Why 1 Expert Economist Says a Prenup May Stabilize Your Marriage

If you think you’re ready to spend the rest of your life with someone, agreeing to a prenup is a wise financial decision to consider. In this segment from Motley Fool Live recorded on Jan. 11, acclaimed professor of economics at Boston University and New York Times best-selling author Laurence Kotlikoff helps you think about your marriage the way an economist would.

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Laurence Kotlikoff: Only about 10 percent of people who get married, get to put together prenup and 50 percent of people get divorced, or 40, 50 percent depends on what you look at in terms of groups and timing. But you want to anticipate this because if you put down a prenup, there maybe less anxiety in investing in the other person, and you may actually stabilize your marriage by having that prenup so that people know, hey, if I help my spouse invest in their career and l give up my career, the prenup says, I’m not going to be given zero alimony, I’m going to get something substantial if we do get divorced.

I also have a chapter on getting divorced and how to do it without going to divorce court, and how you would do it as an economist, thinking about the relative living standards of the two parties that are divorcing. If you can agree on that, rather than arguing at the get-go about who is going to get the sofa, or who’s going to get which car, just decide at the get-go. What do you think the ratio of living standards should be going forward? Then once you have that figured out, what do you think? It might be 50 equal living standards going forward, because they’ve been married together for 30 years, and so why shouldn’t they have the same living standard? But one spouse might be working for another 15 years, the other person might be retired. So maybe there’s some compensating differential there in terms of the relative living standard.

Once you have that figured out, then it’s really straightforward to figure out how to divvy up the resources to make that ratio work. That’s a big trick for avoiding divorce lawyers and ostracizing. When they go to war couples who have kids, the kids end up siding with one of the parents, and that’s just terrible for the entire family, for the kids, for everybody. It’s just a mess. I’ve seen this happen so many times. You’ve probably seen it too. There’s no reason for it. Well, it’s emotional and divorce is emotional as well as economic. I don’t want to sound too nerdy here. [LAUGHTER] But to the extent possible we should set our emotions aside and try and if we do have kids, get to an answer without destroying the family.

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