A New Way to Use a Prenup
The agreements are increasingly being used in second marriages between people of equal wealth
PHOTO: GETTY IMAGES
By MATTHIAS RIEKER
March 12, 2015 12:02 p.m. ET
Prenuptial agreements have long been used to protect the assets of a far wealthier partner in a marriage.
Now they are also being used by couples who enter marriage as financial peers to help establish financial parameters, according to experts and advisers. In many cases, both parties already have successful careers and significant assets, as well as important commitments to children from prior marriages, they say.
These kinds of prenups typically address issues such as how the couple will pay for a new shared home; which investments they will mingle or keep separate; and who will inherit each partner’s assets—not how much of a family’s fortune might be shielded from the newcomer.
“That was the typical thing: The affluent playboy marrying the meter maid. That’s how we think about prenups,” says Eleanor Blayney, who serves as a consumer advocate at the Certified Financial Planner Board of Standards, a trade group based in Washington.
The agreements “have grown up,” she says. “They’ve expanded in terms of why we use them. It’s not just, ‘Well, if this marriage doesn’t work, I take my toys and go home.’”
When Sarah Quist remarried two years ago, her new family ended up with dual incomes and retirement plans—and a total of eight children. Ms. Quist, who is 51 years old and a financial adviser based in Portland, Ore., and her new husband, a homicide detective, signed a prenup that she wrote up.
Their agreement is focused on making sure that any retirement savings she may have when she dies will go to her four sons, and that her husband’s pension benefits will go to his four daughters, she says.
“It’s not about wealth,” Ms. Quist says. “I have worked for 30 years, and he worked for 30 years. We are protecting that.”
Prenups aren’t public documents, so there is no way to track how frequently they are used. But advisers say they are being used by more couples in a wider array of circumstances than in the past.
“We do prenups for a lot more people than we have ever before,” says Rick Bloom, an adviser at Bloom Asset Management in Farmington Hills, Mich.
The shift reflects, in large part, the growing economic power of women, advisers say.
“There is now a substantial minority who outearn their husbands,” says Heidi Hartmann, president of the Institute for Women’s Policy Research, a Washington-based think tank. “If you have high earnings and that retirement account, and even some assets built up in your own business, you sure are going to protect it.”
As with traditional prenups, the new agreements can raise thorny issues—though they are likely to have less to do with the risk of bruised feelings at the start of a marriage, and more to do with how to value different kinds of assets in a fair way.
An entrepreneur’s startup firm, for example, might be worth more than her spouse’s investments. But in the event of a divorce, it could be more difficult to extract income from the business, says Susan Sofronas, a managing director at Geller Family Office Services in New York.
Even everyday retirement accounts can pose problems, according to advisers. The income from a 401(k) retirement account is taxed but the income from a Roth individual retirement account isn’t, so the spouse with the 401(k) could be at a disadvantage in a divorce even if both accounts have roughly the same balances.
Mr. Bloom, who is also a lawyer, says prenups can be designed to compensate spouses for assets that are worth about the same on paper but generate different cash flows.
Typically, the prenup document is drafted by a lawyer, though financial advisers often get involved. Some advisers suggest prenups as soon as they learn that a client is planning to get married, says Ms. Blayney.
Mary Ann Tarr, 71, turned to her longtime financial adviser, Herb White, who is based in Greenwood Village, Colo., when she decided to get remarried after her husband died.
“She was concerned” that getting remarried would affect her IRAs, Mr. White says.
Ms. Tarr, who is retired, says she and her future husband will share some housing expenses, but her goal is to leave her investments to her son, just as she and her first husband had decided they would.
“My husband-to-be doesn’t want anything,” she says. “He has his own.”
Article Courtesy of: THE WALL STREET JOURNAL