I wanted to talk about prenups for a lot of reasons. As an advisor, it is a fairly interesting and highly challenging topic. Of course, our challenge is nothing compared to that faced by Mom and Dad. And, that is painless compared to the son’s or daughter’s uncomfortable foray into this land of competing logic and emo­tions.

Why?

There are a lot of reasons to care. First is the fact that over 50% of marriages end in divorce. There was a time when couples made the choice up front and that was that. Today, we live in a world of continuous choice. Choices are affected by many changing factors. So, your two kids will get married, and one will get a divorce. You don’t know which one. If you are a parent, that is how you need to think about it.

Another reason to care about a prenup is that money does weird things to people. This is even more true for those that didn’t grow up wealthy and suddenly find themselves a part of that world. Does someone choose to marry your child for the money? I hope not. Is the money some part of the equation? Of course it is. It’s a part of who your child is – a part of the package. Can it become a bigger part later on, especially if things start to go south? You bet it can.

With any financial aspect of our lives, it is always better to figure it out ahead of time. In estate planning, for example, you spend so much paper covering situations that have a one in a thousand chance of ever coming to pass. However, you have to address them. You don’t “not have a will” and then plan to fig­ure it out once the person dies. Likewise, it is much easier to figure out division of assets and other such matters when the couple is not in the emotional throws of divorce. An unjust result is almost guaranteed without a prenup. That is a pretty strong statement, but I think it is true. If justice is in the eyes of the parties, it will only be a matter of how unfair.

It can also become important in connection with estate planning. Couples can go through years of marriage that is “sort of working” where Moms and Dads are never really sure if it will last. How many times have I seen that get in the way of estate planning that really needed to be done? Many.

Trusts and other such vehicles are not automatically 100% bullet proof. Nasty ex-sons-in-law or ex-daughters-in-law, with nasty lawyers, come at these things with a vengeance all the time. The “protected” assets may be safe. They may not be.

What?

A prenup is simply a contract that recognizes that A comes to the marriage with X and B enters the marriage with Y. A & B decide in advance how things will be divided in the event of a divorce. You have to think separately about what the parties bring into the marriage and what they accumulate or receive during the marriage. Different considerations apply to each group of assets.

It does not mean that A keeps everything, and that B is thrown out on the streets. Prenups can cover all sorts of things that are critically important to all parties. There are lots of de­tails and we aren’t well served to delve into all of them here.

How?

Now, I come to the point. Like most things, you have to talk about it.

1. Your children need to understand from the beginning this is just how it is. You DO NOT want to be in a situation where you have to try to convince them when they are all glassy eyed and care way more about what their true love has to say than about your opinions. (Of course, you can beat them over the head with the money card, but that isn’t a lot of fun. There are better ways. Use the money card carefully.)

2. The future spouse needs to get it from early on. What a bad idea it is to spring it on them after they say “yes” to the proposal. I’d leak that story early on. If the relationship doesn’t make it to the altar, no harm done. When that prospective daughter-in-law or son-in-law starts showing up for dinner, try leaving a well worn prenup laying on an end table in the family room. (OK, I know you are more tactful, but you get the point.)

3. The parents do need to be the heavies, in an appropriate way. I think the message should be, again, from early on: “This is how it will be. And, this is why.” The future spouse will understandably come up with emotional reasons not to agree to a prenup. You don’t love me. You don’t trust me. What kind of way is this to start a relationship that will last forever? However, those are not valid reasons to put your child’s current and future net worth at such high risk.

If we can put aside the emotions and look at the facts there is only one answer. We do need to carefully articulate the logic. We are doing this because Mom and Dad built the wealth, mar­riage statistics, personal experiences, estate planning, trusts — there are many facts that we can draw on to make a compelling case. Because the future is impossible to predict, it is necessary to plan for a worst-case scenario. Maybe the real point is that we need to get ourselves out of a very uncomfortable emotional place and into a more factual, logical place. Maybe, if it is easier for all of us to talk about it, it will be easier to get it done.

It’s a bit ironic as I think about where we typically see pre­nups. In which situations do you think they most often appear? It’s with those that have already been divorced. In second mar­riages, with big money at stake, prenups are the rule rather than the exception. At least that has been my experience. Consider those 50-year olds who are old enough to perhaps make better judgments and perhaps have better odds of not getting a divorce. They have been through the ringer before and tend to use a pre­nup.

On the other hand, in my experience the use of a prenup is really mixed with children. They are in their 20s, their emo­tions are running high, and they have little real experience upon which to make such critical decisions. They are the ones that need prenups the most. Unfortunately, they use them the least. I understand the reasoning. I just don’t believe it is justified.

Bottom line:

1. Really important
2. Uncomfortable topic that is often dodged
3. Focus on the facts and reduce the emotions
4. This is very achievable if you approach it in the right way.

I hope this is helpful. Thanks for reading!

Don E. Scott, Chief Executive Officer,
Wanger OmniWealth, LLC