With Valentine’s Day happening next week, divorce proceedings may not be something on your mind. But financial matters never take a break, even for the year’s most romantic day, and you never know when you may be asked for guidance.
Obviously, you’re in a unique position to influence the financial lives of many people; it’s what you do after all. And while you may typically talk with your clients about retirement investments, estate planning, or when to take Social Security benefits, you’ll eventually be asked about prenuptial marital agreements (or prenups).
While the number of millennials requesting prenups has jumped,1 a prenup isn’t exclusively a young person’s concern these days. You’ll likely see more remarriages among your older clients in upcoming years due to the high divorce rate among seniors — since 1990, the divorce rate for people 65+ has approximately tripled.2
So, how should you respond when asked point blank, “Is a prenup a good idea for me?”
The Perils and Positives of a Prenup
A prenup is a legal agreement that specifies how a couple will divide assets and handle financial issues if their marriage should end. While having an honest financial discussion before an upcoming wedding ceremony can be helpful for some, others find that it’s cold, causes friction, and may even sow the seeds of distrust.
Can you blame the fearful? The fact that finances are often cited as one of the main reasons for divorce3 makes many people feel that discussing how finances will be handled upon breaking up is not a great way to begin a sacred union.
Yet, a prenuptial marriage agreement has is its pros:
- Assets accumulated before marriage can be protected.
- Family inheritance can be preserved.
- Financial health of children from a previous marriage can be protected.
- It specifies the assets a spouse can leave to children or other family upon death.
- It prevents any battles over assets and finances.
Despite Its Benefits, a Prenup May Not be Right if Your Client…
1. Your Client Wants State Laws to Apply
State divorce laws differ across the country, with each providing some protections (child custody and support, spousal support, property distribution). And how to divide assets varies from state to state.
There are ten community property states in which a 50/50 split applies to a marital estate.4 Everything acquired during the marriage is considered joint property. Spouses whose partner is the main breadwinner are better off in these states.
The remainder of states see a marital estate as comprised of assets under each spouse’s name. Only if both names are on the deed is it considered joint or community property. Upon divorce, a judge evaluates and divides assets “fairly.”
If state laws are consistent with how a client wants his/her divorce to be handled, then they may not need a prenup.
2. Your Client Can’t Afford a Good Attorney
“You get what you pay for” is no news to you, but you may want to remind your client. While a well-drafted prenup protects assets, liabilities, and incomes, a poorly drafted one may do harm. So, paying for a quality prenup is important.
Most attorneys charge upwards of $2,500 to draft a prenup, but this can vary depending on the attorney’s location and number of assets involved. For instance, a simple prenup (in which the couple has few assets and finances are straightforward) can be as low as $1,200 - $2,400, with a more complicated one running higher.5
If your client couple truly wants good representation, they each should hire an attorney. Separate attorneys ensure fairness throughout the process, but the overall price of the prenup just doubled.
3. Your Client Doesn't Plan to Add Assets
Some couples have a plan to NOT:
- grow an estate
- increase incomes
- change employment
- have kids
If they don’t want to buy property, build retirement accounts, or create investments that need to be protected, a prenup may not be necessary at all.
4. Your Client is Morally Opposed to Prenups
Some couples believe that marriage is an equal partnership, and each spouse’s contributions (beyond financial earnings) should be valued.
If the couple believes the sanctity of marriage shouldn’t be “tainted,” and there’s no probability of divorce in the relationship, a prenup is likely out of the question. However, it’s still possible, and perhaps advantageous, to talk about it. A conversation between soon-to-be-spouses can be important to ensuring they’re both on the same page.
This Valentine’s Day, feel free to celebrate love and the incredible union of marriage. And for those clients who may not be positive about their financial futures, discuss the pros and cons of a prenup. Just because it’s gaining in popularity among some generations doesn’t mean it’s right for everyone.
Discussing a prenup can be an emotionally charged event. Similarly, clients’ emotions can often lead to poor decision-making when it comes to investing. Read how to keep your clients focused on a logic-driven, long-term financial strategy in Defusing Emotions: An Advisor’s Role in Disciplined Long-Term Investing.
1Business Insider, Prenups Aren't Just for the Rich or Famous — More Millennials Are Signing Them Before Getting Married, and You Probably Should Too, February 5, 2019
2ThinkAdvisor, When Clients Divorce After 50, How Advisors Can Rescue Retirement Plans, May 28, 2019
3marriage.com, 10 Most Common Reasons for Divorce, October 31, 2019
5Business Insider, You Don't Need to Be Rich to Get a Prenup — Here's How Much You Should Expect to Pay, Oct. 20, 2018