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A Wealth Planner’s Guide to Prenups

Encourage clients to craft an agreement together to manage wealth disparity in marriage.

The Prenup. One set of parents insists on it; other family members are dead-set against it. Trusts and legal documents might require it, and advisors of all types have an opinion on it. But, the last thing a betrothed couple wants to do when embarking on their life together is to plan for its demise. 

So, how can couples approach this important and often unavoidable topic productively together?

Disparity of Wealth

Prenups become hot-button issues especially when wealth is lopsided, when one intended spouse has more current or future access to significantly more assets than the other.  This disparity of wealth can arise in many ways. In some cases, wealth may have been earned by one spouse prior to the marriage and controlled outright. In other cases, the future spouse may be the beneficiary of trusts or the expected heir of a significant inheritance.  The range of situations that trigger an interest in prenuptial agreements are endless, but prenups are typically considered whenever there’s a complex mix of significant assets in differing amounts that each partner brings to the table . 

Power Imbalance

No doubt you’ve heard that “money is power.”  We see this in all areas of our lives from politics and business to say nothing of the framework of social relationships. Marriage is yet another venue for this money/power dynamic to play out. When one spouse comes from and/or has their own money or access to family wealth, and the other doesn’t, there can be a palpable power imbalance in the relationship. How couples manage this power imbalance concerning their wealth has a tremendous influence on their relationship. 

But, wealth is more than a source of power. Wealth, and how we choose to integrate it into our lives, is indicative of some of our core values. Our individual histories regarding wealth—or the lack of it—are self-defining experiences. Therefore, our relationship to wealth is part of our identity.  

Opportunity for Discussion

Rather than looking at a prenup as simply a negotiation about money in preparation for a potential divorce, consider instead that it’s an opportunity to discuss how the engaged couple will integrate wealth into their lives together and manage the shared burden of wealth and/or the wealth disparity in their marriage. The prenup discussion presents the perfect opportunity to talk about how to manage all the ways wealth can impact a marriage. 

Four Conversations

Before diving into the discussion about a prenup, it’s helpful for clients to discuss the topic of wealth in marriage from a variety of perspectives:

Wealth identity: What is each partner’s history and experience regarding wealth? How does wealth shape their value-systems, life choices and goals? How do these identity issues extend to each partner’s families and extended families, and where might incompatibilities exist?

Raising children in wealth: Couples need to discuss what and when they want their children to know about family wealth. How, as parents, might they encourage their children to make purposeful choices regarding career and spending when they know that their wealth will allow them to avoid making some of the hard decisions that are essential to growing up? How will parents protect their children from the burden of too many choices? Being intentional about raising kids with wealth is important, and both parents must be on the same page. 

Rules of engagement: Significant wealth provides choices. How will the couple make decisions together about their lifestyle, their community involvement and how they spend money?  If one partner is the source of most of the family’s wealth, can they make unilateral decisions concerning that wealth? Where’s the line between joint and individual decision-making? How will they manage expectations of financial support, vacations and gift giving with “my” family versus “your” family?

Death, inheritance, trusts and taxes: Is the less resourced partner less knowledgeable about the complications of wealth and, thus, less prepared to engage and manage these challenges? Is there a level of trust and transparency regarding wealth that’s needed for informed decision-making? Which assets are to be shared in the event of death and which are intended to stay in only one bloodline? What legacy agreements are already in place that help define the wealth landscape? The answer to these questions isn’t nearly as important as the process of deciding and explaining them.

Post-marriage Contingency Planning

This is what most attorneys consider the center of the plate for their clients. Conversations traditionally begin with a view to protect the wealth or family business, limit legal exposure or decide what a spouse is entitled to depending on the underlying reasons for a possible divorce.  Conversations quickly move to negotiations, and the negotiation process quickly becomes—icky and often contentious. There’s a better way to approach this.

When a couple has had the opportunity to engage in the four conversations mentioned above, they’ll have a better understanding of how they’ll integrate wealth into their lives and manage the disparity of wealth between them. Only then can the prenup be framed as a tool to manage wealth disparity in their relationship. In this way, the prenup process shouldn’t be viewed as a negotiation of a separation agreement, let alone a negotiation at all. Rather, the couple should envision themselves sitting on the same side of the table, facing the “problem”—wealth disparity in their marriage—as they discuss options to manage it. 

Prenup Development Process

So, how can a prenup development process help? First, by crafting the agreement terms together forces the couple to confront their wealth disparity head-on. It not only requires full disclosure, which will create a level of transparency, but it also provides a forum for frank discussion about how the couple want to use and share their money as they share their lives.

This isn’t to say that couples must share all the same goals and/or values or that they should only marry those who have the same historical relationship to money. However, if their goals for how money should be used are in opposition, or their values are incompatible with regard to the role money will play in their lives or their children’s lives, they should directly address this incompatibility before it becomes a problem. If, through this prenup development exercise, they find that their goals and values are incompatible, they may decide that they’ll be better off delaying marriage or not tying the knot, as they’ll each be better off in the long run apart. 

This more comprehensive approach to a prenuptial agreement process also helps surface areas of disagreement or faulty assumptions that are better identified sooner than later. Imagine a bride-to-be who assumes that once married she’ll be able to spend whatever she wants or travel with her friends on the family jet. If this isn’t the case, and they have different values regarding money and how it should be used, she should know that ahead of time so she doesn’t become resentful. Similarly, the groom-to-be should be confident that his future bride isn’t expecting more than he’s willing or able to share. By discussing this beforehand, the couple will be clear on what the other wants and is willing to give. Furthermore, it will clarify whether they’re comfortable imposing and/or living under particular restrictions. 

An Aligned Vision

Assuming these discussions are productive and the couple wants to continue their odyssey into marriage, they’ll have a clear idea of the level of wealth that exists between them and how they foresee integrating it into their lives together. Once they have this fundamental understanding, they can begin to develop structures to manage it in a way that meets their shared interests either within the context of the prenup or not. 

The prenup discussion can then evolve into a road map for the lifestyle the couple wants to have by leveling expectations for how much money the wealthier spouse commits to their expected joint expenses. This may include home purchases in joint names, private travel or gifts to family and friends. Regardless of what they choose, developing an aligned vision regarding the role of money in their relationship will allow them to set transparent, objective spending “rules” that satisfy both of them during their marriage. The prenup agreement can then use those lifestyle choices as a guideline in determining what a spouse would get in the case of divorce that may or may not be contingent on current state statutes.

If Marriage Ends

Another objective of the prenup is to decide what should happen if the couple should separate and end their marriage together. To agree on this, the couple should consider what they believe to be fair and accordingly what they value. Should length of marriage be considered? What if one spouse was unfaithful? What if one spouse gave up their career to care for their children? Having had meaningful conversation about how they intend to integrate wealth in their marriage and their family will provide guidance for them to discuss how those lifestyles might change if the marriage ends. Wealth disparity becomes especially significant when children are involved. If the marriage ends, to what extent will the children be confronted with choices stemming from one parent being significantly wealthier than the other, thus able to provide more? 

The Negotiation

Approaching the prenup process as a tool to integrate wealth successfully into a marriage and manage issues of wealth disparity between the partners, rather than approaching it as a negotiation of a potential future divorce is extremely valuable. But, make no mistake about it; at some point, the prenup process will become a negotiation. 

The goal of this process is for the couple to enter the inescapable negotiation and legal phase of the prenup process informed, aligned and with clarity regarding their goals, concerns. From this perspective, it’s hoped that they can better manage their legal and negotiation process. Each partner will certainly have their own attorney, and it’s hoped (often required) that this process begins well before the wedding date so that it’s well behind the couple as they focus on beginning their lives together.

First and foremost, the attorneys play an essential role in identifying how the goals and concerns of their clients comport with state law. The couple may have decided that some concerns might be pushed off to the future when they have more clarity regarding potential children and other unknowns. They may both want to address some issues through a postnup process at a later date, for example. The attorneys can speak with certainty to the validity of postnups in a given state. They can also educate their clients regarding state law concerning marital property and other related issues. 

But at some point, the attorney is required to advocate for the best outcome for their client. For the attorney, there’s little upside in prenup preparation. These are difficult, often contentious documents to prepare, and the fear is that an angry divorcing spouse will come back to the attorney to ask: “How could you let me sign this?” The attorneys know that they’re liable and they must advocate zealously for their client even if the client says they don’t want it. 

Hopefully, the negotiation will primarily be between the attorneys, where the couple can have some degree of separation from that often contentious process. If both partners know what this process entails, perhaps they can anticipate the difficult parts and not get thrown off track. 

At the end of this process, the prenup should be more than just a separation agreement but rather a valuable component of a road map for a successful life together, embracing not just each other, but the challenges of integrating wealth and managing wealth disparity in a marriage.

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