Married Finances: The Agreement

Note: I’m not a lawyer. This post describes our process of developing our nuptial agreement and not the actual legal agreement itself.

Separate or combined bank accounts don’t make a marriage. Communication and shared values do far more than your decision to keep your money legally separate or combined.

I’ve been startled as I’ve talked about our post-nuptial agreement to people in person by the number of people who keep their finances separate from their spouse’s and don’t have a nuptial agreement. I very firmly believe that if you don’t have a nuptial agreement, you are essentially accepting your state’s laws by getting married, no matter how you title your bank accounts. One friend keeps their finances separate from their spouse and bought a house post-marriage with their separate money, but hasn’t protected their asset at all.

My husband and I don’t have combined finances, nor do we have a plan at the moment to ever have them.

We do, however, have a notarized and legally binding post-nuptial agreement. It describes my pre-marriage property and liabilities, my husband’s pre-marriage property and liabilities, and our joint pre-marriage property and liabilities. It also spells out exactly what we plan to do with our money in our marriage, while also leaving us the flexibility to change our minds on some pieces later, which is great because so far, we’ve learned that the first way you come up with to run your shared finances isn’t necessarily the way that will stick.

It took us about three and a half months after our wedding before our post-nuptial agreement was signed and executed. It wasn’t a time full of arguing – it was a time full of discussions and then trying to convey our ideas to the lawyer drafting the agreement. Some of those discussions were emotional, though those ones especially were important to have. Talking about money doesn’t stop there either – we continue to talk about it and those discussions form the base of our married money plans.

Goals

There were three key pieces for us in drafting this agreement:

  1. We want to own our primary residence together, while protecting my separate interest in the property.
  2. We want to keep all separately titled assets to be separate and all jointly titled assets to be joint.
  3. We want to allow ourselves the flexibility to change our minds later on whether income is separate or joint by default, without having to re-draft the agreement as it did have a reasonable cost to it ($2,000).
  4. Later added: we want to be able to leave our separate estates not necessarily to each other.

Condo

The first piece would be really easy if my husband had half of the condo value liquid at the time of the marriage AND was willing to part with it in order to buy into the condo. (We had originally planned to get married once my husband reached that point, which we estimated would have happened sometime in 2018.) That was not the case, so we needed to come up with a new creative solution. Furthermore, based on the mortgage balance and the valuation at the time we got married I owned 75% of the condo, meaning that I already owned more than I needed to of the condo. We agreed that all appreciation up until our marriage date was my separate property, which gives me a pretty decent amount of equity in the condo. My husband will buy into the condo until he owns half by paying the existing bank mortgage and paying me back for my “extra” equity.

Having a plan to own the condo together is such a relief. We have some projects that we were procrastinating until we owned the condo together and it also helps out a lot with the (current) income differential. When we first started dating, I was making more money than my husband and I had more assets. He’s made more than me the last couple of years to the point that my income only made up one third of our household income in 2016, which is a pretty big difference, even at my also six-figure income level. I was starting to feel a bit of a pinch in continuing our 50/50 share of the shared expenses, especially considering that I was paying for all of the housing expenses for a condo where I already owned more of it than I needed to! Assigning the remainder of the small mortgage to my husband frees up just over $12,000 from my budget, which is a huge boost to my current no-income budget.

Separate Income

We ended up declaring all income separate to the earning party, for two reasons:

#1: It seems like a “normal” nuptial agreement declares pre-marriage assets separate and post-marriage assets joint. We decided that wasn’t a fair option since that would keep my pre-marriage assets separate while sharing my husband’s larger post-marriage income while I’m in a phase of no income. That didn’t feel right to either of us. I wasn’t comfortable sharing my pre-marriage assets (yet).

#2: The catch to having my husband buy into the condo instead of simply making all contributions to the condo equity post-marriage joint is that we need to keep our incomes separate in order for this to work.

This means that all of his income is his to keep and my income is mine to keep.

If we change our minds on this later, then we can simply deposit our incomes to joint accounts in order to make the income joint rather than its current separate form. We definitely plan to re-evaluate this plan when a big life change happens, such as having kids, selling this condo, buying a new property, retiring, or if we need to provide support to any family members. As my husband says, it’s not worth worrying about something until it happens because we don’t really know how we will feel until it does.

  1. If we choose to have kids in the future, we would most likely update our post-nuptial agreement with a new financial disclosure and then make future income from then joint.
  2. If we sold this condo, then we would distribute the proceeds according to the equity as described in our agreement to our separate accounts. We would then buy any new property in a 50/50 ratio from our separate property or share rent in a 50/50 ratio.
  3. If we retired early, we would consider whether with our then-current distribution of retirement and non-retirement accounts we could support our then-current lifestyle out of our separate accounts or whether it would be more jointly advantageous to re-adjust our agreement somehow while still maintaining its spirit.
  4. If we in the future own this condo in a 50/50 ratio, then we could make all future income from there joint.

Taxes

Keeping our incomes separate will create for an annoying situation when we file our taxes each year, however, as the overall tax bill has to be split somehow. If we choose to make income not separate in the future, we will likely do it on a calendar year basis to help make the taxes clearer.

One of our lawyers suggested running Married Filing Separately returns and then using the ratio of incomes from that to determine who was responsible for what ratio of the joint tax bill. We didn’t like that because it would result in the higher earner seeing the entirety of the marriage tax bonus or penalty, which didn’t feel fair when it was a joint decision to get married. At first, I tried to suggest that we should split the penalty based on the ratio of incomes until I realized that that wouldn’t work so well in the years where there could be a bonus.

Our conclusion on taxes after hours discussing it is to treat the marriage tax bonus/penalty jointly. That means that I will have to run through two Single returns and a Married Filing Jointly return in TurboTax in order to calculate the split. That doesn’t seem so bad with our current tax situations.

We’ve already run through our 2016 taxes and it wasn’t that much more time to do the extra tax return.

Implementation: Hers, His, and Ours

The “default” for accounts in a nuptial agreement seems to be that the valuation at the time of marriage is considered separate and then any new growth or contributions is considered joint. Considering that I had about $250,000 in retirement accounts at the time we got married, that seemed to take away the value of compounding from starting to save for retirement at age 19. We ended up in the end agreeing that any growth in the condo value was joint and all other asset growth on separate assets is separate.

In practice, this looks like having hers, his, and ours accounts:

  • Hers: Roth IRA, 401(k)s, HSAs, Series I Savings Bonds, checking and savings accounts, taxable Vanguard index funds, and some portion of the condo equity
  • His: Roth IRA, 401(k), checking and savings accounts, taxable Vanguard index funds, some portion of the condo equity, and the mortgage
  • Ours: Checking and savings accounts, some portion of the condo equity, and in the future, taxable Vanguard index funds

Each year, we’ll create a year spending plan for the year and each of us will contribute 50% of the monthly agreed upon amount to our joint checking account. We funnel all joint purchases through specific credit cards that are not used for personal expenses and vice versa. There’s no owing each other money. If we have unbudgeted expenses (i.e. how we’re paying for our wedding reception later this year), then at the end of the month, we add up how much those were and we each put half of that amount into a joint account to cover those costs.

Our system isn’t that different from a couple who does allowances for discretionary spending except that rather than depositing everything to a joint account and transferring the discretionary spending to separate accounts, we deposit everything to separate accounts and transfer an agreed upon amount to the joint accounts. We’re both pretty open with how we spend our money and we have compared spending over the last few years that we’ve been dating. We’re both relatively frugal compared to our incomes (we both have saved over 50% of our incomes the last few years), so we aren’t doing this to avoid disagreements about money.

We don’t want to inflate our lifestyles based on the other’s income. If we can’t contribute 50/50 to our primary residence, for example, then that property is too expensive to buy. If we were to re-buy this condo together, we could each contribute half of the 20+% down payment and we could pretty comfortably afford the carrying costs with a 15 year fixed rate mortgage.

Both of our parents are still married, 30+ years later, and have had the one-pot approach from the beginning of their marriages. We certainly didn’t get this example from our parents on either side! Our parents, however, got married when they didn’t have much in the way of assets or incomes and I agree that it is pretty silly to have a prenup or keep things separate in that case. We didn’t screen for each other based on our financial status, though we did originally meet in undergrad, which probably was somewhat of screening for financial status, and we knew that we had similar financial values, which matters far more than if our assets were at similar levels.

Preparation for Marriage

I’ve talked to a few people who are healthy savers in their twenties and worry about what their prenup will look like when they do eventually get married. I worried about this plenty back before it was pretty clear to me that my husband and I would get married. I wish I’d worried about it a bit less and just concentrated on building my wealth as a single woman because that’s really all I could do.

One of my reasons for aggressively paying down the mortgage on my condo was to pay it off before getting married so that I would own it 100% as my separate property. In hindsight, that is really against the spirit of being married and living in a place together! If my husband had significantly less income and assets than me OR we planned to rent out the condo and buy a different place together, only then would leaving the condo as my separate property make sense. While we’re both living in the condo, having it just be my separate property is binding. It leaves the questions of how to handle paying for replacing appliances, painting, buying new furniture, any remodeling, etc. that we’ve been managing for the last two years without a strong solution.

The particulars of the nuptial agreement that we ended up settling on are really quite specific to the asset levels and locations that my husband and I both have, as well as our recent incomes and income potential. If the person with fewer assets also had very little income or if most of the wealth had been generated while the two of you were a couple, it’s much harder to see a way to come to a fair nuptial agreement at all. We ended up at the point of marriage in the case where both of us had healthy assets (in the multiple hundred thousand dollar range on both sides) that were not equal and both of us had six figure earning potential, which made a nuptial agreement a pretty reasonable plan.

Marriage and money is such a complicated topic! How we manage our money is pretty specific to our situation and won’t necessarily apply to other couples. I really do believe that the one-pot style is the best for the vast majority of people simply because most people don’t come into marriage already as millionaires.

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27 thoughts on “Married Finances: The Agreement

  1. Dizzying!!! When I got married, I put her name on everything I owned. Not millions like you, but about 150k which was a substantial amount for me. I think everyone would call that stupid, but I went all in because I wanted to create an strong bond and foundation of trust and teamwork in the beginning. It worked out pretty good. Considering we don’t make a great deal of money, we still managed to increase our net worth a few times over since 2001. I feel by keeping the finances simple, we were able to focus on goals better. It does feel good to know that we don’t live 50/50 but rather 100%.

    • If you think it’s dizzying, imagine how many hours we spent discussing all of this and coming to these goals and conclusions! It took SO MUCH TIME but it was all worth it to get on the same page. I don’t have millions myself, but between us we do have more than one million dollars in assets.

      A strong bond and foundation of trust and teamwork is such a great thing to cultivate in a marriage! For us, that just doesn’t look like a one pot system. I’m curious to see how our systems will adapt over time and whether we end up combining more in the future. My lawyer was definitely a bit taken aback that I wanted to let him buy into the condo with how much of it I already owned.

    • Thank you! I also love hearing how money and marriage mix – everyone has such unique ways of approaching it and it is so fascinating. We didn’t know much about nuptial agreements going into this, which made it tricky to figure out exactly what we could do with one! Hopefully my post will help show some people that they can be made with love and aren’t always so scary.

  2. This was a fun read! You guys clearly thought about everything very carefully. The point you made about wanting the home to be joint (contrary to your earlier inclinations) was really interesting and makes sense – it is something you physically share together day to day.

    I finally just went to check our net worth when we married, as I’ve always remembered that it was about the same but never quantified it.. I had about $70k, and there was a $50k jump in my net worth tracking several months later, so I assume that was when I added him – so it was even closer than I was remembering.

    For assets during marriage, we still are essentially agreeing to the states laws on how marital assets are owned (and as you once pointed out, we really just agree to the laws of the state you end up divorcing in), but I’m just not worried. I logically get that I should be somewhat concerned about protecting myself, but I’m not.

    Through inertia, we still have separate checking accounts for cash flow – but most of our money lives in joint savings and most of our spending is on shared credit cards. Since I manage our money, I can log into his checking account online, and can also pull money into our short term savings from his accounts (through my login). He doesn’t have similar access, although he really should… he’d never use it. Maybe I’ll tidy it up someday…

    • I’m glad you found it fun! It took me a while to post it because I kept thinking about all the emotions wrapped around it.

      That’s great you two were so close in asset levels when you got married! I’ve had quite a few friend who even though they had assets when they got married, they ended up pretty close to each other. I love your description of how you’re not worried :) As my mom says, everyone brings something different to a marriage and it’s not always money wise clear who contributed what and it can flip back and forth over time too. I’m not really that worried either, but I do still have that newlywed nervousness of combining things being scary!

      Our plan for now is to take things year by year and to re-evaluate once he’s bought into the condo fully. My lawyer said that most people will just accept where the equity levels are in the current place and then eventually sell it and buy a new one. Clearly those people aren’t as frugal as we are though – it’s way cheaper to spend the $2000 on a postnuptial agreement and make a “weird” arrangement than to sell this condo (~-$40,000) and buy a new place together (at least $200,000) just to make it “simpler”.

      • PF nerd here, I have a weird definition of fun :)

        Do you think you would have still got a post-nuptial to handle the assets earned after marriage had you not already had significant pre-marriage assets to take care of?

        • No, I doubt we would have. A huge part of why we are keeping post-marriage income separate is to balance out the significant pre-marriage assets difference. If I had invested instead of paying extra on the mortgage and/or the condo hadn’t appreciated so much, we might not have even done an agreement or it would have looked different. Had we waited another 2-3 years to get married, we might have skipped the agreement too.

        • I posed this question to my husband the other night and his response was “That is an entirely hypothetical question! How are we to know how we would have reacted in a completely different situation???” :P

        • That sounds not that different than what my husband would say! He hates to answer my hypothetical questions! Like I might hold him to his answer or something? Of course it isn’t a real answer!

          My brain has a very strong “if this, then that…” process constantly running, so I’m often thinking of hypotheticals for past & future scenarios! Sometimes there are only two possible outcomes of something we are waiting on, and I want to make a tentative decision for either case. “Can’t we just wait and see what happens?” :) We are very similar in our thinking in many ways, so this sticks out to me as a big difference in how we process info.

        • I read this comment out to my husband and he spent the whole time laughing because it sounds exactly like him and I :)

        • Hahaha, we do that too, though I’ve always assumed that DH’s failure to entertain my hypotheticals is because they’re always pretty morbid. (What would you do if I got hit by a truck…)

  3. I loved this detailed breakdown – and how you encourage everyone to find their own way.

    It is odd how the discussion often stops at “separate” or “combined” – I’m definitely sharing this link to refer people to in the future. :D

    For me and Fergus, we got married pretty young and neither of us had much of a net worth to speak of going in. For us it made sense to just combine, especially as we’re pretty in-sync with financial goals and spending.

    • Thanks Felicity! I agree with you – it is odd that the discussion stops at “separate” or “combined”. I think it’s really hard in a marriage to keep your finances entirely separate! You do, after all, live in a place of residence together, eat food together, travel together, etc. I suspect that most people who say they keep their finances separate actually have some way of dealing with joint spending. We’re pretty in-sync with financial goals, spending, and investing strategies. We even have basically the same IPS, except he has less bonds in his portfolio.

    • Thanks Penny! I wish people talked about this more openly because there are so many different ways to handle money in a marriage and you have to find what works for your marriage. I look forward to reading your post some day!

  4. As someone who’s getting married in the spring, I found this post really helpful! I’m just learning the sad consequences of getting married. For one, when I’m married, I’ll no longer be able to contribute to my Roth IRA due to income limits. I’ve had that thing for over a decade, so there has definitely been a mourning period about that loss…

    I also have worked really hard for all of my money as a single person; it’s scary to think about combining that with someone else, even if it’s a spouse. I think we’ll keep everything as is (separate) for now, because that system works. Although we might add in an agreement post-nuptial, like you. It’s nice to hear that there are other options other than the “one pot” or “totally separate”.

    • Thanks! I would really recommend doing a prenup if at all possible over a postnup though if you say “spring wedding” you’re probably too close to your wedding date for a prenup to hold up in court at this point.

      Have you read about the Backdoor Roth IRA? If you don’t have any pre-tax IRAs, such as Traditional, Rollover, Simple, or SEP IRAs then you can use the “backdoor” to still make Roth IRA contributions. A decade is a pretty good run though if you can’t!

      It is absolutely scary to think about it! If your asset levels are similar, it’s probably worth figuring out how to combine even though it’s scary. My husband and I regularly talk about money and it is really awesome having a spouse to talk through the details of things with!

      • You’re right–it’s probably too late for my prenup now. It will probably look like I “forced” my partner to sign if it happens a week before the wedding, hehe.

        For now, I’ve moved my 2017 contributions to a Traditional IRA. So pre-marriage, this is my setup:
        401k
        Roth IRA
        Brokerage account

        Post-marriage, here are the options:
        401k
        Roth 401k
        Traditional IRA
        Brokerage Account

        I’m paying the most taxes I’ve ever have as my salary is the highest it’s ever been, and I’m in my 30s so not as much time on my side as spring chickens. Clearly, I need to do more research on this!

        From what I’ve read the backdoor roth is contributing pre-tax dollars to a traditional IRA and then converting it to a Roth, and paying the taxes now. Is that what you mean? Paying the taxes on that now seems really rough, but I would need to crunch some numbers. It would be nice to have some tax-free growth to diversify in the future.

        Yeah, this weekend my partner and I are going to look over his 401k investments. Still gotta figure out how to combine monies, though. It’s so much easier for me to track my money progress since it isn’t mixed up with his right now.

  5. I’m super curious to hear more about the separate estate planning strategies and why that wasn’t something you considered about until “later” in the process ?

    Did you need to provide different specific instructions for his, hers and our’s in your will? How did you decide how much to give to each other vs. own family members?

    Were the estate planning documents included in the $2k of legal fees?

    Also it was mentioned that if you get divorced, it’s all about the laws of the state you are in at the time of divorce….so if one was to relocate to a different state, would that mean you potentially need to redo your postnup or have them checked by a lawyer to make sure they are valid in the new state? That would be frustrating, but if you have no plans of ever moving, hardly a major concern.

    • We are in our twenties – we haven’t really thought about estate planning at all. That’s why it wasn’t thought about until “later” in the process. We haven’t done estate planning yet – we need to find a different lawyer for that. My lawyer said they charge $X for an individual’s will and $1.5X for a couple’s will, not $2X. We can’t use either of the lawyers we used for the post-nuptial agreement to do a couple’s will as they would have a conflict of interest for one half of the document, so rather than pay $2X for the estate planning, we will instead find a different lawyer and pay $1.5X. So, no, estate planning documents were not included in the $2k of legal fees. $2k seems to be about the going rate for a nuptial agreement in our area, which did cover the costs of the lawyer who drafted the agreement and the other party’s lawyer who reviewed it. About 2/3 of the $2k was to the lawyer who drafted it and the other 1/3 to the other party’s lawyer who reviewed it. We probably could have saved $300-400 if we’d had a firmer picture of what we wanted before we even engaged a lawyer.

      It is my understanding that you should have the post-nuptial agreement reviewed by a lawyer in the new state or country as well, so if you moved around a lot, that could get a bit tedious for sure. We don’t have plans to move that much, hence owning a condo, but even if we did, that wouldn’t have stopped us from doing this in the first place. Also, if we moved out of this state, we would most likely sell the condo, which was the most complicated part of our post-nuptial agreement. The way it’s written, selling the condo doesn’t negate the agreement, but not having the complicated way of handling the condo agreement would make it a lot simpler if we needed to re-write it in a new jurisdiction.

  6. Thanks for the interesting post! We also don’t combine our finances but don’t have a prenuptial either. We’re on the same boat in terms of having a healthy amount of assets as individual before tying the knot. I like how you have a joint spending plan. Ours is allocated based on accounts.

    • I’m guessing you mean that you two each pay for different expenses? That’s what we did before we got married and I have to say, I kind of way prefer this! I wouldn’t have done it before we got married though since I owned the condo. If you keep your finances separate, you could always talk to a lawyer about drafting a postnuptial agreement now. It should still be possible!

      • The biggest expenses is housing. We bought it together 50-50. The mortgage is deducted from our individual account and we each pay for our half. The rest of expenses are divided to each individual. I pay for internet, he pay for cable, etc. I actually ask if he wants a prenup, but refused. I’m glad that post nup is an option, but I doubt that we will do it. This works for now for us.

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