Prenups: Something Borrowed, Something Blue, a Contract to Sign Before ‘I Do’

March 21, 2023
  • Private Banking
Prenups are often portrayed in a negative light, but when approached the right way, they can be a practical way to make things a lot easier down the road, if a relationship doesn’t work out. Here’s what to know.

Prenuptial agreements (prenups) can be a challenging topic, and our Next Gen clients often look to us for guidance on how to approach them. The three most frequently asked questions are:

  • Should I have one?
  • How do I bring this up with my partner?
  • What else should I expect if we decide to go through with one?

Many people have preconceived notions about prenups, so before answering the top three questions, let’s quickly define what we mean by a prenuptial agreement. People often forget (or never fully understand) that there is a legal/contractual component of marriage regardless of whether they sign a prenup. When you get married, state law will determine the contractual provisions of your marriage, unless you choose to create your own agreement. Those who choose to write their own marriage contract have a prenuptial agreement.

Should you have a prenup?

There’s no right or wrong answer to this question, but it’s important to understand both sides of the issue so you can make an educated decision about what’s right for you.

The downside. Prenups are not fun. They contemplate the end of a marriage before it begins, they involve lawyers, they require difficult conversations surrounding money, and they attach contractual and financial obligations to a romantic relationship. It doesn’t help that society often portrays a person who asks for a prenup as greedy and untrusting and suggests that the person on the receiving end will get nothing in the event of divorce, and has questionable motives if he or she doesn’t want to sign. The upside. Rather than viewing the process as unromantic, some see it as an opportunity to be open about difficult conversations and overcome a challenge together.  Since your marriage will be governed by a contractual agreement whether or not you choose to sign a prenup, you may prefer to negotiate its terms rather than allowing state laws or judges to decide for you. It also tends to be easier to make decisions when you’re happy and in love. Of course, the plan is to never get divorced, and therefore, never need the prenup, but in the event that you happen to go down that path, having an agreement in place can simplify a process that may already be painful enough.

You’ll note that none of the above relates to how much money you currently have. Sure, your family or your partner’s family may have significant wealth or a family business that you want “to protect,” but that doesn’t mean you need a prenup. Alternatively, even if neither of you have significant wealth, a prenup could still make sense. Either way, it’s smart to understand your options, and it’s possible for both of you to feel good about the process and the outcome.

The other thing to consider, if there is family wealth on either side, is that the execution of a prenup often allows trustees, parents, and grandparents to be more generous with you and your future spouse. Most trusts are set up to protect family assets, but if distributions are made to a married beneficiary who doesn’t have a prenup, those assets may end up being subject to a divorce proceeding. Knowing this, a trustee is typically less likely to make distributions to a beneficiary who hasn’t signed a prenup. It follows, then, that the trustee would feel comfortable making more significant distributions to a beneficiary with a prenup, and typically the beneficiary’s spouse also benefits from those distributions. The same goes for gifts made directly by parents or grandparents.

Another way to think about a prenup is as a type of insurance. Consider flood insurance: Many people buy flood insurance even though they hope they never need it. They don’t wait until their house is flooding to buy the insurance, because if they waited, then they would be at a relative disadvantage in negotiating power and would end up paying an exponentially higher amount for the same insurance. For this reason, people buy flood insurance when they move into their home and the sun is shining. The same rationale applies to negotiating the contractual terms of a marriage – the best and least expensive time to do it is in the beginning when the sun is shining. And, just like insurance, the best-case scenario is that you put the contract in your waterproof lockbox and never need to take it back out!

How should I raise the topic of a prenup with my partner?

If you’re thinking you might like to have a prenup, the golden rule – treat others how you want to be treated – works very well in bringing the topic to your partner. If you wouldn’t want your partner to demand something of you, don’t demand this of them. If you wouldn’t want your partner’s parents making decisions for your relationship, then don’t say your parents are making you do this. Sure, it might be an uncomfortable topic to bring up while you’re trying to plan a wedding, but no one ever said marriage was easy, right?

  1. Ask questions. Rather than telling your partner you want a prenup, or that your parents are requiring you to have one, ask what your partner thinks about prenups, why they think those things, what they think would be fair, and so forth.
  2. Do a little research. As part of the decision-making process, it’s usually helpful to understand the basics of the matrimonial laws that will apply to your marriage – what is the alternative to the prenup, and how would it apply to your circumstances?
  3. Make the decision together. Do the default state rules make sense for you? Or would you prefer to make some adjustments? As a couple, are there decisions you would rather make now? Or would you prefer to defer to state law and the decisions of a judge in the event of death or divorce?

What else should I expect if I decide to go through with a prenuptial agreement?

  • Timing is key. Signing a prenup well in advance of the wedding helps to ensure its legitimacy. The sooner you start the process, the sooner it will be over, and you can get back to cake tasting and picking out flowers. The last thing you want is to be talking about a prenup in the weeks leading up to your big day. (It’s more common than you think!)
  • Be thoughtful when choosing your lawyers. You will each need independent legal counsel to represent your respective interests in the agreement. Different lawyers take different approaches. The process will be very different if you hire an attorney who is focused on getting the best deal vs. an attorney whose goal is to be fair and reasonable. If you and your partner can agree on an approach (for example, the goal is to be fair and reasonable) then you can seek out attorneys who take that approach, or at a minimum instruct your respective attorneys to follow that approach, which should make the process smoother. Generally, the monied spouse pays the legal fees for both attorneys.
  • Disclosure of assets. Part of the prenuptial agreement is a financial disclosure. Most matrimonial attorneys recommend full transparency, even as it relates to trusts for your benefit that you have no control over. The more detailed you are, the more enforceable the prenup will be.
  • Issues to consider/discuss: Some topics that will likely come up during the process (that you and your partner will need to make decisions about) include:
    • Property owned prior to the marriage
    • Separate gifts/inheritance received during the marriage
    • Earnings during the marriage
    • Distribution in the event of death
    • Distribution in the event of divorce
    • Impact (if any) on the above points if children are born
    • Impact on the above points if one spouse steps away from a career to care for children or other family members
    • Note: Provisions relating to custody or support of children are not appropriate to include in premarital agreements and will not be recognized or upheld.
  • Manage your expectations. This will probably not be easy, comfortable, or fun. No matter who you are or how reasonable you are, these are difficult topics that will likely result in one or more disagreements with your partner. The way you choose to handle those disagreements will make a huge difference in the success of the process (and dare we say, your marriage).

Hopefully at this point, we’ve made it clear that while creating a prenup is a not an easy task, it’s a worthwhile one. For assistance navigating the complexities of a prenup or merging of finances, reach out to your BBH relationship manager.

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