Millennial Couples Need to Get Used to Prenups

(Bloomberg Opinion) -- I love the concept of prenups. I’d go so far as to call them romantic. What shows more intimacy than laying bare all your financial details? What is more loving than creating a plan for divvying up assets in a fair and equitable way? Why wouldn’t you do this while nestled in the bubble of your engagement — and before you get to the inevitable trials and tribulations of marriage? 

And yet, most people have visceral reactions when I bring up the topic. Prenups aren’t always well-meaning, of course, but it’s almost as if uttering the word places a hex on one’s marriage. Data on this is scarce (the most recent I could find was a 2016 survey suggesting prenups were slightly on the rise), but my experience says we’re still far from normalizing discussions about the financial terms and conditions of marriage.

Given how uncertain the future is — after all, life is long, people change, and the fact is, not everyone who says “I do” will stay married — we need to update how we think about prenups. Shouldn’t you understand what would happen if you were to (gasp) get divorced?

Maybe a better term is marriage insurance. Just as auto insurance covers you in the event of a car accident, and homeowners’ insurance helps if a tree falls on your roof, a prenup is an insurance policy that can protect you during the fallout of a divorce, however likely that may be.

The divorce rate in the U.S. is often cited to be around 50% of marriages, though this is a fairly flawed stat. A study from 2020 found the rate is closer to 14.9 out of 1,000 marriages will end in divorce. But generally, divorce stats are fairly rudimentary, according to some marital researchers.

On top of the practical and emotional devastation, there can also be significant financial consequences. One study found that those who divorce after age 50 were likely to have their wealth decrease by 50%, and women especially were impacted in terms of lifestyle change.

You may live with the conviction that you’d never leave your partner — and that your partner would never leave you. But, unfortunately, you have no control over another human being. No matter your feelings on divorce, couples would be wise to consider a prenup for setting the terms of what a fair split would look like.

In its simplest form, a prenup outlines the property and assets of each party and specifies who will have rights to those assets and property after a marriage ends. It can include expected inheritances, trust funds and debt that’s being brought into the marriage. Prenup costs vary based on complexity, but both parties need legal representation, so depending on the cost of attorneys in your area, the process could amount to between $2,000 and $6,000.

But think about these costs as paying upfront for insurance. Divorce can be even more expensive, especially if it is contested. One Nolo survey found the average cost of a divorce was $12,900 in 2019. This was just for getting the divorce, not the potential long-term impact of splitting up your assets.

Oftentimes, people push back on the necessity of a prenup, saying, “Well, I’m not rich” or “I don’t have any assets.” One often overlooked asset is your retirement plan. It’s not uncommon for retirement plans to be divided in a divorce, which can have devastating long-term financial impacts. A prenup is an opportunity to discuss how both parties can be protected and to be proactive about planning for retirement if one party doesn’t earn taxable income. (A spousal IRA is a good option here.)

A prenuptial agreement should be a discussion about what feels like a fair division of assets within the ecosystem of your relationship. For example, if you’re both in the workforce, do you feel that having to pay alimony — the financial support one spouse provides the other during a separation or divorce — is fair? Your state’s laws will assert what it thinks is fair, but you should determine if you agree. If you disagree, a prenup helps avoid a potential court battle and upholds what the two of you deem as fair compared to your state’s laws (within reason). 

You can also change the terms during the course of your marriage. For example, both parties might have waived alimony in a prenup because you were both working at the time, but then circumstances changed. Perhaps one person left work to take care of children or a sick relative. In that case, you can create a postnuptial agreement to accommodate this new reality and decide what now feels fair. It’s important to reassess the terms and conditions over time.

Having a prenup doesn’t mean you’re destined to get divorced. Just like having auto insurance doesn’t mean you’re hoping for a car crash and getting life insurance isn’t a wish to shuffle off this mortal coil early.

It just means you’re prepared in case the unexpected and undesired happens. After a year like 2020, we should all be intimately aware of how quickly our realities can shift.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Erin Lowry is the author of “Broke Millennial,” “Broke Millennial Takes On Investing” and the forthcoming “Broke Millennial Talks Money: Stories, Scripts and Advice to Navigate Awkward Financial Conversations.”

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