PreNuptial Agreements in the Age of Great Wealth Transmission.
Axios published an article this week about what it terms the “growing acceptance” of prenuptial agreements. The sum of the article is based on a Harris poll reporting that 50% of those interviewed support the idea of couples having a prenuptial agreement. That is up for 42% from a year ago. The same story reported 41% of Gen Z respondents who are engaged or have been married said they entered a prenup. 47% of millennial respondents who are engaged or have been married said they entered a prenup.
I don’t think this stuff is true or “matters.” Suffice to say that I am not hearing from my colleagues about an avalanche of prenuptial agreements. Yes, they are more widely used. In many instances it is because the boomer generation is leaning on the next generation to keep wealth “in the family.”
Yes, prenuptial agreements are no longer dismissed as aberrant or destined to destroy a marriage. But, wanting such an agreement and making it clear that there will be no walk down an aisle until there are signatures on the dotted line are two wholly different concepts. The ticklish subject is best defined by two sentences:
- I love you and want to share every aspect of our lives together;
- I love you under and subject to an agreement that I keep what I have and you do the same until death do us part.
Try bending on your knee with a carat of hard carbon in your hand and uttering the second sentence. That second bell just doesn’t ring.
There is little question that people are more receptive to prenuptial agreements except when it involves their engagement. The whole concept belies the idea that love is unconditional.
Wealthy parents are often tone deaf when this subject comes up. Their daughter comes home and announces that she has found the love of her life and marriage is in the air. The wealthy parents like the guy, gal, whatever, BUT they also intuitively sense that statistically this might not be a truly permanent relationship. They are concerned that the intended spouse might get a grip on the family larder and that is something that cannot be allowed to occur.
You can’t deny the parents their concerns. They are legitimate. But most children in the prime age of marriage (ages 20-30) are not focused on the legacy of what they will someday inherit. Like most of us who were once 20-30, they are living in the moment. Thus, many times the parents who tell their son or daughter that a prenuptial agreement is wise are met with a cold response. “Mom/Dad this is my marriage, not your ‘transaction’.”
As attorneys we are frequently called upon to “broker” these discussions. Typically, the parents are estate planning clients. Their child is getting married and they inform us that they want the kid to have a prenuptial. This is especially true in Pennsylvania, where an increase in value of a vested trust or estate interest could be subject to distribution. The parents often ask us to explain why the prenuptial is important.
The challenge of such a mission is that while the marrying child may see merit in the concept, that same child is now tasked with “selling” this to his or her intended spouse. That is a tall order under the best of circumstances. This writer tries to do this in a memo to the parents and the betrothed child leaving it to the child to share the memo and its explanation with the future spouse.
Experienced lawyers are familiar with both sides of a prenuptial transaction; and it does take what people hope is a spiritual event and reduce to a “transaction.” The archetypal wedding vows formulated in the 16th century refer to a shared life without regard to wealth or poverty (“richer or poorer”). Most prenuptial agreements are putting an asterisk next to the concept of equality when it comes to financial matters. In essence they say: our shared life isn’t quite shared when it comes to the money. In their coldest form, many prenuptials effectively say: our economic life will be led independently of one another. You have no rights to my earnings or assets and I have none to yours.
When counseling the party presented with the prenuptial, the lawyer must do some fairly dark doomsaying. Try some of these questions and associated answers:
“Suppose I give birth to a child and become disabled in the process?” Answer: “You will need to secure a disability policy to cover that contingency because your spouse will have no support obligation except to pay child support.”
“Suppose we agree after we have a child that I should stay home and be a primary caretaker for some period of time?” Answer: “This agreement offers no protection so you would need to amend the agreement or resume employment.”
“Suppose he accidentally or intentionally runs me over with his car?” Answer: “This agreement contains a waiver of all claims of a financial nature, past and future. You might prevail but your intended has the legal right to assert that all claims were waived.”
“But he/she loves me. They would never do such a thing!” Answer; that may be correct as your personal judgment but you are conferring with me for a legal opinion and I have to warn you that if he did such a thing, you may find yourself without any legal recourse.”
The typical prenup comes about because one betrothed person has significant wealth or is expecting gifts or inheritances of big money. That money produces enormous differences in lifestyle. You may be vacationing at the Impala Inn in Ocean City, N.J. while he is on the beach in Cannes. You drove your Honda Civic. He found space on a private plane. His family always spends a month in Mount Desert in summer and a at least two weeks in Cabo St. Lucas in February. Perhaps you will be asked to come for a weekend.
You have a child from a first marriage. It’s a struggle because the other parent of your first child seems to always get fired or injured. That child needs braces and some speech therapy. Your second child has grandparents who happily take her to Episcopal Academy every morning and cut the $6,000 a month check for her attendance. You won’t mind if she joins them and takes tennis lessons next summer at the Bar Harbor Club while you and your son are hitting the boards in Ocean City.
We offer this because, in many instances, both the younger people living with a parentally imposed prenuptial often plainly see that wealth discrepancies can erode a marriage. You know that you will be in Ocean City next summer and not in Bar Harbor because your first child has crooked teeth and a speech impediment. Your spouse knows it too, but he never has been able to stand up to “Mummy and Daddy” and if he ever did, estate plans might change such that exotic destination vacations might dry up or the Episcopal tuition might be withdrawn. Worse yet, your spouse is paid $15,000 a month working for Mum&Dad, Inc. a privately held company owned by, guess who? You have suggested that perhaps he leave that dysfunctional job and secure other employment outside the family. The only trouble there is that your husband’s resume has one employment experience: Assistant to the Chairman, Mum&Dad, Inc. since 2005.
Does this really happen? Indeed, it does, and many young people who actually do like each other find themselves bound to Mummy and Daddy and a world wholly dominated by Mum&Dad, Inc. They fly company planes, drive company cars and fish from the aft of company owned boats gassed with company credit cards. Someday, the couple are told, this will all be yours (meaning your husband’s) but for now none of it is yours except what they decide to let you have or invite you to attend. You can leave. But then there is that prenuptial which says you are on your own unless you stayed lashed to the mast of the 50’ Hinkley that departs every Flag Day for Mt. Desert and another summer of respectable fun.
Young people who are asked to sign prenuptial agreements should understand that these instruments can completely dominate your marriage, and, your lives. Older people who ask their children to become parties to their financial world and to do so through employment of prenuptial agreements should understand that in their quest to retain financial security they are many times disabling their children and the people whom they marry without seeing the consequence. The lawyers who draft these instruments often see clearly the mischief they can create. But, except in gratuitous blog entries, we are rarely asked how these transactions can go awry. As I conclude this, I appreciate why prenuptials are increasingly supported by the public and how they can be a useful tool. Sadly, they can also become a destructive tool which elevates wealth preservation from useful enterprise to raison d’etre.
