How to Address Debt in a Prenup

Feb 5, 2023 | Finances, Prenuptial Agreements, Protecting Assets

Pop quiz: what makes everyone sad, is a four-letter word, and starts with the letter “D?” You got it–DEBT. All jokes aside, debt is necessary for modern-day life, especially for those of us without a gigantic trust fund. Whether you or your partner has student loans, car loans, or credit card debt, a prenup’s got your back. You can protect yourself and your future spouse from taking on any debt that you or they weren’t directly involved with. Or not. The choice is up to you. Keep reading to learn how to address debt in your prenup.


What is a prenup? 

Let’s go back to basics. A prenup is a contract that is created between two future spouses before they get married. The keywords here are: “before” and “married.” Executing the prenup after the wedding day is invalid, and if you never get married, then you don’t really have a prenup. A prenup covers both financial and non-financial obligations during the marriage and in divorce. Most folks hope they never have to use their prenup, but if they do, they are usually pretty happy that they have one.


How does a prenup work? 

A prenuptial agreement is a contract, and like any contract, it has requirements. There are validity requirements that must be followed in order to have an enforceable prenup. These requirements vary from state to state. What is considered a valid prenup in Arkansas may not be a valid prenup in California. 

Once you have the validity requirements squared away, you can start working on the contents of the prenup. For starters, you should make sure that the prenup is overall fair. It doesn’t need to be 50/50 exactly, but it shouldn’t be leaving one person destitute. (More on what exactly goes into a prenup in the next section). 

If the time ever comes for you to get a divorce, and you want to invoke your prenup, you may do so between you and your spouse privately, with the help of your divorce attorneys, or you might need to ask the court to enforce the prenup. You hope it never gets to that point, but if it does, a validly executed prenup will be there to support you.


What do people usually put in a prenup? 

The “meat and potatoes” of a prenup is property division. By property, we mean anything you own. This could be bank accounts, real estate, investments, jewelry, or basically anything else with value. Along the same vein of property division is debt allocation. First, you decide who gets the house, the car, and the bank account, and then you decide who gets the student loans, the credit card debt, and the car loans. 

There are many other issues handled in a prenup, such as alimony (i.e., spousal support), pet ownership, joint bank accounts, lump sum payments, confidentiality, infidelity, and more

What you put in the prenup really depends on your goals, expectations of one another, and what roles you both want to take on. This is something you should discuss with your partner and make sure you two are aligned. There may be some debating and negotiating going on, and that’s totally okay! It’s expected, and it’s actually beneficial to creating a fair and balanced prenup. 


How to address debt in a prenup 

Now, let’s get into the topic you’ve all been waiting for: debt. There are all types of debt, private student loans, public student loans, car loans, credit card debt, mortgages, etc., etc. You can further categorize the debt down to whether it was taken out before the marriage or during the marriage. Any debt acquired before getting married is called premarital debt. Any debt acquired during the marriage is frequently referred to as marital debt. Typically, in a prenup, you will allocate debt ownership based on premarital vs. marital debt. 

Now, how do you address debt in a prenup? Well, you start by determining whether premarital debt and marital debt are considered separate or joint. If it’s separate debt, then it will be the borrower’s debt alone. If it’s joint debt, then it may be divided equally or proportionally. You can also choose to ignore debt in your prenup and let a divorce court make the final call. 

Let’s use an illustration to demonstrate this concept. Matt and Mindy are getting married next year. They’re working on their prenup and trying to decide what to put in it. Mindy has $200,000 in law school student loans and no assets. Matt has no debt and $500,000 in assets. Matt plans to start a business while they’re married and believes he will need to take a $400,000 business loan out. Their first order of business is handling debt. What should they do? Well, there are two questions they must answer: 1) How do they want to treat debt incurred before the marriage (premarital debt), and 2) How do they want to treat debt incurred during the marriage (marital debt)? In this case, Mindy’s law school debt is premarital debt, and Matt’s future business loan is marital debt. Mindy and Matt decide that both the premarital and marital debt should be kept separate. Why? They feel that Mindy’s law school debt and Matt’s business debt are both personal to each person’s career, and they are both financially independent, so they should both handle it separately in the event of a divorce. Simple as that! 


Real-life examples of debt

Okay, okay, you understand the basics about prenups and debt, but what really happens in the courtroom when it comes to debt? Sometimes it’s just easier to understand how things work by seeing real-life examples. 


Taking out a sneaky loan 

This case is very interesting. The husband and wife were married for a total of 20 years, but for more than half of those 20 years, they were separated. They decided to remain married “on paper” for their daughter’s sake. The wife needed financial support from the husband, as he made significantly more than her. Throughout the time they were separated, the husband gave $200 per month for child support and covered the daughter’s medical bills and college tuition. In addition, he assisted the wife in any financial matters as requested. Unbeknownst to the husband, the wife was actually taking out credit card debt in the husband’s name, making substantial charges, and defaulting on payments. She also took out a second mortgage on their home without him knowing. Finally, the husband filed for divorce, claiming “deception of financial matters” as the reason for divorce. The question becomes: should this debt taken out by the wife (unbeknownst to the husband) be considered marital debt and be split up? Or is this the wife’s separate debt alone? Drumroll, please…

The court said this is marital debt, and the husband may be required to pay some of it. The court explained that marital debts are incurred by either spouse during the marriage up until the final divorce hearing. Yikes!


Student loans taken out during the marriage 

Here’s a cautionary tale about student loans taken out during the marriage without a prenup. Erik and Adrienne were married, and Erik was in the food-safety industry while Adrienne worked sporadically as a nurse practitioner. During the marriage, Erik helped Adrienne pay off her premarital student loans. After some time in the food-safety industry, Erik decided he wanted to make more money by going back to school to be an APRN. The issue at hand is whether or not Adrienne should be responsible for some of Erik’s school debt. He had a total of $50,738 in student debt, but only $26,811 was incurred pre-separation (i.e., before they decided to get a divorce). Should Adrienne be responsible for just the pre-separation debt or all of the debt? If so, how much? 

The court said she should be responsible for half of the pre-separation debt. So she was allocated $13,405 in Erik’s debt. Erik also requested that he be reimbursed for the money he paid towards Adrienne’s loans during the marriage, but the court said no way, that was a gift! No reimbursement for Erik. But at least he got half of his pre-separation student loan debt covered. 

What can we learn from Erik and Adrienne? If you don’t want to be responsible for your spouse’s debt, then a) don’t pay it off during the marriage and b) get a prenup! If Adrienne had gotten a prenup that said, “all marital debt is separate,” then she would not be required to pay that $13k in her ex’s debt. 


The Bottom Line 

At the end of the day, how you address debt in a prenup is really up to you. Maybe you want to keep premarital debt separate but all marital debt joint. Or vice versa. You can even avoid it altogether and just let the court decide for you if you ever get a divorce! Whatever you do, just understand the implications of your choices, and remember that you very well could end up paying your ex’s student loans off, even if they cheated on you and threw darts at an image of you in their office. 


You are writing your life story. Get on the same page with a prenup. For love that lasts a lifetime, preparation is key. Safeguard your shared tomorrows, starting today.
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