In this week’s Family Legacy Planning email, we continue with the theme that we’re in “the year of the wedding.” Over the last two weeks, we’ve focused on the impact of marriages on a family’s human capital. We identified “hot button” issues related to wedding planning and bringing a new member into the family. If not handled carefully, those hot buttons can create fires in family relationships and disturb the emotional well-being of family members, setting a family’s human capital ablaze. As estate planners, our mission is to help families steer clear of those fires and preserve healthy, harmonious relationships.
When a couple plans to marry, there is a tension between preserving harmony at all costs versus addressing necessary financial matters. That tension can make you feel like you’re walking a tightrope. Though it’s tempting to avoid the topic, protecting family assets is an important part of estate planning. Families work hard to create financial security. There is also an emotional attachment to certain family assets, such as a family business, heirlooms, or other legacy assets. It’s a valid goal to preserve those assets and protect them from division by a family court upon the unfortunate incident of divorce.
The purpose of a prenuptial agreement (a “prenup”) is to clarify certain items in order to prevent (or at least diminish) disputes down the road. What can a prenup do? Prenups can clearly identify the separate property assets each party brings into the marriage. Under Texas law, income earned on those assets will be community property. However, a prenup can override that law and provide that income earned on separate property assets will remain separate. Prenups can also address how to treat wages, retirement plans, debts, financial responsibilities, tax filings, homestead rights, and division of assets/spousal support upon death or divorce. These clarifications can be especially critical if either spouse comes into the marriage with children, in order to reduce the risk of later disputes between those children and a surviving stepparent. A prenup can even address non-financial issues such as child-rearing, religious upbringing, division of household responsibilities, etc.
As wedding hot topics go, it’s easy to see that a prenup may well be the hottest. So let’s explore some prenup tips to help keep it from becoming a potential tinderbox.
- Start the prenup process early, long before the wedding day.
- Complete the process well in advance of the wedding.
- Each party is well-advised by his or her own attorney.
- Let the lawyers do as much of the talking directly with each other as possible.
- Provide a full disclosure of each party’s finances, or get an informed, voluntarily-signed waiver.
- Note that a prenup is about more than property division upon divorce; it also can protect one spouse’s assets from claims that might arise against the other spouse, such as an auto accident or a medical malpractice claim.
- Avoid sharp dealing, overreaching, harsh negotiation.
- Establish a “family policy” that all marrying couples have a prenup, ideally long before anyone gets engaged.
- Try to achieve as many property protection goals as possible through a “prenup alternative.”
A prenup alternative involves the use of irrevocable trusts and entities to protect assets. In next week’s email, we’ll dive into prenup alternatives and explore how estate planning can convert what would’ve been “marital property” into “non-marital property.”
We are not suggesting that a prenup can be completely painless. We are not naïve; prenups are not a romantic topic. However, by following these best practices, our mission is to help you keep the temperature cooler and keep as much focus as possible on the loving relationship.
Marvin E. Blum
Laurie and Marvin Blum at their wedding 43 years ago—white lace, promises, and so much to celebrate!