Why Wealthy Parents and Grandparents Are Insisting On Prenuptial Agreements

When people think of prenuptial agreements, they are usually thinking about a potential divorce and how it will affect the spouse who has the money (the wealthy spouse). The wealthy spouse needs to consider property division and alimony in the event of a divorce, and, quite frankly, he or she is usually thinking only about himself or herself and the lifestyle that they want to continue after a divorce. What this wealthy spouse is not thinking about is the long-term ramifications of a divorce.

I am sure that most of the population feels that relatives should not get involved when someone announces that they are getting married.  In most cases, this is the case. Not so much with a wealthy family or a family with a closely held business.  I am using the term “wealthy spouse”, but that is a misnomer because, often, the person who is getting married does not actually own much in the way of assets; however, they may be part of a wealthy family or they may be in line to inherit a family business. This is what I want to discuss today.

Wealthy Family

Let’s talk about Chloe who comes from old wealth.  Her great-great grandparents arrived in America with money and it continued to grow.  She has lived a life of luxury and does not know how to live any other way.  Her grandparents have set up a trust for Chloe and her siblings and she can only receive money if the trustee agrees to give it to her.  The trustee is the family lawyer. She has become aware of a letter of instruction that her grandparents provided to the trustee saying that, while they love their grandchildren, they insist that the money in the trust not be used to allow them to live frivolously.  They insist that their grandchildren become productive members of society and the trust will pay for unlimited education to help them along. While Chloe’s grandparents have been married for 60 years, their children have all been divorced at least once and some of the grandchildren have been as well.  Having seen a small fortune squandered by one of their sons in law, they decided to take action and have put in place a mechanism to reward the descendants who sign an approved prenuptial agreement.  They were very specific about their prenuptial requirements and the trust will pay for the document to be drafted and negotiated. The reality is that wealthy people can stay wealthy because they plan.  While it is unfortunate, the divorce statistics are staggering, so Chloe’s grandparents have taken the position that they must assume the worst and plan for it.  If one of their grandchildren is actually fortunate enough to live a clean life with a solid marriage, then that grandchild will have money available to him or her.  The grandchild that leads a carefree and careless life and marries repeatedly will be limited in his or her resources. 

The Family Business

Let’s talk about William whose grandparents started a business 50 years ago.  The business makes the pull chains that you see on ceiling lights and fans.  It grosses $20 million per year and many of the extended family members are employed there, including William.  William earns a salary of $120,000 per year and has no equity in the company; however, William’s mother owns 10% of the company and when William’s grandparents pass away, William will inherit 5% of the company. William’s grandparents received some excellent estate planning advice, which is to bequeath all of the company shares in trust for the several family members who will inherit, William among them.  They know that their attorney did a great job and has included numerous provisions that will protect William and his cousins from foolish behavior. His grandparents are also aware that litigation in the United States is common and that, even though, they did stellar planning, it will not prevent someone from trying to sue or trying to lay a claim on William’s inheritance. They want to know that all best efforts have been made.  They put in a provision that if their descendants get married without a prenuptial agreement, at least as to the family business, then they are not permitted to receive any money from the trust.  Of course, young William is in love and he does not want to tarnish his fabulous relationship by insisting on a prenuptial agreement. William’s grandparents appreciate his position and lovingly explain that he can stick with that plan and live on love, but love does not pay very well. This is one of those times where business mustenter the equation.  William knows what’s at stake and he has to make an educated choice: rock the boat with his girlfriend or lose access to his inheritance.

The moral of the story is that if you are in line to inherit money or a business, you shouldn’t need your parents or grandparents to tell you that a prenuptial is necessary, you should just address the topic and get it done.  There is more to be gained than to be lost. You can still negotiate something reasonable with your future spouse.

A prenuptial agreement does not always hold up in court, but if it has been drawn up and negotiated by qualified counsel and it is done well in advance of the wedding, then it has a reasonable likelihood of setting the monetary terms in a divorce.  If you treat the future spouse fairly, it should not be a contentious event.  It can make the other person feel secure because they know what they are entitled to.

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