How to Protect Yourself From a Spouse’s Bad Financial Decisions With a Prenup

Jan 23, 2023 | Finances, Prenuptial Agreements, Protecting Assets

If you clicked on this article, you’re probably pretty financially savvy and want to make sure you stay that way, regardless of what obstacles you may face. With a pending marriage on the horizon, the thought of divorce may be looming over your head. Unfortunately, divorce is a reality, with nearly 40% of marriages ending in divorce; getting a prenup can put your mind at ease, knowing that your finances will be protected in any scenario. Whether your partner is an online shopping addict, or they took out way too many loans in college, or they simply just don’t know how to save, a prenup can make sure those problems don’t become your problem. Keep reading to find out the various ways a prenup can protect you from your spouse’s bad financial decisions.

 

Protect yourself from your partner’s debt 

When you think of bad financial decisions, taking out too many loans or not paying off debt may come to mind. Maybe your partner carelessly uses their credit card, goes beyond their means, and never pays it back. Or maybe they have a ton of student debt because they’re bougie and wanted to fly first-class to spring break every year in college. Whatever the case may be, debt can be crippling for some people, especially when interest rates are high. A private student loan can range from 4 to 15 percent interest!! Let’s say your partner took out $50,000 in student loans at a fixed rate of 10%. If they pay $200 per month, it will take 22 years to pay it off!! The total your partner would end up paying would be $77,604.24! An additional $27,604 dollars on top of their original loan. That’s a whole lot of money spent on interest. 

Not to worry, a prenup can protect you against your partner’s poor debt decisions. How? Well, you can make sure to outline in your prenup that all premarital debt (debt accrued before the marriage) and marital debt (debt accrued during the marriage) remain the person who borrowed its debt. In other words, any type of debt, regardless of when it was taken out, should be marked as each person’s separate property, not subject to division in a divorce. 

What happens if you don’t include debt as separate property in your prenup? Brace yourself. You could be responsible for a portion of those loans even if your name isn’t on it and even if your partner took it out years before meeting you. Much of what happens to debt depends on your state’s divorce law, your assigned judge’s discretion, and your specific situation. You really don’t want to leave this kind of thing up to fate. 

 

Protect yourself from your spouse’s spending habits

If your spouse tends to burn a hole in their pocket with money, and you hate it, then listen up. Whether they are online shopping addicts or simply just allergic to budgets, you don’t have to bear that burden, even during marriage. Wait, what? Yes, that’s right. Prenups don’t just protect you after the marriage ends, but they can also protect you during the marriage. Let’s dive in. 

Prenups can dictate financial obligations during the marriage, such as whether or not you two maintain separate bank accounts or joint bank accounts. What that means is you can decide, in your prenup, whether you two will share a bank account or not. And if you decide to share a bank account, you two must come to a meeting of the minds as to what goes in and what goes out. Put differently, all expenses paid from the joint account and all contributions into the account must be agreed upon. This can help keep budgets under control and taper any reckless spending. 

So, what does this mean for you? If your spouse has a serious spending problem, you may want to dictate that you will each have separate accounts. That may make your life easier. You can also choose to have a joint bank account with strict stipulations. The stipulations should be how much each person contributes (i.e., deposits) each month/week and what expenses should be pulled from the account. When it’s put into writing in a contract, it’s harder for either of you to stray from it. Whichever way you choose, you should have peace of mind and protection from your spouse’s bad financial decisions!

 

Protect your smart financial decisions from being taken by a future ex-spouse 

If you are the type to save your money diligently, make good investment choices, and spend within your budget, you may feel like it would be unfair for your spouse, who doesn’t do those things, to receive a portion of your stuff should you ever divorce. Why should all of your hard work be possibly cut in half or MORE for your spouse who hasn’t made a single, smart financial decision in their life, despite all of your efforts to help them!? Well, it’s a good thing for prenups! 

Prenups can make sure all of your hard work and hard-earned money is protected by keeping any assets you have separate. Remember, assets are anything with economic value, such as houses, apartments, cars, bank accounts, investment accounts, crypto, NFTs, artwork, jewelry, etc., etc. With a prenup, you can make sure that all of your assets remain your separate property, not subject to division in a divorce. Phew! 

Friendly reminder that if you do not have a prenup and you get a divorce, you may be looking at splitting your assets 50/50, 60/40, 70/30, or any other combination of split, depending on your state divorce laws and your personal situation. 

 

Protect yourself from paying alimony

Alimony is the financial support paid from one ex-spouse to another. Alimony is also sometimes called maintenance or spousal support, depending on your state. Sometimes alimony is truly important, especially for stay-at-home parents who forgo careers and incomes to take care of the children, which is a huge sacrifice. Alimony can really help those people feel supported in the event of a divorce. However, sometimes alimony can feel like it’s unwarranted, especially if you believe that your spouse makes bad financial decisions. Maybe they never focused on their career or making money but instead focused mostly on their hobbies. Perhaps they don’t take in much income, and they’re totally okay with that. While that’s all fine and dandy (no judgment here), it may not be the most financially savvy way of life. To each their own, and maybe you absolutely adore them for their free-spirited ways. However, you feel it would be unfair to have to pay them alimony out of your hard-earned income, should you two ever get a divorce. And that would be a valid thought! 

Everyone’s situation is different, and we can’t sit here and say when alimony is right and wrong, but a judge certainly can! A judge can determine the amount and frequency of alimony payments. A lot depends on state law, but alimony can range from lasting a few weeks to lasting for a lifetime. It truly depends on many different things. With a valid prenup, you can waive alimony altogether, meaning it’s off the table, and a judge can’t award it. That could be a huge weight off your shoulders, especially if you feel your spouse makes bad financial decisions! You still love them, of course, but divorce is divorce, and money is money.

 

Protect both of you from unforeseen circumstances with life insurance

We’re about to get a little morbid, and we apologize. This is less of the financial arena and more of the lifestyle arena–you can require your spouse to maintain a life insurance policy with you as the beneficiary. This can be useful because you can use the money to cover any funeral costs, medical bills, or any other incidental costs related to their death. Heavy stuff! This may sound dark, but in the event your spouse passes away, you may have to pay those funeral costs. That’s not a light amount of money, and if your spouse is/was bad with money, they probably don’t have enough saved to pay for this. Okay, end morbid talk! 

 

Protect your financial confidentiality 

This is another topic that is less financial and more lifestyle, but if you have a spouse that is not only bad with money but also has a big mouth, you may want to add a confidentiality clause that will protect any financial information. With a confidentiality clause, your spouse will be required to keep all of your private information, including financial information, private. Depending on your clause, this may be in effect indefinitely. Meaning they can never talk about your finances for as long as they shall live. This can be especially prudent if you own a business, as you certainly wouldn’t want your personal or business finances out in the open for anyone to see.

 

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