Unpleasant conversations are always difficult, but more so when the topic is unfamiliar. This is a particular problem with prenuptial agreements, also known as marriage contracts.
In the absence of early financial education, people may find it difficult to broach the topic of prenups with their partners. This can be especially true if there is a significant difference in wealth.
Educating children early about financial management, wealth planning and wealth preservation, including the importance of prenups, increases the chances of them being proactive—rather than resentful or nervous—about discussing a prenup.
A prenup is recommended if one person has more assets than the other; if one partner wants their assets to go to children from a prior relationship; if one person wants to protect the excluded nature of inheritances or transfer of wealth; or if one person will invest more significantly than the other in the family residence.
As an advisor, you can help prepare the family for such conversations by developing training programs about wealth preservation policies and financial competency in general.
Some parents may ask that you broach the topic since their children may respond better to advice coming from a neutral third party. Here are tips you can share with the parents or children.
- Discuss the prenup early: While it may be awkward to talk about prenups at the start of a relationship, procrastinating can create a liability. In Ontario, for example, a prenup is a legal document but can be invalidated if a spouse felt under duress to sign it. For example, if the in-laws demanded a signature after the wedding invitations had been sent or the honeymoon was already booked, the spouse could claim that they felt coerced or feared a negative outcome if they didn’t sign. It is a good idea to discuss a prenup before an engagement, or before the couple moves in together. Through upfront education about financial management and the role that prenups play in wealth preservation, parents can help children become more comfortable discussing prenups with their partner earlier. If your family wants all children to enter into prenups, it is good practice to educate children from a young age, or when they become young adults—before they get into serious relationships. If this information is presented only when an engagement is announced, the risk is that it may be perceived as a dislike or lack of trust for the new bride or groom.
- Don’t choose the lawyer for your in-law. To assure the validity of the prenup, the incoming spouse should work with a reputable family law lawyer of their choosing, rather than one that is already identified with the family. This will remove any conflict of interest should the spouse later claim they did not receive proper legal advice and did not fully understand the implications of the compromises they were asked to make. It is acceptable for a family to recommend a few lawyers and let the fiancé choose independently. The family may even pay for the independent lawyer, but should not ask to see detailed invoices or place limits on the retainer.
- Consider a collaborative law process. Negotiating a prenup can be difficult, and often fraught with emotion. If not handled properly, it may also pull people apart, especially if lawyers use the same negotiating style as they would when negotiating a divorce. It may be beneficial for the family to retain lawyers with training in collaborative law, which can provide a more cordial atmosphere for the couple and result in a smoother process.
- Support full financial disclosure. A prenup that was negotiated in the absence of full and frank financial disclosure, including accurate valuations of the child’s shares or the value of the assets held by trusts—even discretionary trusts—is not worth the paper it is written on. This may pose problems for families who are reluctant to divulge their children’s interests in businesses or trusts. Advisors can help by supplying financial statements and asset details where needed.