounding yes. Although a U.S. divorce court doesn’t have the power to tell another country what to do with its citizens’ assets, it can use the knowledge of the existence of foreign assets to offset certain U.S. assets in a divorce.
Plus, it’s essential to ensure that both you and your future spouse are aware of all the assets and debts each of you owns. This not only helps in understanding what you are both relinquishing in terms of property rights but also lays the foundation for a fair and transparent process. After all, a prenup is an important document that requires careful consideration, and being informed about all the financial aspects of it is crucial for making the best decision for both of your futures.
3. Do I really need to include everything?
Yes, yes, yes. One question we get quite often is, “But what if I don’t care if my [insert any property here] is deemed marital/community property? Do I really still need to add it to the financial disclosure?” The answer is yes. We know it’s a hassle to get the estimated value of all of your assets, income, debt, businesses, inheritances, etc., but it is SO important to be thorough.
One of the main purposes behind financial disclosure is to ensure both parties are fully aware of each other’s finances so they can make informed decisions. Failing to share all of your assets could lead to your prenuptial agreement being challenged, as it may be argued that proper financial disclosure was not provided. What does this mean? It means your prenup could be thrown out, and the default laws would then apply to your divorce, which may not be in your favor!
4. Should we include jointly owned assets in the financial disclosure section?
If you and your partner own property together prior to getting married, do you need to include that jointly owned property in the financial disclosure section? The answer is yes! While it may seem unnecessary since your partner is a part owner (they clearly already know the value of it…), it’s still important to include because financial disclosure may also act as a reference point for the prenup in some cases. For example, the prenup itself may refer to the “jointly owned assets listed in the financial disclosure form.” The bottom line is that including property that is jointly owned in the prenuptial agreement is a wise move as it ensures comprehensive coverage and leaves no loose ends.
5. Can I waive financial disclosure?
Some people may want to avoid the whole financial disclosure process altogether. Some states do allow you to waive financial disclosure as long as certain safeguards are in place, such as having an attorney present. However, many states do not allow for the waiver of financial disclosure at all, meaning you must do financial disclosure in order to have a valid and enforceable agreement.
It is important to note that HelloPrenup does not currently allow waiver of financial disclosure, even in states where waiver is permitted. This is because opting out of financial disclosure can lead to potential risks and uncertainties for your prenuptial agreement. Therefore, we recommend adhering to the proper financial disclosure process when drafting a prenup.
6. Why is financial disclosure necessary?
People often reach out asking us why they need to disclose their finances. Disclosing your financial information before signing a prenuptial agreement can be boiled down to one point: it helps create a fair agreement. Financial disclosure shows honesty and transparency and helps both parties make informed decisions. Let’s think about it another way. Let’s imagine John is a secret billionaire. He has a trust fund with hundreds of millions in it and is expected to inherit a couple more hundred million dollars when his parents die. However, he lives his life like a regular Joe. To the naked eye, no one would know he’s a billionaire. He likes it that way. He meets a woman who loves him for him (not for his money), and he wants to marry her, but with a prenup, of course. She has no idea that he’s a billionaire. She loves him for him! However, as you can see, without financial disclosure, she would have no idea about his financial status and would potentially make different choices in the prenup had she known the truth about his finances. Obviously, this is an extreme example, but it applies to everyone, even non-billionaires.
7. What happens if my assets change drastically from what I included in my financial disclosure?
So, let’s say you have a piece of real estate in a quiet little town on the coast of Oregon. It’s a beautiful beach town, but relatively unknown. You buy your sweet little vacation home for a modest $300,000. However, one day down the road, Taylor Swift decides to move there. She buys a house (let’s be honest, she’s going to buy a mansion) and opens up the “Taylor Swift meet-and-greet convention,” which is a way for her to meet her fans every month. Your quiet little Oregon real estate value just skyrocketed, thanks to the “Taylor Swift effect.” Your $300,000 beachside cottage is now worth 10x, thanks to the Swifties. Should you update your financial disclosure to reflect your now $3,000,000 piece of real estate?
The answer isn’t so straightforward. Technically, if you’ve already signed and notarized your prenup by this point, you can’t just go back and scribble in a different amount. You’ll need to formally amend the contract with an attorney. If you have a drastic change in financial circumstances, you aren’t legally required to go back and change your financial disclosure form. Still, many attorneys would recommend that you do so since the circumstances have changed so drastically. This would involve hiring an attorney to amend the agreement, including the financial disclosure form.
The bottom line on financial disclosure
We totally understand that financial disclosure might seem daunting, but it’s actually quite painless. It involves sharing your financial information with your future bride or groom. Plus, HelloPrenup makes the process easy and even enjoyable, some might say. By the end of it, you and your partner will have complete transparency about your finances, giving you clarity to make informed decisions about your future together and your prenuptial agreement.
Nicole Sheehey is the Head of Legal Content at HelloPrenup, and an Illinois licensed attorney. She has a wealth of knowledge and experience when it comes to prenuptial agreements. Nicole has Juris Doctor from John Marshall Law School. She has a deep understanding of the legal and financial implications of prenuptial agreements, and enjoys writing and collaborating with other attorneys on the nuances of the law. Nicole is passionate about helping couples locate the information they need when it comes to prenuptial agreements. You can reach Nicole here: Nicole@Helloprenup.com
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