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February 14 marks the beginning of the end for the “proposal season,” meaning that many newly-engaged couples are planning for weddings, honeymoons, and, if they’re prudent, prenuptial agreements.
If Cupid has finally found his mark and you are engaged and planning a wedding, don’t forget to budget time and money for a prenuptial agreement (or “prenup”). It’s often the most important asset protection tool many physicians will ever need.
On average, individual physicians are sued for malpractice about 1.8 times during their practice life (depending on specialty). This significant risk prompts doctors to buy heavy levels of liability insurance, apply risk management plans, and implement asset protection planning to avoid a significant loss.
But marriage also carries a significant amount of risk.
I routinely talk to doctors who have had years of high income, amassed significant wealth, and then lost half or more of their hard-earned net worth to a divorce. When I ask if they had a prenup, the response is predictably the same: “We didn’t have anything to protect when we got married. We were not long out of school. We ended up successful and never thought a divorce would happen to us…”
Despite the divorce numbers, shockingly, less than five percent of married couples properly protect themselves with a prenup.
A properly executed prenup is a voluntarily-entered, formal legal agreement that should be drafted by an experienced attorney that practices in the area of Domestic Relations law-not by your “buddy the real estate lawyer who can figure it out” and certainly not by using any online DIY kit. Doing so to save a few thousand dollars on legal fees would be exceptionally risky considering that divorce litigation itself can easily cost $100,000 or more and could end up costing you both half of everything you own and part your future income. (How would that affect your FIRE (financial independence, retire early) plan?)
State laws regarding the requirements and enforceability of prenups vary widely from state to state and are specific and unforgiving. Some states also require that each party has their own lawyer in place with whom they have reviewed the wide variety of legal issues the prenup typically covers, including:
Finally, age doesn’t protect you. Younger doctors are increasingly marrying later when they each often have some savings and a starter home, in addition to their practice and significant future income to protect. Older doctors, especially those entering a second or third marriage, have the higher risk of divorce and additional risk factors. Put bluntly, they will have less time to earn, save, and rebuild wealth than they did after the first divorce in a substantially more demanding medical business climate. Ensure your financial “happily ever after” now, regardless of whether your marriage lasts a lifetime or not. There is no circumstance I’ve seen as an attorney where avoiding a tough conversation and a small expense before a wedding wasn’t regretted in a later divorce.
Attorney Ike Devji has practiced in the areas of asset protection, risk management, and wealth preservation law exclusively for the last 15 years. He helps protect a national client base with over $5 billion in personal assets that includes several thousand physicians and is a contributing author to multiple books for physicians and a frequent medical conference speaker and CME presenter.