What is financial disclosure in a prenup?

When it comes to a prenuptial agreement, both fiancés must disclose all of their assets and debts.

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FINANCIAL DISCLOSURE

Here’s what it is

When it comes to a prenuptial agreement, both fiancés must disclose all of their assets and debts. This is done in the form of a “financial schedule,” which is a snapshot of all of your income, assets, debt, and future inheritance. This disclosure is attached to the end of your agreement.

One of the things we repeat often at HelloPrenup, is that financial disclosure is important. Got a cool million $ sitting in a brokerage account and don’t feel like you need to account for this in a prenup? Don’t want to tell your fiancé about that $25,000 in credit card debt that is rapidly accruing interest each month? Think again.

WHAT IT CONSISTS OF

Let’s take a quick look at what
your financial schedule consists of:

Let’s take a quick look at what your financial schedule consists of:

Income

HelloPrenup’s form allows you to detail and disclose three years of income. If you want to be extra thorough, you may consider exchanging tax returns for the past three (or more!) years as well.

Real Estate

You should include the addresses and values of all real estate, including any residences or investment property. You will need to collect the most up to date information on any mortgages, assessed values and fair market values.

Bank Accounts

Be sure to collect all up to date information on your checking and savings accounts.

Investments & Retirement

Collect all up to date balances and information on any investment or retirement accounts. Each of these accounts will need to be detailed individually.

Business Interests

Your financial schedule should include any business interests you hold, including the type of business, your equity in those businesses, and the value of those interests.

Assets

Don’t forget about that watch collection! Your asset section should include individual descriptions and values for all assets of value. This includes vehicles, boats, jewelry, artwork, etc.

Inheritance

Want to exclude inheritance (or potential future inheritance) from the marital estate? Make sure to state as much in your prenup, and also include those interests and estimated values on your financial schedule.

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Enforcement

The importance of financial disclosure can be boiled down to one simple point: How can you contract away rights in a prenup, if you don’t know exactly what you are contracting away?

Is full financial disclosure (or “full and fair” financial disclosure, as it is defined in some states) the letter of the law in all states?
Nope. Most states require some level of disclosure, some states require full disclosure, and some states allow parties to a prenuptial agreement to waive disclosure.

One thing is for sure- When a prenup is being enforced, a judge will look at whether the parties were apprised of all the assets. This is universal.

In states where financial disclosure can be waived, the judge may look at the totality of the circumstances- did the fiancé waiving rights to certain assets have the knowledge that those assets existed? If it’s a business, did they have reason to know what the business was worth?

Judges will view these issues differently.

In Massachusetts for example, if you fail to disclose an asset your prenup may not be enforced. Why? Because Massachusetts requires full and fair disclosure. Period, end of story. You cannot choose to omit assets from your financial schedule, and doing so will leave you in an incredibly vulnerable position down the road. In addition, if the judge decides your entire prenup should be thrown out, the assets that had been intended to be protected in your prenup may now be up for debate. You and your spouse may need to engage in expensive and lengthy litigation to determine matters that would have otherwise been covered in your prenup. Like we said, it’s a whole world of mess you want to avoid.

What we do know is that you should include *all* of your financial information in your financial schedule if you want to be transparent, fair, and you want a good chance of enforcement.

HelloPrenup offers categories to
help you organize this information.

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Some states require “full disclosure” of finances, and others require “full and fair financial disclosure” of finances. Other states allow parties to waive their rights to disclosure of assets. Now, this gets dicey, because if you choose not to disclose all assets, there could be a very clear argument that the prenup should not be upheld since the waiver was not done correctly, or the other party did not have reason to know of the assets, etc. The list goes on.

The bottom line? If you want the greatest chance of enforcement, it is important that you disclose ALL of your assets and finances.

here are some examples

Types of documentation you could exchange

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Income

Personal tax returns for the years included on your financial schedule
Most recent pay stub

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Liabilities

A copy of the most recent statements related to your debts and liabilities (including but not limited to):

Most recent mortgage statement(s)
Most recent car loan statement(s)
Most recent credit card statement(s)
Most recent medical debt bill(s)
Most recent tax debt bill(s)

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Assets and accounts

A copy of the most recent statements related to your assets and accounts (including but not limited to):

A copy of each party’s recent credit report
A copy of all most recent bank account statement(s)
A copy of all most recent investment account statement(s)
Most recent retirement plan statement(s)
Business-related documentation, including an estimated value
Business tax return(s)
Titles and deeds to all real property
Copies of insurance policies
Most recent appraisals and tax bills for real estate
Copies of all vehicle titles and registrations
Kelly Blue Book value of each vehicle
Appraisals of valuable personal property, such as jewelry, antiques, and collectibles.

Waiver of Further Disclosure

Regardless of whether or not you choose to exchange back-up documentation, your HelloPrenup agreement will also contain a “Waiver of Further Disclosure” page. This page will contain signatures from both of you, and states that you are each satisfied with the backup documentation (or lack thereof).

Let’s look at some caselaw

Let’s take a look at case law from a few different states for a few examples:

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Be honest

Rule #1… don’t wait until the last minute to raise the idea of a prenuptial agreement. Just don’t. So, how do you begin the conversation? When it comes to relationships, honesty is the best policy. If you are afraid of divorce, find the courage to say so. If you were a child of divorce and this has affected how you view marriage, say so. There is nothing wrong with opening up to your partner about abandonment issues, or the fear that somewhere down the line your lover may leave you. Make sure you are clear on what your reasons for wanting a prenup are, and choose to be vulnerable with your partner. You should be able to feel safe bringing up emotional topics with your partner from time to time while keeping in mind that how you broach the subject is key. Want to learn more about us? Check us out here.

Talk about financial goals

Another way of easing into the prenup conversation is by raising the topic of financial goals. Whether you’re a young couple or entering into a second marriage, finances are going to play a major role in your future relationship. It is important to know whether your partner has any debt and to be transparent about your earnings. It’s a good idea to have a discussion not only about how much money you make or have but about how you spend your cash on a daily basis. What is your concept of saving vs spending? Before raising prenup, consider broaching other topics like how to save for retirement, how to fund emergency savings, and what would happen to any future inheritances. Remember that even if you both have very little now, things could always change.Interested in prenup clauses? We have lots of those.

Talk facts

About half of marriages end in divorce. Fact. Money is a leading cause of divorce. Fact. A prenuptial agreement will facilitate conversations about money. Fact. Many attorneys believe that prenups are just as much an emotional document as they are a legal one. Still, depending on your partner’s preferred communication style, it may be helpful to keep the conversation focused on the proven reasons why a prenup makes sense.

Highlight the positives

Begin exploring what is included in a prenup, and discuss with your partner. Some topics to discuss for inclusion in your prenup include:

Debts
Assets
Property
Business
Expected inheritances

If you are in debt, be sure to discuss how a prenup would protect your partner from those debts. Also, point out that well-drafted prenups serve to benefit the partner who earns less in a number of ways. Do you own a business? It is also wise to consider the possibility of unexpected financial success. This is especially relevant for younger couples, who are only just in the early stages of figuring out their career. You don’t have to have this conversation in the context of divorce. Rather, talk about business ownership and career in the context of protecting any other people involved- like employees! Is this a second marriage? If your partner has children from a previous marriage, they might be interested to learn that a prenup protects those children, too. What happens when you sign a prenup?

Make it a collaborative process

Steer clear of a power play or one-sided agreement by not making this a true conversation. Bombarding your partner with your “terms” without asking any questions will make this process feel unfair. Instead, try to come to a deep understanding of your partner’s priorities and #lifegoals. Give your partner time to do their own research if they are unfamiliar with the concept of prenuptial agreements. An attorney can help your partner and you understand your responsibilities and rights so that you can reach a reasonable and fair agreement. If you would like legal advice, you should contact an attorney to discuss the ramifications of the terms of your prenuptial agreement

PROTECTING YOUR PRENUP

How to avoid commingling assets

While your prenup is hugely important for protecting you and your spouse’s financial wishes, it is not iron-clad. Actions taken by you or your spouse can undo some of the work done by your prenup. But fear not! We’ve got you covered for all the do’s and don’ts to keep your prenup working hard for you.

What does “commingling assets” mean? And why should you care?
Commingling assets is the act of combining separate or non-marital property or assets with marital property. Once separate and marital property is commingled, it is often transformed into marital property. When this occurs, it’s difficult to undo. Commingling becomes an issue when the court is dividing your assets upon divorce.

Here are a few common examples of commingling assets:

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Real estate

Let’s say your spouse owned a home before marriage. In most states, the home would be considered separate property. However, if you contribute marital money to make improvements, then the once separate property could now be considered marital.

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Inheritance

If you receive money from a deceased loved one, it is generally considered separate property. However, there are caveats, of course. If you deposit that inheritance into a marital account or use it for marital purchases such as a family car or home, it may be considered marital property by the court.

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Retirement accounts

Many spouses come into a marriage with an existing retirement account. Those would generally be considered separate property. However, after marriage, if marital funds are deposited into the account, the account may be considered marital – or at least the portion of the account after marriage.

Your prenup is, of course, a big help in preventing commingling of assets! Your prenup can specify which property you wish to remain separate. However, even with your prenup in place, if you consistently contribute marital funds to a separate account, it muddies the water when it comes to determining if the account is truly marital or separate.

Even if the court determines that the property in question is separate in line with your prenup, commingling can present doubt as to the non-marital nature of an asset which may result in costly litigation.

Here are a few tips to prevent the commingling of assets:

Keep separate accounts for marital and non-marital funds
Keep any inheritance in a separate/non-marital account
Never use marital funds for the purchase of non-marital property
Use a marital account for “marital expenses”
Never use marital funds to pay off any portion of non-marital debt
Keep sufficient records supporting the categorization of your assets or property

Even when you can separate commingled assets/property, be aware that the process can be time-consuming and expensive. Forensic accountants may be necessary in order to truly separate and trace funds to establish the separate or marital nature of an asset. The better practice is, of course, to avoid commingling from the get-go.

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