Millennials Marriages In Community Property States: Prenup Or No?

Newlywed couple experiencing joy after their marriage.

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If you are getting married in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin, laws around your money and property work a bit differently than every other state in the United States. Namely, they take the vow, “what’s mine is yours,” very seriously. If you’re a millennial getting married for the first time, you may have some debt, some assets, and some ideas about how you want your life to go. Your prospective spouse may have the same. Given these realities, it’s helpful to understand prenuptial agreements, where they are valuable and some major financial considerations in setting up the agreement.

It’s About Boundaries, Expectations, And Honesty

A prenuptial agreement is a legal contract between two people, signed prior to marriage. It outlines responsibilities, rights and expectations both during the marriage and in the event of divorce. As with any legal contract, you’ll want to consult a qualified attorney to set up an agreement.

Most people I know marry in hopes that they will succeed and eventually fulfil the “’til death do us part” portion of their vows. Hopefully, if you’ve agreed to enter a marriage, it’s with someone you trust, have healthy boundaries with, have discussed expectations with, and can be totally honest with. In fact, a prenup requires full disclosure and consent to even be valid.

Marriage is a legal contract but isn’t exactly tailored to the individual couple; it’s a pretty cookie cutter deal. Prenups, on the other hand, are legal contracts entirely designed for your unique boundaries and expectations as a couple. And yes, if you end up parting ways with a valid prenup in place, it provides guidelines for a seamless disentanglement.

Prenups And Your Finances

Oftentimes, I see people opt for a prenup and/or a clear division of assets on a second marriage. This is usually the result of having been on the wrong side of a contentious divorce or being attached to a spouse with poor money decisions. It’s sort of like only going to the dentist after having a mouth full of cavities. You know that preventative care might have saved you from the initial pain but at least you’re on a good schedule now. Here are some financial reasons to consider a prenup.

Support Expectations

If you are expected to take a pause on your career to help raise kids or leaving the corporate world to start something new, you could be expecting your spouse’s income to support you. This involves an element of risk especially if you take a long time off. It can be difficult to reenter the workforce for gainful employment later. A prenup agreement could provide a degree of safety in that support, whether married or separated down the road.

Assets

Even in a community property state, when you enter a marriage with assets, those are considered separate assets if they’re solely in your name. Anything you acquire during the marriage is considered community property, meaning your spouse could be entitled to 50% of it, even if the account is in your own name. This includes your wages.

Let’s say you come into a marriage with a checking account worth $250,000. This could be separate property. Let’s say then that you earn some wages and put those wages into that checking account. Now things are a bit muddled because your wages during the marriage are considered community property. With that mixing of community and separate property, the entire amount in the account could end up being split in half if you parted ways.

Likewise, if you buy a house during your marriage and contribute 100% of the down payment, the property could still be considered 50/50 by community property laws.

Prenups can be a tool to lay out rights to assets both during and after the marriage.

Debts

Like assets, debts acquired prior to a marriage can be considered separate property. However, like assets, it can be easy to get debts muddled up. Here are some ways debt may become marital property if you aren’t careful:

You or your spouse refinance premarital debt during your marriage into a new loan with better terms
You or your spouse consolidate debt and premarital debts are commingled with community property

There can also just be misalignment of spending styles and responsibilities. If your spouse doesn’t earn as much as you but has champagne tastes on a beer budget, your level of financial responsibility unfortunately won’t matter. You could also be liable for any debt they acquire during the marriage without a prenup.

Prenups can be a tool to create more accountability and add a layer of protection in marriages where debts are involved.

Conclusion

While marriage is usually for love, it is also a legally binding contract. As discussed above, each spouses’ interest can be protected with a prenuptial agreement can when it comes to income, assets, and debt. Before entering a marriage, it’s important to understand what that contract entails and what you and your partner need. Again, if you and your partner are considering a prenup, it’s key to work with a qualified attorney to draft an agreement.

This informational and educational article does not offer or constitute, and should not be relied upon as, tax or financial advice. Your unique needs, goals and circumstances require the individualized attention of your own tax and financial professionals whose advice and services will prevail over any information provided in this article. Equitable Advisors, LLC and its associates and affiliates do not provide tax or legal advice or services. Equitable Advisors, LLC (Equitable Financial Advisors in MI and TN) and its affiliates do not endorse, approve or make any representations as to the accuracy, completeness or appropriateness of any part of any content linked to from this article.

Cicely Jones (CA Insurance Lic. #: 0K81625) offers securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN) and offers annuity and insurance products through Equitable Network, LLC, which conducts business in California as Equitable Network Insurance Agency of California, LLC). Financial Professionals may transact business and/or respond to inquiries only in state(s) in which they are properly qualified.  Any compensation that Ms. Jones may receive for the publication of this article is earned separate from, and entirely outside of her capacities with, Equitable Advisors, LLC and Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC). AGE-6127725.1 (12/23)(exp. 12/25)