Physicians and Prenuptials: Romance Killer or Wise Move?

Life is full of challenges, and marriage brings many. The divorce rate for first marriages in the United States hovers around 50 percent. The odds are even worse for second and third marriages — they end up in a split upwards of 75 percent of the time.

The numbers are especially grim for physicians. The divorce rate for marriages in which at least one spouse is a physician is up to 20 percent higher, according to marriage counselor Mary Sotile, co-author of The Medical Marriage: A Couple’s Survival Guide.

As the stigma around them slowly fades, prenuptial agreements are becoming a more accepted asset protection tool for physicians of both sexes. In fact, a 2010 survey of American Academy of Matrimonial Lawyers members revealed that women are becoming more likely than men to initiate a request for a prenuptial agreement. The survey also indicated that the overall number of prenups is on the rise.

Who Decides?

In the absence of a prenup, the courts typically consider the role of each spouse in building household wealth — who brought assets into the marriage and who contributed to household wealth during the marriage. The classic scenario in a physician marriage is that one spouse works to support the other through medical school. In the eyes of the court, that spouse may then be entitled to a much more generous settlement because of earnings he or she brought into the marriage early on.

With a prenuptial agreement, the division of assets is agreed upon ahead of time and articulated in a legal contract. The key to deciding if you need one — and what it should cover — is typically driven by where you’re at in life.

What Is Your Life Stage?

Young physicians who are not bringing a lot of debt or assets to the union may not need a prenuptial agreement. Yet, the stakes become higher for physicians who wait longer to get married. Typically, more assets and bigger debts — such as credit card balances, mortgages and student loans — are brought to the union. When marrying or remarrying later in life, the need to protect pension and retirement benefits can become an important issue. Plus, there are often children involved, as well as older parents who may need expensive care.

Experts say that doctors who own their own practice would be wise to have a prenuptial agreement, especially if they built up substantial equity in the practice before getting engaged. In most states the appreciation in the value of the practice will be considered a marital asset, unless it’s protected by a prenup. Fighting over the value of the practice can be the most expensive and contentious aspect of a divorce, as each side brings in his or her own experts to provide (often divergent) opinions on the value.

Note that even after a marriage, an agreement can be structured to either treat the value of the business as separate property or to agree on a value — and avoid expensive litigation over practice valuation later on.

Will It Hold Up in Court?

Unlike the laws regarding estates, there is a distinct lack of uniformity to the laws on prenuptial agreements. A court may rule that a prenuptial agreement is invalid, for instance, if it is “unconscionable” or extremely one-sided. For example, in many states, a prenup that essentially cuts one party out entirely without some reasonably equivalent consideration is not valid.

You’ll increase the chances of a prenuptial agreement being fully enforceable if both parties retain their own separate legal counsel and sign the document well in advance of the nuptials. Likewise, the legalities of prenuptial agreements can vary widely from state to state, making it critical to modify your agreement accordingly if you move to another state.

Of course, having a frank and open discussion with your fiancée is a smart first step for coming to an agreement about your current and future assets.

Intermediate Steps

Short of a full-blown prenup, physicians and their soon-to-be spouses can take some common-sense steps to protect assets, including:

Proper titling of property – In marital/community property states (AZ, CA, ID, LA, NV, NM, TX, WA, WI), there is a presumption that most assets acquired during marriage belong equally to husband and wife. In separate property states, the way property is titled typically determines who gets it in case of divorce.

Appropriately named beneficiaries – Name the beneficiaries of your bank, brokerage, mutual fund and retirement accounts so that the assets are protected in the event of a divorce. 

Marital Property Agreement (MPA) – MPAs allow you to agree in writing on how property will pass if you divorce or if one of you dies. You can agree that most of your assets will be split equally, or that they will remain separate (or something in between).