We as parents want the best for our children. And since our children many times continue to look for our assistance long after they have left the nest, we continue to look for ways to help them. One of those ways is sometimes to encourage a son or daughter to seek out advice and counsel regarding a prenuptial agreement.
A prenuptial agreement is between a couple prior to their marriage. It effectively can provide for each individual’s rights should there be a divorce, or at the time of a death. Those rights usually are related to assets brought into a marriage or accumulated during the marriage.
Years ago, in many states, these types of agreements were “void as against public policy”. The idea that you could “plan for divorce” before you even got married seemed contrary to many states’ public policy of encouraging marriages and being against divorces. Those arguments to defeat a prenuptial agreement are now but a faint memory.
So if a prenuptial agreement is enforceable and if it makes divorces simpler because many of the property settlement issues have been “pre-agreed upon” then shouldn’t everyone have one?
First off, not everyone needs a prenuptial agreement. If you don’t need one, you certainly shouldn’t have one. Secondly, even if you arguably need one, negotiating the terms of “what happens when we divorce” before you reach the altar is not generally a pleasant conversation and too often not a pleasant experience.
So if you are fortunate enough to be the wealthy parent of a child soon to be forming a union to create that new son-in-law or daughter-in-law, think twice before you come up with the idea of a prenuptial agreement for the soon-to-be newlyweds. In estate planning and, in particular, this more specific area, every situation is unique. Consequently, I’m hesitant to comment on generalized scenarios or examples. But I can’t help myself!
Scenario #1 (Wealthy Mom and/or Dad): If most of the family wealth is still at Mom and/or Dad’s level, and has yet to be transferred to the son or daughter then the solution is not a prenuptial agreement. The solution is for Mom and/or Dad to create a family trust structure that will protect the assets that ultimately will be passed on to the son or daughter.
A prenuptial agreement is not a cure-all. A well-conceived estate plan and family protection trust, however, can be. Sure, a prenuptial agreement may work for the short-term while the love birds are still in their newlywed phase and possibly several years thereafter. The pressure on your son or daughter to eventually rescind the prenuptial, or to align his/her asset ownership and/or estate plan to ignore the agreement is all too great in too many cases.
So again, in this scenario, don’t leave it to your kids to fix what you yourself haven’t taken care of. You can fix it. Through your proactive planning, you can fix it for them.
Scenario #2 (Son or daughter already wealthy): First off, let me say that you “shouldn’t sweat the small stuff”. If your child has a $200,000 stock portfolio or a $250,000 home and you, as the parent have a high net worth, then think twice about meddling with your children’s personal life in order to protect what, in the big scheme of things, is dollars and cents.
For some couples, it may be much more acceptable to focus on a “what happens at death” prenuptial agreement rather than a standard prenuptial agreement that covers both the death situation and the divorce situation. If your child has a $2 million estate and this is a second marriage then by all means that child needs a prenuptial agreement.
I am not always a big fan of prenuptial agreements in first marriage situations, particularly for young couples. In a second marriage situation, particularly where there are children, a prenuptial agreement begins to look more like a necessity.
Most individuals who go into a marriage with children from a prior relationship want to protect their own children. Should a person die after being married (for example, on his or her honeymoon); many states would grant the surviving spouse up to a 50% interest in the predeceasing spouse’s estate. For instance, one newlywed has a $300,000 portfolio or home they plan to leave to their son or daughter in a trust, which would provide for their education should the parent die. The possibility that the newlywed’s spouse would be entitled to as much as half of that simply because they had been married for even a few days, doesn’t quite seem right. However, that’s simply the law in many states. The only way to fix this type of inequity is with a prenuptial agreement.
Most states already have a reasonable “fix” when it comes to a divorce. As a general rule, assets brought into a marriage are referred to as pre-marital or non-marital assets and are not going to be subject to division at the time of a divorce. So if the marriage falls apart on the honeymoon then not much is lost if there is a quick divorce. So in these particular states the death situation is what really needs to be the focus of a prenuptial agreement and possibly the sole focus. If the couple simply cannot stomach a prenuptial agreement that deals with divorce, then fine. Let the agreement address only the death situation. Leave the state’s divorce laws to address what might happen should a divorce occur and let the prenuptial agreement only deal with the “what if” scenario of a death.
A prenuptial agreement can be an important and sometimes critical tool to a couple’s
pre-matrimonial planning. It can also create hardships and headaches where it may be necessary to simply drop the issue entirely.