5 Tips to Discussing Pre-nups with Clients
Part of a financial advisor’s job is to plan for an unknowable future and ensure that their clients are prepared financially for whatever may come at them in life—part of this is protecting your clients that are getting ready to walk down the aisle. Approaching clients with the idea of adding security with a prenuptial agreement isn’t always easy; many people will initially view it as unnecessary and, of course, unromantic.
There are some compelling arguments for a prenuptial agreement for your clients—the high divorce rate and the fact that not every state has clearly spelled out the laws on spousal support. If you can get your clients on board, arranging the prenuptial agreement isn’t difficult. Negotiations happen at a time when both parties are optimistic about the future.
Pave the way for the conversations about prenuptial agreements by asking your single clients about their relationships—mention something, even if it’s jokingly, about your hope for consideration of a prenuptial contract when the time comes. Try to reason with your clients so you aren’t surprised by a quick engagement or wedding. This will also allow you, as their financial advisor, to present the idea to a client when they’re less likely to react emotionally to the notion.
Sometimes, parents are the ones who push for an agreement. Perhaps, the client’s child just received a large inheritance, and the parents want to protect those assets in a prenuptial agreement.
Here are some tips that can help you work with your clients to create a successful prenup:
Agreeing on a prenuptial contract takes time. Most people wouldn’t put off finding a photographer a week before their wedding—why wait for a prenup? These contracts demand planning, six months is the standard. This planning is necessary—if the prenup is negotiated quickly and close to the wedding date, one party may be able to claim that they signed under duress if the relationship comes to an end.
This can present a problem in California—a state law provision states, “It shall be deemed that a premarital agreement was not executed voluntarily unless … the party against whom enforcement is sought had not less than seven (7) calendar days between the time the party was first presented with the agreement and advised to seek independent legal counsel and the time the agreement was signed.”
Resistance to prenuptial agreements often arises from those clients who have more assets in the partnership and do not want to be insulting by painting their partners as gold diggers.
The best plan of action? Advise clients (gently) to get over it. Prenuptial agreements can also be structured as protection for the other half of the partnership—allowing both parties to lay out terms for financial support, even if the marriage were to dissolve.
3.) Discuss Assets as Well as Liabilities.
This is crucial considering the level of student debt that younger people are carrying at this time. It’s true, younger couples don’t often have much in the way of assets should the union dissolve, however, it’s important to discuss the couple’s debt load as well.
If one person in the couple has an exorbitant amount of debt going into the marriage, that is something that not be shared in the event of a divorce.
4.) Allow for Some Give.
Marriages (and relationships) change with time. In ten years, that stay-at-home spouse may become head-of-household. Any prenuptial agreement should allow for adaptation as well.
Some agreements can include vesting schedules in the event of spousal support—with the amount increasing as the time married passes by.
States all have different laws as far as inheritance is concerned, but prenuptial agreements can have provisions to detail out what happens if 2nd or 3rd marriages dissolve, leaving behind children from previous marriages.
6.) Use Examples
Hollywood stories regarding prenuptial agreements (or lack thereof) are popular for a reason. When you are discussing prenuptial agreements with your clients, it’s a good idea to use examples.
But for most non-celebrity clients, prenuptial agreements are essentially just another insurance policy. Clients buy homeowner’s insurance, not expecting their homes to burn down, but to protect them if they do. Why wouldn’t your client’s assets be the same?