Why Prenups Don’t Always Deserve a Bad Rap

My Investments February 08, 2017

An estimated 6 million couples will get engaged on Valentine’s Day, and most will immediately begin planning their nuptials. One question that should be discussed sooner than later is if they should say “yes” to a prenuptial agreement.

Prenups often get a bad rap, but they exist for a reason and that is to provide peace of mind.

“A prenup is not about love, or lack thereof, or how much trust exists between the couple,” said Amy Zehnder, strategic wealth coach for Ascent Private Capital Management of U.S. Bank. “A prenup is a means of achieving peace of mind, and, in a sense, controlled comfort over the unknown.”

During the glow of a recent engagement, the unknown isn’t usually top of mind for most couples. They’re going to live happily ever after, right?

There are several common instances where a prenup is a benefit to each member of the couple, and Zehnder recommends all newly-engaged couples consider if any of these apply to their situation:

1. Children from a former relationship – Say the husband-to-be has young children, and were to pass away before his new spouse. A prenup can establish his financial expectations for how the children and his new wife will all benefit from his estate, providing peace of mind for all involved before the wedding bells even begin to ring. An estate plan can also provide the couple with the same planning measures for the spouse and children, and many couples choose to go this avenue instead of a prenup.

2. Family business – In situations where one of the engaged couple is active in or benefits from a family business, the family may request a prenup be signed determining how the new spouse will benefit from any business-related assets if the marriage were to dissolve or the family member dies. Some families have strict family policies requiring all who marry into the family sign prenups to keep the business assets separate.

3. Family money – When multiple generations are involved in maintaining family money, a prenup may be a way to help keep the family’s peace of mind in case of death or a divorce.

While these situations tend to usually only involve one person in the relationship, prenups should not be one-sided. In some states, both members of the couple are required to have legal representation in the development and signing of a prenuptial document for it to be considered valid. If one person is coming into the relationship with significantly fewer assets than the other, they still need representation to help negotiate a fair agreement that will provide them with peace of mind in case of the unexpected.

To help a couple discuss and plan for a prenup, Zehnder recommends the following steps:

1. State the purpose of the prenup – Be clear on the reason a prenup should exist, whether it’s to protect children, the new spouse, family assets or a business. This step is also the time for both sides to discuss their expectations in distribution of the assets.

2. Timing – The earlier in the engagement, the better. The reason for this is it gives both sides a chance to adjust and accept the results of the agreement without interfering with the wedding planning itself. Some states will not recognize a prenup agreement filed too close to the wedding date. Having the discussion earlier in the engagement also provides the couple with plenty of time to work with attorneys on both sides.

3. Approach – A prenup comes into play when divorce or death happens – two factors newly engaged couples traditionally are not expecting or planning for, and its intention is to provide comfort and security rather than fear or a lack of trust. Some ways couples can smooth the discussion about prenups include:

• Both sides must have an equal voice.

• Both sides must have representation and complete disclosure.

• Both sides should be fair and willing to negotiate.

• Both sides should sign a prenup, no matter the size or inequity of the assets.

• Some couples may choose to use professional mediators (one party that works with both to come up with a strategy) and then give the points or draft document to separate attorneys.

• The wealthier fiancé may consider making a gift to cover the other fiancé’s legal fees rather than paying them directly.

• Consider having provisions in the document that allow flexibility or even renegotiation, phase-ins or a sunset provision after a period of years.

4. Discussion – A big debate is how to start the conversation about setting up a prenup. And how can that discussion start without introducing fear or lack of trust into the relationship? One suggestion is to make the focus of the discussion not about the prenup itself, but the purpose of the prenup – security and peace of mind. The couple should also be talking about overall financial plans for their future together, making the prenup discussion an important element to include in that discussion. While having the prenup discussion, both sides need to make certain their spouse-to-be has opportunity to express concerns or desires frequently through the process.

Surprisingly, for many couples, a prenup conversation provides them with a chance to deepen their relationship as they gain more understanding about their partner and the worries he or she might have about the future. Having a prenuptial agreement isn’t a necessity for every couple, but it can help to provide peace of mind in case something unexpected occurs.

Amy Zehnder
Amy Zehnder, strategic wealth coach with Ascent Private Capital Management

U.S. Bank and its representatives do not provide tax or legal advice. Each individual's tax and financial situation is unique. Individuals should consult their tax and/or legal advisor for advice and information concerning their particular situation.