Prenuptial Agreements and Your Wealth Management Plan

Prenuptial Agreements and Your Wealth Management Plan

July 29, 2022

Broaching the subject of a prenuptial agreement is not an easy thing to do, but a prenuptial agreement can be a necessary part of your wealth management plan. When a relationship begins and progresses to the point where the parties are contemplating marriage, there are many questions that should be considered. Is this a first marriage for each party? A second marriage for one or both of the parties? Or maybe even a third or forth marriage for either party? Is one or both parties a widow(er)? Has either party been divorced? Are there children from previous marriages? Regardless, and in my experience, commencing the discussion of a prenuptial agreement will likely conjure up mixed emotions because it necessarily situates this couple as adversaries. 

Immediately before discussing the concept of a prenuptial agreement, the couple is focused on starting their life together and all the wonderful things that accompany entering this union. Then, when the discussion of the prenuptial agreement surfaces, they are rapidly forced to thinking about negotiating their divorce before they even marry! It is no wonder why these are difficult, yet crucial conversations to have. 

Depending on your source, statistics provide that approximately 50% of first marriages end in divorce and at least 66% of second marriages end in divorce. At our firm, we always raise the issue of prenuptial agreements with our clients who are contemplating marriage. In fact, we are happy to connect our clients with some of the most capable attorneys to help them draft their agreement if the clients are inclined to sign one. Prenuptial agreements have a negative connotation because they are inextricably intertwined with divorce.

However, there are two ways a marriage can end. Divorce is the first and most common way.  Death is the other way a marriage terminates. There are dissolution of marriage laws and spousal probate laws in each state because many couples have neither a prenuptial agreement nor an estate plan. To combat this challenge, state legislatures have enacted “one-size-fits-all” laws to deal with the distribution of property in death or divorce. In divorce cases, the various state laws additionally address the issues of alimony, child support, and the payment of attorney’s fees. The legislatures are wise to enact these laws and procedures because they provide for an orderly, (mostly) consistent, (relatively) efficient, and predictable way to distribute property in circumstances of death or divorce for many families that have elected not to take advantage of the benefits of a prenuptial agreement and/or estate plan. 

Because of the uniform nature of these “one-size-fits-all” property distribution laws, they are likely to constrain married parties from distributing property in the manner they may desire. For example, let’s assume John and Jane are married. Assume this is a second marriage for each and they each have children from their previous marriages. In Florida (and in most other states), married people are not allowed to disinherit their spouses. Assuming John and Jane are both wealthy, they may each desire to have the property they bring into the marriage bequeathed to their children from their first marriages.  Under current Florida law, a spouse is entitled to a minimum of 30% of your estate. Essentially, a prenuptial agreement is the only way for John and Jane to make sure their children from their previous marriages receive 100% of their parent’s estate.  

It is now time to start thinking of a prenuptial agreement as a necessary component of your wealth management plan. No party to a relationship that is proceeding towards marriage wants to think about that marriage ending in any way other than the eventual death of one of the parties. As a result, my experience with my clients shows that commencing discussions/negotiations on prenuptial agreements are much more amiable when the parties start by discussing what happens to their respective premarital property should one of them pass away. If the goal of one or both parties is to make sure that substantially all their premarital estate will be transferred to their children from a previous marriage, a prenuptial agreement will be essential to each party, waiving their rights in the property or estate of the other. With those spousal rights waived, the parties are free to transfer their premarital estate via their estate plan as they see fit without any constraints. Said differently, the prenuptial agreement gives the parties the right to avoid the “one-size-fits-all” approach and dispose of their property in any manner they choose. Of course, this “waiver” of these marital property rights contained in the prenuptial agreement have specific requirements that must be met for the waiver to be valid. We strongly advise both parties to a prenuptial agreement have their own attorney who can explain the law, the rights they are waiving, the rights they may be gaining, and to ensure the document meets all the specific requirements to ensure it is valid. 

Simply put, the prenuptial agreement provides the parties the opportunity to essentially negotiate their divorce before it even happens. A divorce case can last one year or more. It can also be quite expensive. Establishing the rights of the parties in the event of a divorce may give the marriage a greater chance of success. One party may have been so scared from their divorce case that they would never contemplate marrying again. In this circumstance, the prenuptial agreement should provide enhanced predictability of the outcome of the case and greatly reduce the cost of a subsequent divorce proceeding. 

Discussing prenuptial agreements is hard and emotional. However, discussing them is also responsible. Viewing them from this perspective, we hope you will view them in a different light and see their utility in the financial planning/wealth management space. A prenuptial agreement gives parties increased flexibility in their planning and transfer of assets, more predictability, and an insurance policy to reduce future litigation costs, stress, and anxiety. 

Please let us know if we can help you and your future spouse work with your lawyer to help you obtain a prenuptial agreement that accomplishes your goals and gets your new life together off to a great start.