It’s common practice to protect your existing assets with a prenup. But what about assets you haven’t yet acquired? In a nutshell, you can protect future assets in a prenup, and it can be a helpful provision for you, especially if you’re expecting to earn or acquire assets after you get married.
Let’s review how to set up your prenup to protect future assets and why it’s essential.
Why Discussing Finances Before Marriage is Crucial
Establishing a prenup with your spouse-to-be is an invaluable tool to deepen your relationship. This helps you to understand each other’s respective financial positions and keep you on the same page prior to tying the knot.
Ultimately, your prenup doesn’t need to be a stiff and unromantic legal document. When approached with care, it’s a conduit for thoughtful communication and goal setting, and kicks your marriage off on a collaborative note.
How to Protect Future Assets
Just as a prenuptial agreement may include clauses determining spousal support and separate property, it can also include clauses about future income and property you acquire.
The key to effectively protecting anticipated assets is to be as clear in your description of these assets as possible. For example, suppose you anticipate acquiring ownership of a family trust. Consider including a clause in the prenuptial agreement with a detailed description of that trust and its owners.
The more ironclad you are in the details, the better chance that a judge will recognize the clause in the event of divorce.
BEFORE getting married, what conversations about MONEY should you have with your partner?
Use this guide to discuss budgets, assets, debts, goals, joints bank accounts and more.
Get the guideWhat Future Assets Should I Protect and Why?
There are many solid reasons to consider your future earnings and assets as part of your prenup.
In community property states like California, after you’re married, any income or assets acquired are considered marital property, also known as community property, unless specified otherwise. If you divorce, your assets may be split 50/50 by the court.
Whether you set out on a solo business venture or plan to publish a book, establishing boundaries around anticipated income benefits your relationship and your bank account. Ultimately, these conversations encourage you to be forthright about plans for your income and assets while helping eliminate confusion.
Income from Business Ownership
If you or your spouse plan on starting your own business, you may wish to keep income from that business as separate property. Conversely, you should also shield your spouse from any potential debt incurred by the business. Another option is to keep the business itself as separate property, but the income derived from the business can be community property.
Further, if you decide to go into business together, you can also establish an operating agreement ahead of time to determine what your respective ownership interests are in the business. This is the most effective way to keep the business out of the marriage.
Real Estate
You may include a clause in your prenuptial agreement that specifies any property purchased independently (that is, not in joint title with your spouse) is to remain your separate property.
This applies if you plan to buy property or a home as your own investment. Or it’s possible that your partner does not want to take the financial risk and would prefer you keep potential real estate to yourself.
On the other hand, you and your partner may want to discuss the possible scenarios in which you will be buying a home together, who will pay the down payment, and if a family residence will be community property, whereas other real estate investments may stay separate.
Think of your prenup as an opportunity to consciously and intentionally decide which properties are jointly or individually owned.
Income from Intellectual Property
Intellectual property may include less “tangible” assets such as music, art, or writing. Artists, writers, musicians, or anyone planning to make money from their talents should decide how income from these sources will be divided with their spouse before getting married.
Intellectual property can be murkier due to its nebulous nature. For example, you may write a book before marriage but publish it after your wedding day. Does this make the book community property? The best way to handle unique situations like this is to clearly define in your prenuptial agreement which assets will be separate and community property once you are married.
For example, you can clarify that books created before marriage, but published after the marriage date are defined as separate property. This way, you will be entitled to all income from those books in the event of a divorce.
Can a Postnup Protect Future Assets?
Postnups address the classification of income or assets after you’ve married. While they are very similar to a prenup, they may be more difficult to enforce.
If you plan to establish a postnup with a clause addressing future assets, be sure to be as specific as possible to better ensure the document is ironclad in a court of law.
Next Steps on Protecting Future Assets
The beauty of the prenup is that it can be tailored to your unique relationship and lifestyle. The best way to safeguard yourself and your spouse is to consider all angles of how the dissolution of your marriage would impact your current and future assets.
Not only do you benefit from a mutually beneficial legal agreement, but you also have a chance to sort through important discussions about finances and goals, which are the bedrock of any successful relationship.
Book a call with me today for more information on crafting a solid prenup that empowers you and your spouse to have a long and fruitful marriage.