Prenups are rare. Here's why that's bad for wealth management

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When Britney Spears announced her engagement to longtime boyfriend Sam Asghari last fall, Octavia Spencer had some advice. “Make him sign a prenup,” the Oscar-winning actress reportedly wrote on Spears’ Instagram page. 

The pop singer did just that, with Asghari later posting on his Instagram, “Of course, we’re getting an ironclad prenup to protect my Jeep and shoe collection in case she dumps me one day,” followed by crying-with-laughter emojis.

Fights over money are the top conflict-driven predictor of divorce, according to a study by scholars at Utah State University and Kansas State University. Yet only 5% of married couples have a prenuptial agreement, according to a 2021 blog post by HelloPrenup, an online platform that charges a flat $599 for the agreements, which elsewhere can cost thousands of dollars. 

The contracts are awkwardly timed. Just as couples prepare to walk down the aisle, they have to confront the idea that they could one day be filing for divorce or widowed and penniless. Still, wealth advisors are increasingly urging all soon-to-weds to sign one, whether they’re celebrities with considerable fortunes, debt-laden college graduates just starting their careers or middle-aged professionals taking another bite at the marriage apple.

“A prenup is a good idea for anybody, no matter who you are,” said Erika Shaw, the executive director of family governance advisory at J.P. Morgan Private Bank in New York. Those who don’t get a prenup before getting hitched — perhaps because they’re rushed or have overlooked things — should do a postnuptial agreement, she added.

Call it the risk management approach to matrimony, now on an upswing this summer. Weddings are surging in number following a two-year fall-off due to the pandemic, with The Wedding Report expecting nearly 2.5 million ceremonies this year, up from just over 1.9 million last year and fewer than 1.3 million in 2020, when COVID-19 emerged. In the decade before the pandemic, annual totals were just over 2 million. People are increasingly waiting before getting married, according to the Census Bureau, with women now nearly age 29 and men over age 30 — a pause that means they may bring more assets into a union that may later cause fights.

There are so many complex situations couples can’t or don’t foresee. Think of a stay-at-home dad who gives up earning income over 20 years while his wife climbs the career ladder. Or a spouse whose mate starts a hedge fund that hits the big time. Or an unmoneyed newlywed whose partner later inherits a fortune. Crafting a legal document that prescribes what happens financially when things go splitsville is painful, but doing so can avert a world of unforeseen pain down the line. “Life is fluid. Finances are fluid. Life throws you curveballs,” said Shaw.

Trojan horse
While data on prenups is scarce, a 2016 survey by the American Academy of Matrimonial Lawyers found that just over six in 10 divorce lawyers reported an increase in the number of clients seeking prenups, with the bulk of asks coming from millennials  (those born between 1981 and 1996, now aged 26-41).

A prenuptial agreement isn’t just a means for later divvying up a larger-than-expected windfall, a summer cottage on Cape Cod, a painting with special significance for one party or the family pets. It’s also a Trojan horse for immediately opening up broader conversations with clients about money, values and goals. 

“Open, honest conversations early on in the relationship reduce the likelihood of future conflict,” said J.P. Morgan’s Shaw. “They can be uncomfortable, but they build trust.”

If it’s stressful for a bride and groom, it can also be challenging for an advisor, who often has to deal with freshly surfaced, hot-button issues.

Patrick Kilbane, a partner and director of the divorce advisory group at Ullmann Wealth Partners in Jacksonville Beach, Florida, knows that first hand. An affluent client in his 60s who is getting married next week spent one year discussing a prenup with his soon-to-be bride before both signed the document last week. Kilbane, a lawyer, had dinner with the pair, each successful executives in Florida, around two weeks ago after the groom said he didn’t want his betrothed to hire her own lawyer to vet the document. 

His client, Kilbane said, “had PTSD from his divorce” and was worried a prenup vetting would “turn things into a negotiation and a litigious situation before they even got married.” The groom’s response initially upset the bride, but she came to understand that “the word ‘lawyer’ just brought back some bad memories for him,” Kilbane said. 

Prenups are governed by state law, with most states, including Florida, requiring both sides to have separate lawyers for the process. For couples in states that don’t require that, including California, advisors say both sides would be wise to hire their own lawyers anyway.

It’s usually a financial advisor who first uncovers financial issues that could become contentious down the road. 

“I’ve seen couples who don’t know what the other person is bringing to table, whether it’s debt or a large inheritance,” said Shaw. She cited a client whose daughter is set to be married to a “less moneyed” fiancé who recently sat down for a conversation and was upset to learn that his future bride could expect a large windfall. The bride was also surprised. Her family wanted a prenup. 

“You wouldn’t believe the number of people who don’t even know what their parents have,” Shaw said.

With the agreements, Kilbane said, “it’s like negotiating your divorce before you even get married.” Still, he added, “I always advise people strongly that they need to have one.”