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May 3, 2017 | by Merrill Lynch

Tying a Better Knot

Steps to pave the way in welcoming a child’s spouse into a successful family

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Like most marriages, this one started with joy and promises of a lifetime of devotion. The daughter of a successful businessman and her fiancé shared a passion for human rights causes, the outdoors and travel to exotic locations. While the marriage lasted a few years, the couple found themselves falling out of love soon after the honeymoon.

As the couple careened toward divorce, their relationship became more acrimonious. They soon were embroiled in a confrontational settlement process, during which the husband threatened to seek a share of the successful privately held manufacturing businesses that the young woman’s parents and grandparents had built and the family still owned. “The nature of those businesses made them very difficult to value,” says Stacy Allred, managing director and head of Merrill Lynch’s Center for Family Wealth Dynamics and Governance™ and Strategic Wealth Advisory Group. Worse was the prospect of having a decidedly hostile outsider, who had never worked in the businesses, as a partial owner.

Fortunately for the young woman and her family, they didn’t have to worry about any of those unsettling scenarios. A strong prenuptial agreement ensured that the family enterprise was off-limits in the case of divorce.

While “happy ending” may not quite apply, the resolution to the story of the family-business heir and her estranged husband underscores how important it can be for families, even amid the excitement of an approaching wedding, to consider the financial implications of a marriage. “Everyone worries about whether an investment will have a positive return,” says Arlene Dubin, a Manhattan-based matrimonial attorney and author of Prenups for Lovers: A Romantic Guide to Prenuptial Agreements. “But a marriage is an investment that can cost 50% of a person’s wealth. So naturally parents are concerned when their children marry. Divorce is the quickest way I know to lose half of what you have.”

Overcoming prenup resistance

Prenuptial agreements admittedly are hard to warm up to. Many couples worry that such contracts raise the possibility of failure before a marriage has even had a chance to succeed. People marrying for the first time tend to be especially resistant, Allred says. She estimates that, among the wealthy families she works with, only about 65% of first-time newlyweds take the precaution of a prenup, compared with approximately 85% of those entering a marriage in which at least one partner has already been divorced.

According to Valerie Galinskaya, a director of Merrill Lynch’s Center for Family Wealth Dynamics and Governance™, prenups can be much easier to accept if broaching the topic is seen as an extension of a family’s overall approach to money. “More and more, families are recognizing the importance of communicating with their children to help set context and manage expectations of the opportunities and responsibilities of family wealth,” she says. “Understanding the intent and values behind the family wealth can empower children to better communicate and plan with their future spouse.” In this context, a prenup becomes just one part of a broader discussion about how the new spouse is going to fit into the family dynamic.

Such a dialogue is as much an opportunity to encourage involvement in family affairs as it is a means of protecting family assets. Handled correctly, it’s also a meaningful way to help a marriage get off on the right foot. 

 

To download the complete whitepaper Tying a Better Knot by Merrill Lynch, please click the button above.