Surviving Prenuptial Agreements

Family Money
by Judy Barber

I stood with a group of young people at a reception at a family conference where I had facilitated a program on prenuptial agreements.Several had attended the session and asked me a few questions. But they were primarily talking to each other about the difficulties they faced in dealing with this issue.

One man felt obligated to the family holding company and to his father’s desire that assets stay in the family.Another, whose family’s business had recently been sold, couldn’t imagine asking his wife, a successful business woman, to sign such an agreement.A young woman felt at a loss as to how to broach the topic with the man who would soon propose to her.

Here, the focus will be largely on marriages where there is a large financial disparity, more frequent in first marriages. But whether for a first marriage or a return to the alter after the death of a spouse or a divorce, romantic feelings are tested when a prenuptial agreement is part of the preparation for marriage.These agreements are the toughest negotiating I do.

Each time I consult with a couple as they face each other, their parents, and often a cadre of advisors, I wish there were ways to make it easier.I’m not sure there are.But I know that when a couple approaches the agreement with honesty, deep regard and sensitivity to the potential emotional and financial implications, it can help strengthen and sustain the relationship through a difficult time.Without this conscious effort, the union can be shaken to its foundation, creating irreparable misunderstanding and distrust. How can couples stay connected?

Keep in mind that at the time two people are committing themselves to marriage, each wants to feel that he or she is most important in the potential spouse’s life. Yet, in reality, they are signing what may become a divorce agreement.This is tough! Idealistic and hopeful, couples harbor a secret belief that the emotional bonds and loyalty between them will protect them from dangerous shoals. Yet the prenuptial agreement symbolizes an allegiance to something other than the relationship; to a family, to assets and/or heirs.This devotion to something other than the relationship may feel so alien that it seems unreal.Lawyers are often maligned in these situations because they take what feels unbelievable and make it real.

Risking the conversation is essential as a couple approaches this process.Most often, both people feel vulnerable.The person initiating the document may do so out of a painful past experience, from anxiety regarding the future of a business or assets if there were to be a divorce, or from family pressure.The person who is asked to sign may have fears about the partner’s commitment or his/her own financial security.Both may fear losing the relationship if too much pressure is exerted or if one refuses to sign.When I ask couples what makes it so hard to talk to each other, the response is often, “I’m afraid I’m going to learn something about you I haven’t known and may not want to know.”

The more monied partner rarely talks about the impact–what it’s like to carry the burden of financial responsibility.He/she may wish the other would contribute more, financially, even if the contribution is more symbolic than substantive. Few share with their partner the underlying fear of being taken advantage of.The less monied partner (who has less sense of financial autonomy) may feel at the mercy of the other who has money.He/she may feel shut out of the process of setting financial priorities.

The person with greater financial resources usually initiates the pre-nup.This built in financial inequity can contribute to an imbalance of power in the relationship.I recently had a discussion with a woman who initiated a prenuptial agreement and who is in a long and successful marriage.She felt it was her responsibility to have the document but says, “There can be no real agreement.The document is unfair in that it creates an imbalance of power.”At the time her spouse signed, he felt he had “no choice”–that “fighting it would have created a huge crisis that (he) wouldn’t win.”

“He knew it would have triggered questions in me about my trust in him and his motivation, questions I couldn’t have answered at the time.”She went on to say that, “the person who has the money also needs to look at the issues provoked by the agreement–lack of trust, power and control.”

Never present a pre-nup agreement where there’s been no mutual discussion.Even when it is clear from the beginning of a relationship that certain assets and income will remain separate, presenting the document as a fait accompli feels too inequitable and may result in a refusal to sign.

Both people need to feel they are getting something from the agreement.It is an understanding between two people.The person initiating the document gains protection.The person agreeing gets, at least, clarification.His or her financial situation needs to be discussed:How does he or she gain financial independence and security or create a net worth?Is it through a percentage of income set aside as separate property for the purpose of investments?What happens if both agree that person won’t continue to work?Is thereto be any transfer of assets or regular income?In many situations, this is truly taboo.

The person with less money does not want to appear greedy or assumes that, with time, his or her spouse will offer to help create financial autonomy.For the person with the money, it may bring up distrust and suspicion of the partner’s deeper motivation for the marriage.

Yet without looking at the non-monied partner’s options and gaining an understanding of those financial needs, the good intentions both people bring to the commitment may well be undermined.

Solutions to this problem are highly individual.Situations can quickly become adversarial. The attorneys are fighting it out over how much income or assets the non-monied partner should receive.As things escalate, the amounts can get outrageous by the standards of everyone involved.I ask the person who requests the income or assets, “How old is your relationship?Based on that, what do you feel is fair?”That often (not always) takes it out of the realm of debate.

In these situations, a variety of advisers are often brought in–accountants, investment managers, trust officers and other trusted family advisers.However,the greatest potential for emotional damage is in the drafting of the document. The role of the attorney is critical to a positive outcome but it is not an easy task.

Bring in the attorney after an initial discussion together.To the extent possible, know what you want going into the first meeting.The attorney’s job is to explain all the ramifications and to be informative regarding state laws. Discussing the desired goals before that first meeting sets the tone for the attorney and enables him/her to create the document which can meet those objectives.

In the initial discussion with the attorney, emphasize the importance of the relationship. Since the lawyer’s job is to protect the interests of his/her client, the attorney drafting the document cannot represent both parties.In some situations a couple can hire an attorney to draft the document.Each then seeks separate counsel to make sure their interests are represented.This works well, particularly when there is little or no disagreement.

When each person has his/her own attorney, it needs to be emphasized from the first meeting that there is to be no acrimony.It is key that attorneys are sensitive to this issue because the language in these documents is, by nature, hostile.Sometimes the language in correspondence between attorneys and the couple questions the intention and motivation of the people involved in such an inflammatory way that it fuels distrust and resistance to the goals.At times it is necessary to protect a client but adversarial positions can tear at the fabric of the relationship.

Talk to each other, not through lawyers.Sometimes, a couple may feel that it is less difficult to express their needs through counsel.But there is potential for misinterpretation and misunderstanding.Recently I spent an hour helping a couple unravel feelings about a transfer of assets.Because they had communicated through lawyers, there was great confusion about the initial request and subsequent events. They were each resentful over what they thought the other wanted.

Emphasize expediency to all advisors. Feelings fester.Ask those involved to keep the process moving along.Can their calendars be cleared to complete the work in a timely way?The vulnerability this sensitive subject causes, makes it essential to complete the process without unnecessary delays.

Getting closure–once completed, it’s often hard to talk about the agreement.Yet if a couple can discuss their good work and share things they wish they had done differently or said more diplomatically, they can apologize, let it go–then celebrate, strengthened by the experience!

Judy Barber is a family business consultant affiliated with McGladrey & Pullen Family Business Group. She is a licensed marriage and family counselor specializing in the psychology of money.She has, since 1980, worked with individuals, couples and families regarding issues of sudden, accumulated and inherited wealth.Ms. Barber also facilitates multi-generational family and family business meetings, presents wealth and estate planning programs, and trains and consults with financial planning professionals.