I’ve been reading lately about how couples are signing prenups if one person has a lot of debt. That is the case for me and my fiancée, and I’m not sure what to do! I am extremely fortunate to have no student loans (I got scholarships and help from family during school), but my fiancée was not so lucky and still owes close to $50,000. She also has some credit-card debt (I think about $10,000) that she’s working on. I don’t judge her for any of this — she simply hasn’t had access to the same resources as I have — but I also don’t want to be on the hook for it if there’s some kind of worst-case scenario. (She is on the same page and says that she wants to handle her debt on her own.) What exactly can a prenup protect me from and is it a good idea to sign one? (Also, how much will it cost?)
For what it’s worth, she makes a little bit more money than I do but not much. We have been living together for about a year in L.A., but we might move to New York next year; I’m not sure how the rules on this vary from state to state.
Congratulations on getting engaged. And I’m glad you’re taking this time to consider how you and your fiancée want to manage your finances together. Your approach to this topic will shape your conversations around money for the rest of your lives (no pressure!), so it’s worth being thoughtful and deliberate about it.
Which brings me to your prenup question. I understand your confusion here! I’ve seen a lot of discussion lately (mostly stemming from this recent story in The New Yorker) about how couples are signing prenuptial agreements to protect each other from debt (sort of sweet, in theory). But before you jump on that bandwagon, you need to understand what prenups can and cannot do. To clarify, I spoke to Laurie Israel, an attorney who focuses on family and marital law and the author of The Generous Prenup: How to Support Your Marriage and Avoid the Pitfalls.
First of all, your fiancée’s debt is premarital — she incurred it on her own, before marrying you — so under law, it is not your responsibility. “Premarital debt belongs to the debtor. That is true about the student-loan debt and the credit-card debt,” says Israel. This is the case even in most community-property states, like California, as well as non-community-property states, like New York. You’ve probably heard that California law requires assets or debt to be split 50-50 if you get divorced, but that only applies to whatever you acquire during your marriage (“marital assets” or “marital debt”). Some community-property states have murkier rules about this, but the overall point is that you do not need a prenup to shield yourself from your fiancée’s premarital debt. If you split up, the debt will remain hers.
Another thing to consider is that most creditors don’t care if you have a prenup. “Third-party creditors do not have to abide by the allocation of debts made by a couple in their private contract — the prenup,” says Israel. “They can collect anyway.” This is probably not something you need to worry about, but in some extreme cases, a creditor could try to seize half or all of a couple’s marital property (say, a home or money in a joint checking account) to collect on outstanding debts incurred by one party. The laws on this get complicated and vary from state to state, but a prenup wouldn’t necessarily protect you. (If you do get divorced, you will be subject to the marital laws in the state where you reside during the divorce, not the one where you got married.)
I can understand the appeal of a prenup as a formalized plan for how a couple delineates between “mine,” “yours,” and “ours.” For instance, if one party owns or is starting a business and wants their equity to remain separate from the marital property, a prenup can be a good idea. But if you don’t have a ton of money or specific assets to protect, a prenup can be an unnecessary and expensive procedure (usually a couple thousand dollars at least, depending on the cost of your lawyers). And it can backfire, says Israel. “A prenuptial agreement can destabilize a relationship and create a dynamic where one person — usually the one with less money — has less power in the marriage,” she explains.
Instead, you want a plan that supports you both as fairly as possible. “I strongly suggest that you both work on paying off these debts as soon as you can, together,” says Israel. “It builds community and goodwill in the marriage. And, presumably, your fiancée’s education will help her earning capacity, which benefits the marriage as well.”
Or you can keep your finances relatively separate, for now — there’s no perfect formula for fairness, and sometimes pooling your resources is a gradual process. I know plenty of couples (including my husband and me) who barely share any accounts and do just fine. The key is to communicate about this rather than stay in your respective lanes because you’re afraid that the other person will judge or disapprove of your financial habits.
Finally, bear in mind that even if your fiancée continues to pay off her debt by herself, it will still affect your larger financial picture. If she has to set aside an extra $400 a month for student loans and her credit-card bill, that means she can’t contribute as much to your shared living expenses, savings, and future financial goals. Presumably you’ll both be eating out of the same fridge, debt and prenup notwithstanding, right? What will be most supportive to the life you build together? That should be your guiding principle as you discuss next steps.
The Cut’s financial advice columnist Charlotte Cowles answers readers’ personal questions about personal finance. Email your money conundrums to [email protected]