Around 40 percent of first marriages in the United States, 60 percent of second marriages, and 70 percent of third marriages end in divorce.1 Despite those numbers only about 10 percent of married people believe that they have a chance of getting divorced, and over 60 percent of people believe that just bringing up the possibility of a prenuptial agreement would increase their chance of divorce. It is not surprising, then, for engaged couples who are presented with the idea of getting a prenup to say, “This feels like negotiating the end of my marriage before it’s even begun!”
Nonetheless, it is important for couples at least to consider a prenup, especially when financial capital or a family business is a factor. In what follows we’ll review the basics of what a prenup is and the process for talking about it as a couple. We’ll add some considerations for parents who want to raise the topic with their adult children but are concerned about doing so. Our goal is not to argue for or against prenups but to help couples and families think and talk productively about this important topic.
Sadly, for too many families, the prenup discussion takes a toll on members at a time when they should be feeling great joy. We hope to orient this legal and financial process toward its proper end: the growth of the new family’s qualitative capital.
Marriage is a freely chosen state. But it takes place under state law, which brings with it obligations that you would not necessarily choose, especially around the treatment of property. For example, some states define all property acquired during marriage as “community property,” held jointly and divided equally in case of divorce. Most states give judges discretion to divide marital assets “equitably,” which usually involves considering the length of the marriage, the contribution to acquiring the assets, and each spouse’s financial condition. In the case of the death of a spouse, some states require that the surviving spouse receive one-third of a deceased spouse’s estate, known as an “elective share.”
A prenup is a contract between prospective spouses to modify the terms of their marriage that would otherwise be governed by state law. By using a thoughtfully drafted prenup, prospective spouses enter marriage knowing what will happen to property in the case of divorce or death.
Common reasons for creating a prenup include:
Fundamentally, a prenup is about choices: giving the partners a choice about what happens to their property in the case of death or divorce rather than leaving those choices to a judge or relying on the default position under state law. In the case of divorce, a prenup does not make it easier to end the marriage, but it can make it less painful by eliminating the need for some decisions, allowing both partners to move on with their lives sooner.
To be enforceable as a contract, a prenup comes with some basic requirements:3
Some of these points are common sense, but in the emotional and logistical flurry leading up to a wedding they can be overlooked. For example, many states may consider prenups that are signed shotgun style just before a wedding as executed under compulsion. As a result, a prenup ideally should be finalized several months before the ceremony.
The requirement for disclosure is perhaps the largest hurdle for most couples and their families. Intentionally hiding significant assets or liabilities during the prenup process will make the prenup unenforceable. Everything must be disclosed. That means that parents or grandparents who have not yet even informed their child or grandchild could find themselves being forced to make such disclosures—to both the child and the child’s prospective spouse.
When it comes to the actual document, many prenups may look the same at first glance; nevertheless, it is important to read the terms carefully and make sure that they accord with your wishes and circumstances. In general, the document will include:
The most important ingredient for a successful prenup is time. Time is required to make sure that the prenup is deemed enforceable rather than forced. More important, time gives the partners a chance to think through what the prenup means to them and their marriage.
For prospective spouses, we recommend considering and discussing the following two questions:
Prospective spouses may find it helpful to think and talk about these questions even before they meet with their attorneys and begin drafting the prenup. Pursued this way, the prenup process can feel like something that the prospective spouses own, rather than an unwelcome imposition.
Prospective spouses may also find it helpful to speak with a counselor as part of this preliminary process. Marriage is already a life-changing commitment. Add in significant financial capital, and the emotions and questions it raises can feel overwhelming. Counseling over a series of months prior to the marriage could be a true investment of the family’s financial capital in its human capital.
So far, we have approached the prenup process from the standpoint of the prospective spouses. The reality is that few couples, especially in first marriages, raise the topic of prenups on their own. In most cases, parents ask their son or daughter to get a prenup. This is often the case when the family of one spouse has more financial wealth than the family of the other.
There are ways for parents to deal with this delicate situation. First, parents should acknowledge that, in most cases, their desire for a prenup has little or nothing to do with the couple and much more to do with their family’s financial capital. Acknowledging this point can depersonalize the prenup.
Next, parents should be honest with themselves about how much or how little they have already informed their adult child about the family wealth. This is usually a very difficult step for parents. Yet more and more state law requires parents (or grandparents) to disclose vested trust interests or expected inheritances. The disclosure process may be the adult child’s first serious introduction to the specifics of the wealth. It is natural for parents to feel anxious about having this money conversation with their adult child, especially as they face the prospect of a new family member (the prospective spouse) entering the family system.
Parents should then get clear about the realities, both external and internal.
The external realities include the disposition of the family’s financial resources. When it comes to those resources (leaving aside whatever the prospective spouses currently own or are likely to earn), it is important to ask, to what degree is a prenup even necessary?5
More and more parents give to their children during their lifetimes, and more and more gifts are made in trust. If those trust interests and family business interests are taken out of the equation, the adult child may have few financial resources that would become the subject of a prenup.
Just as important is the internal reality that parents feel. This is where parents themselves can benefit from thinking about and then talking over such questions as:
If, after this process, parents do decide that they both believe it is important to talk with their son or daughter about a prenup, then there are some strategies that can make this process less potentially damaging than it may at first seem: