Saturday, November 04, 2006

Learning From Celebrity Mistakes

Reese Witherspoon is one of my favorite actresses, so I was sad to hear that she was divorcing Ryan Phillippe, and even more sad to read that she DIDN'T HAVE A PRENUP. According to the Miami Herald, Reese made $30 million for just two films in 2005, while Ryan averages about $2.5 million per film (when he gets roles). California law states that the couple's earnings while they were married must be divided 50/50, so Reese is losing bigtime.

This whole drama is almost a replay of Nick Lachey and Jessica Simpson's split last year. The two failed to sign a pre-nup before their marriage in 2002 (when Nick was the big star), which came back to really hurt Jessica in 2005 when they split.

I'm often shocked when I hear that people are against getting a prenuptial agreement, usually because they think that they'll never get divorced, that they're worried that discussing a prenup will kill the romance or that they assume that prenups are only for control freaks or wealthy people. This simply isn't true.

So, what does this mean to you? Well, first, celebrity splits can be pretty entertaining, but also, it might make sense to consider a prenup for yourself if you're considering getting married in the near future (which, alarmingly, more and more of my friends seem to be doing).

A marriage is a financial union and it's very important to get all of your financial information out on the table, so that it doesn't lead to conflict later on.

You can't ignore the statistics. The divorce rate is around 50%, and you can bet that everyone going through a divorce once assumed it could never happen to them. As Suze Orman writes, "Assuming total immunity in the face of 50/50 odds is acting way too moonstruck if you ask me."

All that said, prenups aren't for everyone- they can be expensive, unnecessary, and sometimes unenforceable in many states. It is, of course, important to consult with a lawyer first about whether or not it might make sense.

For more information on prenups, along with guidelines on who should definitely not get married without one, check out this pro-prenup article from Suze and more technical article from CNNMoney.


Neil said...

Pre-nups can also dictate how property is handled in the event of death. For example, if your spouse gets hit by a bus, do his/her belongings go to you, or her family?

Even a couple-to-be that is 100%-convinced that they will never, ever divorce should at least have some mechanism in place to handle the possibility of untimely death.

pecunium said...

Pre-nups and death... not so much. Death is handled through probate, which is a separate branch of the courts. Pre-nups deal with an aspect of contract law, and as such are meant to resolve disputes between living people.

When one dies, a specific set of rules comes into play, and they trump most prior contracts (debts, for example, which can be dealt with in pre-nups, to some degree, cannot be passed on/assigned to one heirs).

To see to it that your possessions are distributed as you wish, you want a will. If you expect a long, and messy divorce is beginning, then make a new will, otherwise, should one die before the divorce is finalisesd, the spouse (in most jurisdictions) gets all of one's belongings.

Check the laws of the jurisdiction in which you legally reside, as they will be the controlling law at death.

As far as the 50/50 rate is concerned, that's an odd stat. Yes, fifty percent of all marriages end in divorce, but the curve is very left-skewed and surviving the first few years adds greatly to the chance that one is likely to have it last.

There are other oddities, which throw the numbers off, those who have been married once, tend to to have better odds for second marriages, but those who get a second divorce are more likely to get a third.

From a practical standpoint, pre-nups are useful if there is a great disparity in income/worth, at the beginning of a marriage. If one partner is going into a line of work with much greater remunerative benefits, and the other; for whatever reason, isn't, is not, prima facie, a good reason for a pre-nup (and such a pre-nup can lead to a more acrimonius divorce, becuase it can be argued [esp. in community property states] that it was entered into in bad faith, i.e. as a means to keep the spouse with the lesser income from their fair share of the couple's assets.

The spouse who stays at home provides a benefit to the ability of the couple to acquire assets, and that is part of why community property exists.

Meg said...

Pecunium, thank you for your comment. I appreciate your taking the time to correct my mistakes. I definitely don't claim to be a lawyer, and I hope I made it clear in this post that everyone should consult with a lawyer before they make any decisions regarding a pre-nup.

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