Many couples considering marriage these days have lived through one, if not two, recessions. Recessions not only cause temporary financial setbacks, but can delay important life milestones now and into the future. Millennials, who have experienced both the Great Recession and COVID-19 Recession, are marrying later than their parents’ generation. Though marriage was once a signifier of financial stability, in today’s volatile economy, it’s often perceived as a risk. Achieving financial success now requires a greater financial investment in education and in our careers, leaving more debt and assets at stake in marriage and divorce. In addition, markets are volatile, leaving our assets at risk. But don’t stress! We have a solution. A prenup, of course. A prenup can be a powerful tool in recession-proofing your relationship—so you don’t have to sacrifice love or financial stability, even in the toughest of times. Though once thought of as a tool of the wealthy, prenups are becoming increasingly commonplace for couples who want to create healthy financial boundaries to weather the market’s ups and downs.

Here are three ways prenups can protect your wealth during a recession:

1. A Prenup Can Protect You from Your Spouse’s Debts

Prenups can protect you from being held liable for debt incurred by your spouse. Americans, and especially Millennials, have accumulated historic amounts of debt today—including billions of dollars in credit card and medical debt, and trillions in student loan debt. In a recession, as we saw in 2008, investments in an expensive education might not pay dividends in a high-paying job—and those loans may linger as the job market recovers. Lost wages due to layoffs may result in increased credit card debt to make ends meet, or an inability to pay off existing debt. Illness during a pandemic—or at any time—might land your spouse in thousands of dollars of medical debt if the treatment isn’t covered by insurance. In a community property state, a spouse can be held liable for debt incurred by their other half. There are currently nine community property states, including Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In these states, most debts incurred by either spouse during the marriage are owned by the “community”—that is, jointly by the couple—even if only one spouse signed on for the debt. In 2022, total US student loan debt tops a record $1.7 trillion. Student loan debt can be a major source of contention among couples, especially as a recession compounds financial worries. In fact, student loan debt can even be the cause of divorce, with as many as 13% of divorced borrowers attributing their divorce to student loan debt. Without a prenup, you may be liable for half of your spouse’s student loan debt. In an article for The New Yorker, Michael Waters explains how prenups can be an “act of love”—a way to marry without putting your spouse on the line for your debt. For example, he describes how family-law attorney Kelly Chang Rickert worked with a client whose spouse passed away from COVID-19, and who had accumulated six-figures worth of medical debt. “‘Had she not had the prenup,’” he quotes Rickert, “‘then this debt that was accumulated during the marriage would be community.’” If you have debt, a prenup can be a romantic gesture.

2. A Prenup Can Protect You from Financial Imbalances

Prenups don’t just provide protection for the wealthy or the wealthier spouse. They’re a necessary ingredient in an equitable relationship—for both parties, and at every income level. Prenups can provide protection for spouses who make financial sacrifices for the sake of their marriage. For example, a prenup can be critical for a spouse who agrees to stay home to raise their children to save on childcare costs, care for a shared family member when a live-in nurse isn’t an option, or pitch in to help their spouse’s struggling business. They need to protect the investment they’re making into the marriage at the cost of wages, career development, and retirement funds. In these cases, prenups may be especially helpful for women or partners who plan to take on the bulk of the child-rearing tasks. In a shift from past generations, couples are entering marriages as a partnership, rather than one in which domestic tasks will be divided by gender or defaulted to the lower wage earner. Additionally, women today have more earning potential than ever before. In a recession, protection from financial imbalances becomes critical. Prenups can protect a spouse who may need to stay home to raise children by setting up spousal support (or alimony) in advance. Prenups can also set up agreements for spousal maintenance, to allow the spouse who brings less financially to the relationship to maintain their lifestyle after divorce.

3. A Prenup Can Protect Your Most Important Assets

Lastly, a prenup can help protect the assets you do have. An uncertain economy may put those assets at stake, but marriage shouldn’t have to. Prior to your marriage, you may have accumulated wealth in the form of savings, a 401k, an employer-provided stock program, or real estate. You may even have your own business or intellectual property. It’s important that your assets aren’t lost in a divorce, so they can help you stay afloat and generate wealth even in tough economic circumstances. Prenups can protect both assets you’ve accumulated before marriage and assets that may grow during your marriage and after divorce. Assets you owned prior to your marriage are considered premarital property. A prenuptial agreement can ensure that these assets are separate property and protect them from being divided upon divorce. If you own a business, prenups can also protect your ownership of that business, or determine an amount of money to be given to the spouse in lieu of ownership. They can also protect you if your business begins to appreciate during the marriage—income which may be considered marital property. For example, a prenup can prevent your spouse from acquiring part of the business, accessing business assets, or receiving financial support based on income from the business. This may be especially important for entrepreneurs, whose businesses grow throughout their marriage, or ebb and flow with changes in the market. A poorly-timed divorce with no prenup could sink your business. Without a prenup, future businesses and investments may be up for grabs as well, even after divorce. These future ventures may be considered marital property if the spouse can prove they helped lay the groundwork for it during your marriage. Prenups can also protect any inheritances or financial gifts you’ve received, or will receive. Prenups can make sure that inheritances remain separate from marital or community property, and belong the separate property of the inheriting spouse. In a recession, this is important as money you’ve received from family members may help you get by as job losses and pay cuts abound, and can also help ensure money intended for you and your immediate family isn’t lost to a former spouse. This can help you build or retain generational wealth, even in dire circumstances.

Final Thoughts

Now more than ever, prenups can protect you, and your spouse, from the undesired economic outcomes of marriage. They are an act of self-love, and love for one another. In a volatile economy, prenups can protect you from each other’s debts, financial imbalances, and can protect the assets you do have. HelloPrenup allows you and your fiancé to easily negotiate and draft your prenup without ever leaving your couch. Even better, the platform allows you to create a fully customizable prenup that fits you and your needs. Questions? Drop us a line at hello@helloprenup.com, or get started on your prenup today!