Insurance For Your Marriage: Why You Need A Premarital Agreement

This article was featured in a recent issue of the Mercer County Woman. It was written by Kimberly Pelkey Sdeo, an attorney with the firm.

You have insurance on your car in case of an accident and medical insurance in case you get sick.

Getting married is exciting. It’s also a good time to evaluate your personal financial circumstances and determine whether you need to insure your marriage. Premarital agreements help you to protect your assets and should be considered before you say “I do.”

In New Jersey, property acquired before marriage is called premarital property and will remain separate property unless commingled after the marriage. In New Jersey, premarital agreements are governed by a
law called the Uniform Premarital and Pre-Civil Union Agreement Act. N.J.S.A.§37:2-31 et seq.
The statute requires the Agreement to be in writing, signed by both parties with full disclosure of assets and liabilities to be enforceable. N.J.S.A. §37:2-33. Consider the following two hypothetical relationships:

Nick and Jessica

Jessica owns a house, which she bought five years ago for $250,000. After the wedding, Jessica and Nick move into her house and share the mortgage payment. Over time, they renovate the house and finish the basement where Nick creates his “man cave.” Five years later, Nick and Jessica divorce. The property is now worth $300,000 and the mortgage is $125,000. Since Nick has a marital interest in the equitable distribution of the house, Jessica must pay him $87,500 for his one-half net equity in the house. Jessica must refinance or sell the house to obtain the funds. If Jessica had a premarital agreement, she could have carved out the home and its equity as separate premarital property.

Reese and Ryan

Reese and Ryan meet at work, fall in love, get married and have two kids. Ryan stays home with their kids and turns to shopping online to comfort himself while Reese is off on her many business trips. Ten years later, Reese and Ryan call it quits. It is only after they split that Reese learns of Ryan’s credit card debt. Now the parties are separating and faced with $100,000 of debt.

Just like the equitable distribution of assets, upon a divorce, there is an equitable distribution of debts acquired during the marriage. Ryan hasn’t worked full-time in years and doesn’t have the means to pay the credit cards on his own, so Reese will absorb the credit card debt through making monthly support payments to Ryan.

If Reese had a premarital agreement, discussed finances and learned of Ryan’s habits before tying the knot, she could have stipulated that the debts in each party’s name remain his or her sole and separate liability in the event of a separation.

With a little foresight and planning, Jessica and Reese could have avoided these problems by insuring their marriages with a premarital agreement. Unsure if your marriage needs to be insured? Call me for a consultation.

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