Most couples who are planning a wedding do not know exactly what their lives will look like in five, ten, or twenty years. They may both be working when they get married, may earn similar incomes, may contribute to their own retirement accounts, maintain separate health insurance, and expect their careers to continue on roughly parallel tracks. Then they have children.
As is all too well known, raising children is typically more expensive than one can predict. That expense can come in the form of dollars as well as time. When a couple thinks about what their child-filled life will look like, they begin to consider questions like whether one spouse’s job may require longer hours or frequent travel, child-based medical, educational, or developmental needs, the potential need to relocate for one spouse’s career, etc. Eventually, the couple may come to the conclusion that it is more financially logical for one parent to stop working, reduce hours, turn down a promotion, or accept a more flexible but less lucrative position. That decision has consequences that can be very far-reaching and are rarely equal.
A thoughtfully drafted prenuptial agreement can address those consequences before the sacrifice occurs.
Leaving the Workforce Costs More Than a Salary
When a parent leaves employment for several years, the most obvious loss is current income. But salary is only one part of the calculation.
Consider a spouse earning $80,000 per year who leaves the workforce for eight years to care for two children. A quick calculation puts the lost salary at $640,000. The actual economic effect may be considerably larger. During those eight years, that spouse may also lose:
- Raises, bonuses, commissions, and overtime;
- Employer retirement contributions and matching funds;
- Pension service credits;
- Stock options, restricted stock, or profit-sharing benefits;
- Employer-sponsored health and disability benefits;
- Professional licenses or certifications;
- Seniority and eligibility for promotion;
- Industry contacts, clients, and referral relationships; and
- Years of investment growth and compound returns.
The working spouse, meanwhile, generally continues moving forward. In many families, the arrangement benefits everyone, but it is not without its potential problems, including making the decision without addressing who will carry the long-term financial risk.
Returning to Work May Not Undo the Damage
It is easy to assume that the parent who stayed home can simply return to work when the children are older. In practice, reentry is not always straightforward.
Technology changes. Professional contacts move on. Licenses lapse. A person who left a management position may have to return at a lower level or accept part-time work. Additional education or retraining may be necessary. All of these consequences are predictable and often likely.
Why Not Simply Rely on Alimony?
Maryland courts consider numerous factors when determining whether to award alimony, including the parties’ financial resources, the duration of the marriage, their monetary and non-monetary contributions, the standard of living established during the marriage, and the time necessary for a spouse to obtain education or training. Those factors allow a court to consider the consequences of a career interruption. They do not, however, create a simple reimbursement formula.
A court does not ordinarily calculate every missed paycheck, lost promotion, unmade retirement contribution, and year of foregone investment growth and then order the working spouse to repay that amount. An alimony award may help a spouse become self-supporting or address a substantial financial disparity, but it may not recreate the economic position that spouse would have occupied if the career interruption had never occurred.
There is also inherent uncertainty in litigation. The amount, duration, and availability of alimony may depend on the particular facts presented years later, the parties’ circumstances at the time of separation, and the terms of any existing agreement.
In contrast, a prenuptial agreement can reduce that uncertainty by establishing in advance what will happen if one spouse makes a defined career sacrifice for the family.
What Is a Career-Sacrifice Provision?
A career-sacrifice provision creates financial rights when a specifically defined event occurs.
For example, the provision might apply when one spouse:
- Leaves full-time employment following the birth or adoption of a child;
- Reduces employment below an agreed number of hours;
- Experiences a defined reduction in income for childcare reasons;
- Relocates to support the other spouse’s employment;
- Declines a promotion or professional opportunity for the family;
- Remains outside the workforce for a minimum period; or
- Assumes primary responsibility for a child with extraordinary needs.
The triggering event should be objective. Language stating only that the provision applies when a spouse “stays home for the family” may generate more questions than it answers. Details matter because the agreement may be interpreted many years after it is signed, at a time when the spouses no longer agree about what they originally intended.
What Protection Can the Agreement Provide?
There is no single formula that works for every couple. The appropriate protection depends on the parties’ earnings, assets, career paths, family plans, and broader financial agreement. However, there are some general options available to consider:
- Retirement Contributions
The working spouse may agree to fund retirement savings for the spouse who leaves employment. This can help replace at least part of the retirement security that would otherwise have accumulated through employee contributions, employer matching funds, and investment growth. Because retirement accounts are subject to eligibility requirements and federal contribution limits, the agreement should address what happens if a direct retirement contribution is not available. One alternative may be a separately titled investment account maintained for the nonworking spouse.
- An Independent Investment or Security Account
A couple may agree to make periodic deposits into an account held in the name of the spouse who reduced or left employment. That account can provide more than protection in the event of divorce. It can also preserve a measure of financial independence during the marriage, particularly when one spouse no longer receives a regular paycheck. The agreement should identify who owns the account, who controls the investments, whether funds may be withdrawn during the marriage, and what happens to the account upon separation, divorce, or death.
- Enhanced Property Rights
Rather than requiring annual payments, the agreement may grant the nonworking spouse increased property rights after the triggering event. For example, the spouse may receive a larger interest in the marital home, a defined monetary payment, or an increasing benefit based on the number of years spent outside the workforce. A graduated structure may better reflect the reality that a ten-year career interruption generally carries a greater financial cost than a one-year leave.
- Alimony Protection
Some prenuptial agreements broadly waive alimony. That waiver may appear reasonable when both future spouses are employed and financially independent. It may look very different after one spouse leaves a career to raise the parties’ children. A career-sacrifice provision can preserve alimony rights that would otherwise be waived, create a minimum payment, establish a duration, or increase support based on the length of the career interruption. The provision should also coordinate with the rest of the agreement. A carefully drafted career-protection clause can be undermined if another section contains an inconsistent or overly broad waiver.
- Education and Workforce-Reentry Expenses
Returning to employment may require new credentials, continuing education, updated licensing, professional coaching, or an entirely new degree. The agreement can establish a fund for those expenses and define how much will be available for the expenses, the period of time within which to utilize the funds, eligible programs, etc.
- Life and Disability Insurance
A stay-at-home parent may be particularly vulnerable if the income-earning spouse dies or becomes unable to work. The agreement may require life insurance naming the nonworking spouse as a beneficiary, disability coverage on the income-earning spouse, or both. It should address the amount of coverage, how long the obligation continues, and how the beneficiary designation will be verified.
Financial Independence During the Marriage Matters Too
A career-sacrifice provision should not focus only on what happens after divorce. Leaving employment can change the balance of financial power within a marriage. The nonworking spouse may gradually lose an independent credit history and may have limited knowledge of the family’s business or retirement assets.
A well-designed agreement can establish expectations during the marriage, including equal access to financial records, individually titled accounts, regular retirement or investment contributions, and funds that each spouse may control independently. These provisions are not necessarily signs of distrust, but rather recognize that financial transparency and reasonable independence can strengthen a marriage, particularly when one spouse has assumed greater economic risk for the family.
A Prenup Can Protect More Than Premarital Wealth
While protecting property accumulated before marriage remains an important function of a prenuptial agreement, it can also address risks that have not yet materialized, including decisions that benefit the family while permanently weakening his or her individual financial position.
For individuals considering a prenuptial agreement in Maryland but also aware of likely scenarios, such as career sacrifice, planning beforehand with an attorney experienced in specifically tailored language, such as a career-sacrifice clause, can help support the parties’ finances, anticipated family structure, and long-term goals.
Christopher R. Castellano represents clients in prenuptial, postnuptial, divorce, custody, and other Maryland family law matters.
