FINANCES IN MARRIAGE Prenuptial agreement to spell out handling of debts

Advisers recommend a prenuptial agreement for couples with debt.
DALLAS MORNING NEWS
DALLAS -- When it comes to marriage, one of the most important discussions that a couple can have is how they will manage their finances after they become one economic unit.
Experts say more marriages collapse over money issues than over anything else.
Within that discussion, one of the most sensitive subjects is debt.
"If there's pre-existing debt prior to the marriage, there has to be a serious discussion of how it will be handled," said Debbie Cox, vice president and wealth adviser at JPMorgan Private Bank in Dallas.
Many experts recommend a prenuptial agreement for newlyweds with financial issues. But whether a couple goes that far or not, any significant debt issues must be dealt with upfront.
"The watchword here is full disclosure -- the full extent of the debt, what the monthly payments are, and when the total is due," said Ike Vanden Eykel, a family law attorney and managing partner at Koons, Fuller, Vanden Eykel & amp; Robertson PC in Dallas.
The first and best solution, of course, is to pay off or pay down as much of the debt as you can before you marry.
"Most couples, once they get married, will start making a big purchase, such as a house, and if you have a lot of outstanding debt, that could impede your opportunity of obtaining a mortgage," said Rudy Cavazos Jr., spokesman at Money Management International in Houston, a credit counseling firm.
If love has overwhelmed any financial concerns and you're bringing debt into a marriage, then experts have suggestions for dealing with the situation.
Vital questions
The first question to ask is: Will you pay off the debt jointly, or will the debt remain the sole responsibility of the spouse who incurred it?
Let's say a man owns a home before he gets married, and after the marriage, the couple lives in his home.
"Who's going to pay for it?" asked Cox, an estate planning attorney who deals with financial issues concerning families. "If the wife helps pay for the mortgage, she's actually paying the husband's separate liability."
That's assuming the husband hasn't added his wife's name to the mortgage. What happens if the marriage ends and the wife has paid a bunch of money toward the mortgage?
"How is she going to be reimbursed?" Cox asked. "It can be a very sensitive subject when you're talking about the house."
Many experts say the best way to protect yourself is to draw up a prenuptial agreement that spells out how the debts will be handled.
"We always recommend that clients consider a prenuptial agreement just as a matter of course," said Kalita McCarthy, a certified financial planner and certified divorce planner at Quest Capital Management in Dallas.
"It could say the party who brought debts into the marriage is going to be responsible for paying it off, or that both parties can be responsible for paying it off," McCarthy said.
A premarital pact can be a marker for creditors as to which spouse they can pursue to collect a debt.
"The safest way to protect your assets from your spouse's debts is to enter into a premarital agreement that allows for the creation of a no-community-property estate and that provides that everything in your name and subject to your sole control is your sole and separate property," said Janet Brumley, a family law attorney and partner at Verner & amp; Brumley in Dallas.
That would include such things as your earnings and growth on your savings.
Agreeing on how debt will be handled before marriage is better than trying to resolve that issue in a divorce proceeding, because creditors don't have to abide by a divorce decree, lawyers say.
"Generally speaking, a divorce decree is not going to be binding on the creditors who granted credit jointly," said Steve Camp, senior attorney in the financial services practice at Gardere Wynne Sewell LLP in Dallas. "If it's a joint obligation during the marriage, it's going to be a joint obligation after the marriage, as far as the lender's concerned."
But it's different with prenuptial agreements.
"Prenuptial agreements, setting forth couples' separate property, will be binding on a creditor," said Camp, who represents financial institutions and was senior corporate counsel for Bank One Corp.