We hear a question from very successful individuals with solid growing businesses and marriage on their minds: "What about a prenup (prenuptial agreement)?” Our role is to walk them through different scenarios that can happen until they understand all the ramifications. Then, it’s up to them and their intended spouse to decide.
Some of the reasons very successful individuals might have for creating prenups include:
- Ensure the partner entering the marriage with an operating business maintains ownership and control of the established business.
- Protect the existing private wealth, including ensuring that the assets stay in the line of the biological family that owns them.
- Defining separate property outside established business interests and protecting it in case of divorce.
- Protecting one spouse from the debts incurred by the other spouse before the marriage.
- Protecting the interests of children from prior marriages or affairs
- Avoiding a contested divorce that might incur hefty legal fees and adverse publicity.
Without a prenup, you’re letting state laws determine the rules about property and marriage. Some states are community property states where assets are held jointly and divided equally in a divorce. Moreover, judges often have discretion when deciding what’s equitable, considering factors such as the length of the marriage and the contributions made by each partner to the wealth of the family. It includes each spouse's role in the business's growth during the marriage.
Prenups give a person control. It lets that individual decide in case of divorce instead of using the default method of state law or letting a judge decide. For many couples, prenups make it easier to address the division of property, but it often does not make it easier to dissolve a marriage. The emotional components of divorce can make breaking up the relationship excruciating.
Discussing prenups can be difficult for a couple. This tends to be even more true when it’s a first marriage. We often spend a lot of time helping the very wealthy see the value of prenups and helping them be able to explain the logic to their intended spouses. The following are some of the obstacles that sometimes need to be surmounted:
- A prenup is seen as an admission the marriage will fail
- A prenup sends negative signals to the other person
- A prenup provides an easy way out
- A prenup will increase the chance of getting divorced
- A prenup shows a lack of trust and commitment
None of these rationalizations are necessarily true, and the people who bring them up almost universally say they don’t describe them and their fiancés. Discussions of prenups are best if they’re part of a larger financial conversation a couple is having. Getting into the specifics about splitting wealth, assuming debt and alimony too quickly focuses the discussion on the agreement itself. It’s more valuable to ensure each partner is approaching the matter of money in a way acceptable to each of them.
Well-enacted prenups usually take time to think through and implement. Taking your time increases the likelihood of the agreement being just what you and your fiancé want. This way, the two of you will understand all the issues and what the different terms of the agreement mean in your lives, as well as how the terms of the agreement might affect your marriage.
Keep in mind that prenups can be highly customized. They’re not a cookie-cutter legal document. The terms of the agreement must be worked out, and very likely, different couples will end up with varying conditions in their agreements. It’s also important to realize that prenuptial agreements can be amended. That is, they can be modified because circumstances have changed. Of course, this requires the consent of both spouses.
Russ Alan Prince is the executive director of Private Wealth and a strategist for family offices and the ultra-wealthy. He has co-authored 70 books in the field, including Making Smart Decisions: How Ultra-Wealthy Families Get Superior Wealth Planning Results.