Normalizing Prenuptial Planning

by BakerHostetler

Prenuptial planning is a common consideration for clients who are getting married. There are several circumstances where a prenuptial agreement is particularly useful, such as second (or perhaps third) marriage situations, especially when the couple have children from prior relationships. It is also not unusual for the children of wealthy clients to be strongly encouraged to discuss prenuptial planning with their spouses-to-be before the big day. Increasingly, people are waiting until they are older to get married for the first time and have accumulated significant assets before marrying; these couples particularly want to protect their ability to do what they like with their assets in the event of their death or a divorce.

Unfortunately, there is a common misapprehension that prenuptial planning is only for the wealthy. I have had some younger clients who are reluctant to broach the topic of prenuptial planning with their significant others because they do not want to create the wrong impression or are afraid of the reaction they will get – such as – “I would never want to be with someone who wanted me to sign a prenuptial agreement, because that would show a complete lack of respect and trust in me as a person and their potential partner in life.”

There are a number of statements that can be made to counter this type of response. It is probably helpful to think about some of them before broaching the prenuptial planning topic for those who are queasy about the concept.

First, although it would not be fair to say that prenuptial agreements are common or routine, they are far from unusual. Prenuptial, premarital and, in some states, post-nuptial agreements are clearly permitted and enforceable. Because there is no requirement to file or record prenuptial or premarital agreements (and, they are by their nature, highly private documents), there are no available statistics regarding there general usage. In a study reported by the American Academy of Matrimonial Lawyers in 2010, divorce lawyers reported a 73% increase in the use of prenuptial planning in their practices. Interestingly, the study did not survey estate planning attorneys who also commonly recommend prenuptial planning for their clients. In some situations it is the existence of a prenuptial agreement and full disclosure of financial matters that will allow a marriage-shy spouse who has concerns about diving into marriage again to do so with a clear conscience and knowledge that their financial future (or that of their children from their first marriage) will not be jeopardized by the demands of the new relationship (either during the marriage or upon death or divorce).

Second, there are clearly some situations where prenuptial agreements are particularly important to consider:

  • You have an interest in a family-owned business or real property that is controlled by family agreements or is otherwise intended to remain within your family group.
  • You own or will inherit unique property (a home, a painting, or an interest in a trust) that you would like to pass on to your children rather than your spouse.
  • You have a substantial amount of debt and you do not want to burden your spouse with such debt if something happens to you.
  • You plan to financially assist your spouse in the pursuit of a degree, a professional license or a start-up business, and want to insure that the potentially valuable earnings from such pursuit are available to you if your spouse dies or divorces.
  • You have one valuable asset (perhaps earned over one’s career) – a retirement plan or pension – and you want to make sure that such asset is protected for your retirement and ultimately for the benefit of your children from a prior marriage.
  • You have assets accumulated over your lifetime (whether by your own efforts or through gift/inheritance) and want to make sure that you retain the right to designate the transfer of those assets to heirs of your choosing upon your death (in spite of the rights otherwise provided to a surviving spouse by statute) and to retain the assets in the event of a divorce.
  • You live in or plan to move to a state that will consider all of a couples assets as part of the “community.”

Third, prenuptial planning, when correctly undertaken, can promote full disclosure of financial matters, including assets, liabilities, expectancies and income sources. This type of disclosure is required in all states to sustain the validity of a prenuptial agreement, and is nonetheless vital in allowing the spouses to understand one another’s situations and communicate any concerns that are exposed about financial matters that may occur during the marriage, upon the death of one of the spouses, or in the event the couple divorce. The honest and open conversations that can occur as part of the prenuptial discussion can actually improve the success of the marriage and create a level of understanding and trust about financial matters that may not have occurred absent a prenuptial agreement.

It still may be uncomfortable for our clients to raise the topic of prenuptial planning, but if it is something that is important to them or their family, the subject should be raised in the early stages of a serious relationship, usually in advance of discussions regarding marriage or engagement. The sooner the issue is discussed; the sooner the anxiety surrounding the topic can be diminished.

Viewing prenuptial planning as part of a couple’s financial plan is not only helpful, but can be enlightening to a couple that are trying to get their arms around a number of issues related to combining households and family traditions.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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