With most married couples, one spouse earns a substantially larger income than the other spouse. Men have traditionally filled the role of main breadwinner while women have either earned much less income, or none at all. This convention is changing. The line between the two roles has become increasingly blurred over the last generation. Today, a greater percentage of women than ever before bring home salaries that are larger than those earned by their husbands.
Sometimes, much larger.
When there is a major difference in the salaries earned by each spouse, it is important for the higher-earning party to take steps to protect herself (or himself). This is not to say the spouse who earns less should be precluded from receiving some level of financial support. Instead, it is to point out that higher-earning individuals usually have considerable assets. Without protection, those assets might be up for grabs in the event a divorce is pursued by either party.
When A Prenuptial Agreement Is Useful
A prenup is typically drafted and signed before a couple gets married. It is a legal agreement that specifies each person’s assets and establishes each person’s rights to the other’s assets. If the couple seeks a divorce, the prenuptial agreement spells out which assets are part of the marital property.
Years ago, prenups were used mainly by wealthy individuals who controlled substantial assets (think multimillionaires). They’re much more common today, and used by couples who make far less money and control far fewer assets. Reasons vary, and may include the ownership of certain heirlooms, real estate properties, or even a car that one of the spouses adores.
When one spouse earns considerably more income than the other, it is common for that person to accumulate a greater portion of assets and savings. A prenuptial agreement can be drafted to offer protection for these items, as well.
Protecting Assets That Were Inherited
Inheritance assets, whether in the form of money, property, or otherwise, can be protected by a prenuptial agreement. However, it is important that the person who owns these assets keep them separate from those of his or her spouse.
For example, money inherited from a deceased relative should not be used to purchase a home for the couple. Nor should such money be placed into a joint checking account. If an inherited sum is placed into an investment account, the owner’s name should be the only one listed on it.
If an inherited asset is commingled with those of the other spouse, or used for the benefit of that individual, it could become vulnerable during a divorce.
Make Sure Your Business Is Protected
Running a business is hard work. Years of effort are sometimes required before a venture becomes profitable enough to provide the owner with a salary. Unfortunately, many business owners neglect to protect their companies against the prospect that they might one day get divorced. As a result, they are often forced to sell or forfeit their businesses in order to comply with the terms of their divorce settlements.
If you run a business, there are a number of ways to protect it. One method is to draft a prenuptial agreement either before getting married (if the business is up and running at the time) or prior to launching it. Another method is to establish an asset-protection trust. This type of trust is designed to shield assets from others.
The most important thing to remember is that you need to take steps to shelter assets you want to avoid losing in the event of a divorce.
Establish Separate Financial Pictures
Many couples will see this bit of advice as the most controversial of the lot. Keep your finances separate. That includes investment accounts, checking accounts, and even savings accounts. This helps to ensure you stay in control of the financial assets that are rightfully yours.
If your spouse is averse to the idea, and prefers to keep all finances commingled, consider establishing a separate account without his or her knowledge. Doing so gives you a degree of financial flexibility.
When you earn more income than your spouse, it is important to protect yourself from having to forfeit an unreasonably large portion of your assets. Don’t leave this to chance or the whims of a divorce court judge. If you haven’t already done so, take the necessary steps to protect your financial independence.