Wealth Management Blog

Posts published in July 2015

Why You Need a Prenuptial Agreement

By JJ Burns

July 29, 2015

We’ve all heard of the celebrity divorces—and payouts. Remember Tiger Woods’ massive divorce settlement from Elin Nordegren that was reportedly between $200 to $500 million dollars? Years ago, Amy Irving negotiated her prenup with director Steven Spielberg and also walked away with a substantial sum.

Over many years of experience, we’ve found that prenuptials have been a positive planning vehicle to help create a happy and healthy marriage.

A Prenup Makes All the Difference

You don’t have to be a celebrity, athlete or a business mogul to benefit from the financial protections of a prenup. They’re recommended for everyone.

If you’re like most people, you’ve worked hard to save for retirement, invest wisely and perhaps own a property or two. When you think about it collectively, your assets can be worth quite a bit. And you also may not want to take on your spouse’s existing debts or other financial issues if your marriage dissolves. This is where a prenup can help protect your assets.

Now, if you live in any of the nine community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin), if you should divorce, you will be required to divide equally all the assets that you acquired during the marriage. In non-community property states, a judge will decide how to divide the property equitably.

Protecting Your Finances

A prenuptial agreement, where properly negotiated, can protect you:

  • If you have greater assets than your spouse. A prenuptial agreement can protect your savings and investments in case of divorce. Many people may have accumulated retirement or education funds, or life insurance policies before marriage. They may also independently own property or have an inheritance that they wish to keep intact. A prenup can help give you peace of mind that these funds stay where you have intended.
  • If you are less affluent than your spouse. Prenups are not just for the wealthy. If you happen to have a smaller portfolio than your potential spouse, then you will want to ensure that you are financially protected in case of divorce. The same applies if one spouse plans to stay at home and raise any children. This time out of the workforce impacts the spouse’s earning ability and Social Security contributions for several years. A prenup can compensate the stay-at-home spouse for lost earnings.
  • If you are remarrying. If you have children from a previous marriage, you may have child support payments, college funding, a home, business or other obligations that you wish to keep within your “first” family. You may also want to include your new spouse and any children in your wishes. Like a will, a prenup can help ensure that you are able to provide for your families in the manner you intend.
  • If your potential spouse has a lot of debt. Marriage merges many financial obligations. So if you do not want to be responsible for your spouse’s student loans, credit card or car loan debt if your marriage should end, then a prenuptial agreement can help protect your individual assets.
  • If you are a business owner. Your business may be a significant asset. Without a prenuptial agreement, if your marriage ends, your spouse may end up owning a part of the business. If you have business partners, they may not be too pleased to have the ex as part of the deal. A prenup can ensure that your spouse stays out of the business equation.

What a Prenuptial Agreement Can’t Do

While prenuptial agreements are very useful for financial planning, they cannot be used to resolve general divorce issues such as:

  • Determining child support and custodial arrangements.
  • Determining who has the right to live or sell the marital home.

Helping You Navigate the Financial Waters

Getting married—or remarried—is an exciting, happy time. We want to help take the financial stress out of the equation. Some may not see a prenup as the most romantic step toward their future union, however, it can be a useful tool to protect everyone.

Contact us to learn more about how we can advise you with a range of financial planning situations and help you plan for a new life together.

What Impacts Could a ‘Grexit’ Have On Your Portfolio?

By JJ Burns

July 12, 2015

The Greeks have delivered a resounding “no” vote to continued austerity. Several polls estimated ‘a too-close-to-call’ outcome, but more than 60% of Greece’s citizens voted against proposed reforms. Now that the emotional vote is over, reality for voters has been sinking in this week. Images of pensioners waiting for severely reduced funds and talk of humanitarian aid offer a stark picture of the severity of the situation for the average Greek citizen.  Many Greeks want to avoid austerity but keep the euro. That’s probably not going to happen.

Some Europeans do not have sympathetic opinions about the Greeks. Last week while in Italy, I dined with some Belgian and German businessmen. One of them is a c-suite executive for Union Carbide. They are a straight-talking group. Their opinion is that Greece is a black-market economy that has never had proper accounting, and Greece’s numbers were incorrect entering into the euro. As such, most Euroland business-people and high-end taxpayers understand the costs of a Greece exit, which is estimated at 700 euros per person, according to the Belgian businessmen. In fact, many citizens outside Greece don't see Greece continuing as part of the euro. It’s a forgone conclusion, from their perspective.

The “no” vote increases the gap between Greece and the rest of the eurozone. As a result, the future costs for Greece to stay in the euro could be higher than previous solutions. The logic is simple: the eurozone cannot allow members to break rules and get preferential treatment because other peripheral nations would try to get similar workouts. Anti-euro voices in Italy, Spain and Portugal might then come to the negotiating table and the currency would get very wobbly.

One other key point: Greece doesn’t have as much bargaining power as it did a few years ago. The last time Greece was at the negotiating table, eurozone leaders were concerned that the country would become a “Lehman moment” (i.e. a meltdown) and spread contagion in Europe and beyond. At the time, European banks owned most of Greece’s debt and the ECB had not yet started its QE program.

The eurozone today is in much better shape to handle a so-called Grexit. The IMF, ECB and other governments own about 80% of Greece’s debt. As such, the banks are healthier and it’s unlikely that Greece would cause a domino effect in the eurozone. There have also been key changes in the derivatives markets to help prevent Lehman moments around the world.

Nonetheless, the improved financial structure doesn’t mean a Grexit would be risk-free for investors. The euro periphery will continue to have some challenges, and there are political issues brewing in France and Italy that are anti-euro. As a result, there is some downside pressure on the euro, but a weaker — and united — euro is good for exports.  In fact, a Grexit may set the stage for a future strengthening of the currency.

Overall, we believe Greece’s near-term economic impact on the eurozone and the rest of the world is contained, regardless of whether they stay in the eurozone or not. Greece’s GDP is a tiny fraction of the world GDP (about 0.03%) and the ECB and IMF are prepared to backstop eurozone banks and try to prevent contagion. Volatility could pick up during the adjustment period, but we don’t foresee any meaningful portfolio impacts. Longer-term, however, simmering political issues may push the idea of structured exits to the fore, and negative currency impacts will be more resounding and far-reaching.  We’ll be watching closely.