Happily ever after?

You can have positive, productive conversations about whether pre-nups suit your family’s values and wealth preservation goals.

It’s too easy to imagine how conversations about pre-nuptial agreements between parents and a child on the verge of marriage could go wrong.

The parents might think that suggesting a pre-nup is an expression of their love: it’s their job to protect their child’s interests; nobody can predict the future; 50 percent of all marriages end in divorce; divorce is one of the key threats to wealth preservation; and it is okay because pre-nuptial agreements are used around the world to help mitigate these risks.

A child filled with hope for the future might understandably see it otherwise. He might think his parents are trying to control him. She might think her parents have no faith in her choice of a spouse. Imagine having to raise this topic with the person you love.

Potential disaster.

How can couples and families discuss this delicate topic in a safe and constructive way so that all participants’ feelings are honored, a collective decision based on the family’s values might be made, and good feelings prevail?

We suggest you consider including a conversation about pre-nups with your family as you assess your risks—whether you ultimately decide they are kryptonite or as necessary as a seat belt.

There are ways to have conversations about this delicate topic that not only prevent future litigation but can actually promote family harmony. From our long experience with families, we share the following best practices:

Establish family policies

First, it’s important for families interested in preserving wealth across generations to craft a wealth strategy that supports this goal and addresses all potential risks. Therefore—long before any potential spouses come into the picture—all members of the family should be made aware of the threat that divorce might pose to a family’s long-term aspirations and talk about how the family wants to handle it.

Divorce isn’t the only risk. At the same time, the family should address all the major risks to wealth preservation. That includes excessive leverage, lack of succession planning, poor family preparation, and general litigation risk. Your J.P. Morgan Private Bank team can help you identify the risks your family might face, consider your options for managing them over time, and establish a process for periodically reviewing family policies.

If, in the end, your family decides to recommend or even require (for inheritance) pre-nuptial agreements, everyone will know it has nothing to do with their choice of a spouse. Also, future spouses will know they are not being targeted individually. The policy on pre-nups simply reflects the long-term aspiration of the family into which they are marrying. The children, their spouses, and their children will also benefit from this policy.

Indeed, some families draw up a generic term sheet for the sake of consistency across different family members. Such a tool should be discussed thoroughly with the family’s lawyers. At the very least, it is valuable for your lawyers to see the family charter, if you have one, to understand the long-term aims and aspirations of the family.

Create positive conversations

If your family opts for pre-nups, merely saying so is not enough. You’ll also want to take steps to ensure that the conversations future couples have on this topic are handled with sensitivity, knowledge and fairness.

To that end, we recommend the family:

• Take a positive view and share their long-term vision for the wealth as the context for a pre-nup
• Welcome potential spouses with respect
• Arrange for a lawyer to share information about the process and consequences of a pre-nup before embarking on creating one (the requirements for a valid pre-nup vary across jurisdictions)
• Ensure each party has his/her own independent legal representation
• Make sure the family’s lawyer is collaborative and considers not only financial outcomes, but also relationships

Talking about money as a couple can be both rewarding and helpful. Psychologists and financial advisors also can play an important role as facilitators of discussions around this topic. For one thing, they can share context: case studies of similarly situated families. They also might help the couple articulate their values and approaches to money.

Such conversations can be extremely beneficial if they help the couple cover each partner’s expectations around:

• Roles when it comes to employment and earnings—now and how each might feel if any of these change during their marriage
• Spending, budgeting and investing—how finances will be managed (and each person should be honest about their interest and capacity for these tasks )
• Family wealth—stewardship responsibilities and the opportunities and challenges this may bring
• Respect – social pressure can often link an individual’s financial status / contribution with respect in a relationship; couples should be encouraged to explicitly state what qualities they respect and admire in each other that have nothing to do with their financial status

Know what a pre-nup is and how it works

It also helps for everyone to be clear about what pre-nups can—and cannot—accomplish.

Generally, the laws of the residence of the couple govern a divorce. With global families who may live in multiple countries, it makes sense to ensure that your pre-nup complies with the most stringent requirements.

Laws in each jurisdiction vary, so seek independent legal advice to understand if a pre-nup is relevant in your jurisdiction and how a pre-nup agreement works there. However, generally speaking, many jurisdictions across the world allow a couple to enter into a pre-nup that sets out their agreements on their finances should they divorce.

In many jurisdictions, courts are obliged to determine appropriate and fair divorce settlements. Often, they will uphold an appropriate pre-nup, so long as each party entered into the agreement freely with full appreciation of its implications and had independent legal advice.

To give the best possible chance for a court to accept a pre-nup, each party should:

• Have independent legal advice and enter into the agreement freely
• Fully disclose all the assets they own when entering the marriage
• Discuss and agree the pre-nup well before their wedding

The agreement itself must not seem one-sided; it should be financially fair to both parties.

We can help

Pre-nuptial agreements may loom large on the emotional landscape, but they are just one aspect of a family’s overall wealth strategy.

Your J.P. Morgan Private Bank team is available to help you and your family articulate your vision for family wealth and the values that will guide decision making on the full range of financial matters. That is what we have been doing for our clients for more than 200 years. We are happy to share with you all we’ve learned.