Returning on another prenup mission I count my blessing that I did not cause a problem endeavoring to avoid one. An important component of succession planning is addressing the potential issues of successors which no doubt includes the considering the dark sides of marriage: death with a dependent widow and divorce.
I believe that succession planners must be willing to recommend, promote and when appropriate facilitate prenuptial agreements between successors and their fiancés. If not the succession planner, than who? Possibly the attorney, the accountant or another advisor could fill this role, but never should it be by the parent. In light of the natural complexities associated with bringing a new, often insecure person into a family, the fundamental goal is to achieve and maintain a positive relationship with the future in-law. A parent introducing this radioactive subject will naturally be resented by the in-law under the heading of “he/she questioned my motives for loving their child”. Furthermore, regardless of the best of intentions, for those who lack experience discussing this delicate subject an inappropriate word or gesture can be misinterpreted and create irreparable in-law relationship trauma.
I am an advocate of prenup agreements for several reasons. As a business succession planner, I use the cow metaphor: the cow (a.k.a. the business) can create plenty of milk (a.k.a. wealth) for all the owner’s family, spouse and children. However if due to a divorce you have to cut up that cow, steaks and hamburgers will not produce milk. Therefore, I believe it is everyone in the family’s responsibility to take preventive measures (such as prenuptial agreements) to protect the business.
Another reason is that business owners naturally worry about what will happen to the business interest gifted to their children if one of them gets divorced. Without a prenup and depending upon the circumstances of the divorce and the state of residency, the business could leave the family. Having seen this on several occasions I can safely say that an estranged in-law is rarely if ever a good business partner, generally being more akin to a nightmare. Consequently, in the absence of a prenup, business owners are typically reluctant to sell and/or gift stock to their successors. Their canned excuse is, “Let’s just wait a little longer to see how the marriage works out.”
The final reason is that in the absence of a prenup, business owners generally over complicate their estate plans. Their concern over the impact of a divorce typically generates trusts that attempt to protect the business ownership from a divorce. In fact, when I meet with an engaged family member and his/her fiancé, I recommend that they embrace the prenup concept because the net result will be the avoidance of complicated estate plans that preclude them from having direct access to stock, cash, real estate, etc. Sure they would get the income, but access to principle to do things as the please is a big deal. In fact, if down the road after the death of the parents, they were in agreement they could tear up the prenup.
Sign up for our monthly e-newsletter to stay informed on how to overcome related succession planning issues.
