Happy Thanksgiving all!
Did you know that the final holiday period overwhelmingly is the prime time for couples to get engaged? In the United States, 37% of engagements happen between November and February. In fact, a new Global Wedding Report discloses that even within that time frame, December is the most popular month to propose. So, it seems quite timely to share my thoughts on the potential benefit to newly engaging couples of making financial plans and reaching pre-nuptial agreements that will provide them financial clarity and set the tone for healthy financial expectations long into the marriage.
Perhaps not surprisingly, I think these sorts of preparations benefit greatly from the guidance of a knowledgeable and neutral facilitator, a mediator, to help couples make plans and reach shared conclusions in these regards. Mediation is a uniquely constructive and healthy process for jointly creating a marital financial plan and pre-nuptial agreements.
Why have a Pre-Nuptial Agreement?
In general, there is great benefit in developing and memorializing plans and agreements for realizing shared financial aspirations of the couple. For instance, in first-time marriages, having a pre-nuptial agreement could help protect previously saved and dedicated assets. Similarly, protecting family inheritances or gifts received from family members can help create peace with mom, dad or grandparents. A pre-nuptial agreement can assure that children are protected in second marriages. The list of issues and opportunities are manifold and manifest.
Contrary to some conventional wisdom, a thoughtful and detailed pre-nuptial agreement often serves to reduce financial tensions in the marriage and make the marriage stronger. Clarifying financial boundaries and anticipating expenditures can enhance prospects for a healthy joint financial future. As Americans, most of us marry for love, and one of the expressions of our love for our partners is providing economic security, among many other things. Hence, the money conversation, including the clarity of pre-nuptial agreements, can represent a commitment to the couple’s joint financial well-being. Without this, signals unfortunately can get crossed, constructive conversations are often avoided for fear of hurt feelings, and the discussions default to future brides or grooms hiring their own attorneys that can then create distorted or one-sided pre-nuptial agreements fused out of an adversarial process.
The Traditional way of drafting pre-nuptial agreements: “The business deal”
The following scenarios may seem melodramatic but are provided to illustrate many of the pitfalls and failures that can unintentionally and unnecessarily arise. Spoiler alert, these can be mitigated or eliminated when there is an early attempt to put a conciliatory process such as mediation into action which will address in advance many of the “dead ends” or “mistakes” which are depicted.
It begins. The future Bride and Groom are engaged, the wedding is planned, the invitations have gone out, and the caterer is pre-paid a heavy deposit to hold the date. The bride or groom, or a mom, dad, or even a wealthy aunt or uncle, hires a lawyer to draft a pre-nuptial agreement to protect the pre-marital assets, and all the money ever received, or to be received in the future, through the offices of one party. The party asks that all money earned during the marriage belong to her/him and that he/she have full control of said earnings. The savings in the 401 (k), IRA, the real estate, including future growth in equity, and all other varieties of investments accumulated, including all future gains, are to be hers/his absolutely. There is to be no alimony, ever. And if there are future gifts or inheritance from the family, all of that is off limits. It is even not unheard of for the client to ask that the engagement ring be returned back as the stone is a family heirloom left after great grandma died. Similarly, it gets specified by a protective future in-law that old family paintings that formerly lay forgotten in a humid and cluttered basement are to also be returned back to the family of origin were the marriage to end.
This traditional Pre-nuptial Agreement is drafted by a lawyer, and the less wealthy bride or groom is often obliged to hire an attorney, review this agreement, and sign it. The bad news can be devastating. Reading and dissecting any such so-called antenuptial agreement can be heartbreaking, and trampled feelings can remain long after reading a presented agreement which is perceived as nothing short of betrayal. The back and forth begins. The memory of the negative terms in the proffered agreement will surely impact and degrade the relationship. It is not unusual for the drafting attorney to resist change and label this agreement as a standard business deal because that is what a pre-nuptial agreement is: a business deal.
The Bride or Groom asking for the pre-nuptial agreement feels trapped between a rock and a hard place. There is a need to please mom, dad, the wealthy aunt, uncle etc., and to trust her/his attorney, as they’re always looking out for his/her best interest. The other side feels she/he cannot share what is happening with their own family, because their feelings towards the fiancé will surely change. Totally isolated, with looming deadlines and wedding plans in the works, the stress builds up, the tone and volume of conversations no longer sound loving, and tears are shed. The respective views on the pre-nuptial agreement can develop a momentum of their own.
Alternatively, and even more problematically, there are pre-nuptial agreements that are signed with very limited back and forth. There is minimal dialogue, minor changes only, and some superficial questions. The signed pre-nuptial agreement arrives in the mail a few days later. The conflict avoider signs, often devoid of a full understanding of the limitations provided in the agreement. Whatever it takes. Grounds for resentful feelings are surfaced and suffered even as the wedding vows are uttered.
The Constructive and Healthy Pre-Nuptial Agreement Option: Pre-Nuptial Mediation
It does not have to be that way! The Bride or Groom are engaged, the wedding is planned, the invitations go out, and the caterer is pre-paid a heavy deposit to hold the date. The Bride and Groom come together for the first session of mediation over financial matters that the marriage presents.
The idea of this first mediation session is for the parties to think about and mutually set the terms of their joint financial agreements going forward as a couple. They are getting married, so the terms should reflect love and caring. It is almost always healthier for the marriage if some balance and all possible financial clarity is achieved at the onset.
The Bride and Groom and mediator start with the current financial situation and draft a financial inventory. Often, they can use the Financial Affidavits provided by the Family Law Courts in the state. Personal income tax returns and Social Security earnings statements showing historical earned income are a great place to start. Is there a business involved? If so, accountants can generate P&L or financial statements. The parties also discuss how they met, how long they have been together and what are the plans for the future? Is it a first marriage, have either been divorced before, and what was that experience like, do they have children from previous relationships, etc.?
If the idea of a pre-nuptial agreement comes from the parents of the Bride or Groom, the other spouse may be asked to waive all rights to gifted and inherited money coming from this source. The waiving bride/groom will need to know what they are waiving, and, therefore, the assets that need to be protected need to be specified. A complete understanding and open sharing of their personal and financial lives could be crucial to enabling the formulation of a plan for a jointly constructed agreement.
The second part of this first mediation session is to understand what the plans for the future are. These questions are often never fully discussed to conclusion. Do they expect to have children? How many and when? Is there an expectation that they both work full time, or do they expect the mother or father to leave the job market and care for the children in the home. What happens if one gets sick with a chronic illness or worse. In second marriages, what is the plan to provide for the children of the first marriage?
Because pre-nuptial agreements vary according to state law, the mediator provides the bride and groom with a copy of the Connecticut Pre-Nuptial Statutes for them to review. It is important that they have knowledge of what the divorce and inheritance laws are in their state. Legal information regarding divorce in Connecticut regarding property division, alimony, and children is presented in a clear manner. Are premarital assets and inherited assets considered separate or non-marital property? What about the laws of inheritance? What would happen if the bride or groom inherited her/his parents’ estate during the marriage? The idea of constructing Estate Plans and Wills or Trusts for the couple is discussed as well.
The couple may jointly decide that they want the state law to apply and abandon the idea of a pre-nuptial agreement. However, if they move forward with the process of jointly constructing a pre-nuptial agreement, the couple will need to understand what it is that they are waiving. Informed decisions and waivers are very important aspects of creating joint pre-nuptial agreements.
A young Bride or Groom coming into a marriage, or a not so youngish couple into a second marriage, with or without children, and in possession of significant savings or another types of accumulated wealth, would want to protect themselves from loss through a divorce. It is always great for the marriage if some balance is struck at the onset.
Marriage thrives on love, mutual understanding and generosity. Marriages require qualities that are unselfish. Ensuring that both the bride and groom have a stake in the financial success of both parties can be of critical importance. The pre-nuptial agreement should focus on how the marriage builds up marital assets and financial security for the less-moneyed spouse, rather than primarily focusing on protecting the wealthy one. Both aims can be achieved in parallel. If businesses are involved, the pre-nuptial agreements should include provisions about a spouse’s ongoing business and the income that it brings into the marriage. Similarly, the pre-nuptial agreement should provide reasonable financial security if there is a divorce. Connecticut courts for example, tend not to overturn pre-nuptial agreements that have reasonable terms and provide financial security for the spouse with less money.
What makes mediation a great way to start the process of co-constructing a pre-nuptial agreement is that the parties can discuss various pre-nuptial terms and mutually decide on how they would like each issue handled. Initially we construct a preliminary draft agreement and send it to the Bride and Groom to review and provide further input. When all the terms are fully agreed on, then it’s time to draft a full, final agreement. The mediator, a family law attorney who is licensed to practice law in the state where the wedding will take place, can write a full agreement.
The final step in the process is for the Bride and Groom to meet with separate attorneys to review and execute this final agreement in their presence. It is always recommended to meet with attorneys who practice primarily divorce and family law in the state where the wedding is taking place.
By starting with mediation, the Bride and Groom can reduce or eliminate hard feelings or damage to the relationship that can arise from an adversarial negotiation approach. If a pre-nuptial agreement is needed, the process of jointly mediating such an agreement allows the Bride and Groom (rather than their lawyers) to decide and construct the terms for themselves. Mediators are trained in family law issues, pre-nuptial law, and are experts at enabling couples to reach sensible and sustainable solutions to wealth management in the marriage. Effective mediation can help couples come together to reach joint and mutual consensus that will ultimately be acceptable to both, thereby allowing the couple to embark on their lives together confident that the marriage will be based on mutually shared values.