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So Your Client Is Getting Married...

Making an upfront investment into the new relationship can reap a great return down the line.

Getting married is one of life’s great events.

For many planners, the marriage of a client or a client’s family member traditionally meant one thing: the preparation of a prenuptial agreement. But there’s a shift taking place. Planners are moving away from the typical financially focused, quantitative plan toward a more comprehensive, qualitative planning process that acknowledges how important healthy family relationships are to sustaining wealth long-term. Many call it the “human capital” factor, and when it comes to a new marriage, making an upfront investment into the new relationship can reap a great return down the line.

Weddings and Engagements

In the United States, wedding planning is a $55 billion industry. The average wedding costs $35,329, and for high-net-worth families, wedding expenses can reach much higher. Taking into account the sheer cost of the event, it makes sense to include an advisor in the process.

One of the most important things an advisor can do is provide an objective voice of reason. Stress tends to bring out the worst in people, and planning a wedding is often as stressful as it is exciting. Parents may find themselves having to choose between practicing financial prudence or providing a child with the wedding of her dreams. Moreover, there can also be added pressure involved when dealing with the future in-laws. Are both families of equal means? Does one side have significantly greater wealth than the other? Who will pay for what? And, who gets to call the shots? Even under the most amicable of conditions, these questions are difficult—and often uncomfortable—to discuss.  

One frequently disputed aspect of a wedding is the invitation list. Because the budget and the chosen venue typically dictate the number of invitations allowed, the real problems tend to emerge after the number is set. For example, 400 people may sound like a large wedding until you break down the numbers. If the bride gets 200 (which equates to 100 couples), then once you account for invitations to family and invitations to friends of the bride (and their guests), the parents of the bride may actually be left with a small number of invitations to divide among their personal friends, which can be a tremendous source of angst as parents must explain to friends and colleagues why there isn’t room for them at a wedding that will have 400 attendees. These types of issues can strain the relationship between parents and child, and planners can assist by facilitating open and productive communication.

Budget guidance can be a practical way to assist clients in the planning process. Before any planning decisions are made, there should be a clear understanding regarding the amount of money that will be available to spend. Many parents like to give their child the option of foregoing the big wedding and taking the available “wedding money” to use for a down payment on a home. If the child chooses to have the big wedding, one helpful strategy is to have the bride or groom list their three top priorities for the wedding. Then, if budget concerns arise, parents will know what aspects of the event are most important to their child prior to making cutbacks.

In many ways, planning a wedding is much more taxing than even the most complex of business transactions. Beyond the financial cost, there can also be a hefty emotional toll. It isn’t uncommon for clients to have little to no relationship with their child’s future in-laws, so planning an expensive wedding together is comparable to two strangers entering into a business partnership. Accordingly, planners should be prepared to coach clients through conflict for the sake of the health of the family, especially when the problems seem to originate between the bride and groom. Certainly, some friction can be expected in any relationship during stressful times, but planners, as objective bystanders, can be useful in helping families differentiate between normal strains in an engagement and red flags that may be indicative of a deeper, “pack your bags” issue. 

Prenups

The grim statistics for a successful marriage are well known—around half of first marriages in the United States end in divorce. Given that statistic alone, it’s irresponsible for families with great wealth to allow a child to marry without protecting assets in case of a divorce. In addition to high divorce rates, people are also choosing to marry at a later age. The median age for a first marriage is 25.8 for women and 28.3 for men. When people marry at an older age, the relationship will likely look very different from a marriage that started with a young” bride and groom. Social scientist Charles Murray refers to these types of relationships as “merger marriages” and “start-up marriages.” Adults in their late 20s or older will have had several years to establish a career, accumulate personal assets and thus bring more to the marriage—thereby creating a merger marriage between two successful adults. On the other hand, a marriage between two younger adults will more closely resemble a start-up business, with lean beginning years full of hardship and hope.  

Both types of marriages have their own advantages and disadvantages. Start-up marriages, for instance, may begin with more challenges, but those challenges can also bring the couple closer together and provide a solid foundation of memories that can be drawn on in future times of trouble. Conversely, merger marriages may allow the couple to have more financial freedom and less career-related stress, but the couple may also be more set in their ways and have a harder time forming a united front after having achieved success independently of their partner.

Even if one party desires to have a prenup, broaching the conversation with a future spouse can be a delicate matter due to the stigma that prenups are essentially a way to pre-plan for an inevitable divorce. Regardless of how objectively reasonable it is to have a prenup in place, discussing a division of assets tends to evoke emotions that dampen the excitement of an engagement.

The best way to alleviate some of the awkwardness of the prenup process is to have clients establish a “standard family practice” that all children have a prenup. A basic form can be constructed that can serve as the basis for future negotiations. Some families even include provisions in the parent’s estate plan that allow for distributions to be withheld from children who marry without executing a prenup. With a standard family practice in place, an engaged child will have an easier time explaining the need for a prenup to a future spouse.  

If an individual is going to enter into a prenup, he should follow some recommended practices for the agreement to have a greater degree of enforceability. The Uniform Premarital Agreement Act provides a basis for states to determine how and when a prenup should be enforced. 

Best practices for a prenuptial agreement include: (1) each party should have independent legal representation; (2) discussions about the prenup should begin well in advance of the wedding date; and (3) there needs to be a full disclosure (or adequate waiver of full disclosure) of all asset and liability information for both parties. It’s also important to review the governing state law to verify that any required acknowledgments or waivers are properly addressed within the prenup. 

When it comes to the details of a prenup, state laws on marital property must serve as the framework of the document. There are, however, many different considerations, both financial and non-financial, that should be addressed when constructing a prenup: (1) identifying assets each brings into the marriage; (2) specifying in community property states the manner in which the income of each party’s separate property will be classified; (3) characterizing wages, salary or other compensation in community property states; (4) assigning certain financial responsibilities like housing costs or schooling expenditures; (5) filing of income tax returns; (6) deciding on the disposition of retirement plans; (7) treating debts of a spouse; (8) dividing assets on death or divorce; (9) dealing with the issue of spousal support on divorce; and (10) handling other non-financial matters that are important to the relationship such as childrearing or religious upbringing of future children. Although the specifics of each prenup vary significantly from couple to couple, a solid agreement will be comprehensive and forward-thinking.

Onboarding In-laws

As the saying goes, you can choose your friends, but you can’t choose your family. The idiom often rings especially true for in-laws. Even in circumstances in which a family and the in-laws enjoy strong relationships, there’s no getting around the fact that the in-laws grew up in a different home, with a different set of rules and, on some level, different values. And in many families, those differences become a source of tension. But, because human capital is vital to a family’s success, estate planners must have planning strategies to teach families the best ways to onboard in-laws and avoid problems that threaten the stability of the family. After all, the in-laws are helping to parent the next generation of the family.

For high-net-worth clients, a central issue is often how and to what extent in-laws should be included in the family’s wealth-related affairs. Traditionally, the common approach was to largely exclude in-laws from discussions regarding the family business or wealth management, but from a practical standpoint, it becomes evident pretty quickly that an in-law will know everything that goes on within the family. The information will simply be filtered through the spouse, which can, at times, lead to a skewed view of the family and may help fuel misinformation and miscommunication. The more modern approach is to manage communication flow by including in-laws in all family affairs.

Acculturation can be accomplished through the use of two big steps: (1) sharing information and (2) getting involved in the family.

Sharing information is a significant part of making the in-laws feel included. Granting in-laws a backstage pass to the inner workings of the family will ease anxiety and make the in-laws feel like less of outsiders. Planners should also encourage families to allow in-laws to participate in family affairs, with such participation primarily being accomplished through the implementation of a family governance structure. For in-laws, the primary goal of a governance structure is to get them to buy into the family vision. If the in-laws feel included, valued and heard, they’ll be much more likely to be emotionally invested in the outcome of the family.

Families don’t remain stagnant—they change and grow, and planners must be prepared to help with the growing pains. A successful transfer of wealth from generation to generation is a lofty and admirable goal, but within the estate-planning world, there should be more emphasis placed on preservation of the family. Advisors must seize opportunities like engagements and weddings to address the human capital factor and pay a little more attention to the “family” in family wealth.  

 

This is an adapted version of the author’s original article in the February issue of Trusts & Estates.

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