For those readers who still believe that June is the height of wedding season, we report that for more than a decade the shift has been to Fall. June is too hot and everyone is busy with graduations and trips to the shore. Pennsylvania is at its best when the leaves turn. And, because this is wedding season, it is also a time when the air fills with prenuptial agreements.
Prenups have been around a long time. Just look for William Hogarth’s 1745 print series titled Marriage a la Mode. The first plate depicts an unhappy couple sitting silently in the periphery of the painting while their parents busily negotiate the “terms” of the blessed event with the lawyers. Even today, that print stills speaks to attorneys “engaged” to prepare these instruments. The young people who will hopefully live a lifetime as spouses are often unaware of how the contract may affect their lives.
Meanwhile, lots has changed. In 18th century Britain, the fight was over just how much a groom’s family would receive as a douceur for delivering their young man to the altar. They called it a dowry. Today, we live in an age when many young men are struggling to figure out their role in life and women are suggesting that they don’t want to underwrite credit card debt and sports licenses for their otherwise suitable future spouses. We also see lots of articles reflecting estrangement between parents and adult children caused by a variety of different anxieties. So, parents want a prenuptial to protect the wealth they have planned for their children. But they are reticent to ask.
There are all kinds of topics prenuptial agreements can protect but they are often badly handled. In the case of young people, they seem like a meaningless parent-driven interference in their relationship. They have a sense of what their parents’ wealth provides, but not its scope or how it works. Parents are also poorly prepared. They introduce the subject to their bethrothed child but fumble simple questions about how the agreements work or what it is intended to protect. Truth is that except for families with multigenerational wealth (e.g., duPonts, Astors, Rockefellers) most of us grew up never expecting or seeing need for a prenup.
Pennsylvania is an unusual state in its approach to marital property. In Delaware, if your family owns business interests, your child can acquire those interests by gift or inheritance and never have to share any portion of that wealth. But cross the Mason-Dixon line if your child inherits from you and the property increases in value once the gift or inheritance is received, the increase from the date of the gift is marital property and subject to distribution. So, if you are 80 years old and bought your house at the shore long ago for $200,000 but then gifted it to your kid 10 years ago, a big piece of that gift is “marital” because of the increase in the last decade. Prenuptial agreements seek to exclude those increases from the marital pot. Increases in value of separate assets can often devastate an equitable distribution when a 50 year old child has to come up with $500,000 to buy out the increase in the shore house accruing since the gift was made.
So, what do parents do if their request for a prenuptial meets with resistance from the next generation? The first line of defense is explanation. “Kids, this is money WE earned from OUR labors, OUR good fortunate or both. You will acquire it only if we decide to give it to our child. We want it to stay in the family-our family. If you can’t agree to those conditions, perhaps we need to re-think our estate plan.” This used to be a rock solid line of defense. For whatever reason, many children today view parent money as “their” money.
Let’s assume the child and future in law hang tough answering; “So, you would rather see it go to someone else because we won’t agree to your demands?” The cold answer is “YES, we’ll support the homeless, or cancer research or alma mater and they will name buildings for us.” The more diplomatic answer is: “No, we will put all of our assets in trust and the income from those assets will be paid to our child but there will be no distribution of principal until the trustee sees and approves of an agreement such as the one we have just proposed.” In plain English: “We’ll see to it that there is income to support you, but unless you can produce a prenuptial (or after marriage, a “nuptial” agreement) by which your spouse waives any interest in the inheritance, you may never see the big money.”
Of course, your child could produce the agreement you demand, and, upon your demise, that same child could put all of the inheritance in joint names. Then it is marital. The only surefire way to avoid that is a lifetime trust. But, the key to all of this is open communication. It means explaining to your own child why a prenuptial is important to you and, yes, that your money is not his/her money until you make that happen. That could be put in a written form so that your child can show his/her future spouse that YOU are the catalyst for a prenuptial as a means to protect what remains YOUR money.
Marriage is the intersection of emotion and wealth. Clarity helps to avoid dangerous collisions for both parents and children.