Why Affluent Parents Are Increasingly Involved in their Millennial Children’s Prenuptial Agreements
As baby boomers age and American families prepare for a historic generational wealth transfer predicted to exceed $60 trillion, affluent parents are becoming more vigilant about effectively protecting their family’s assets. Their children, the millennial generation, will ultimately be responsible for managing inherited estates and businesses, along with gifted assets.
As with all prenuptial agreements, the hope is that once it has been signed, it will never be seen again.
According to a national survey of the American Academy of Matrimonial Lawyers, 62 percent of divorce attorneys surveyed saw an increase in the total number of clients requesting prenuptial agreements in recent years and more than half cited an increase in the number of millennials having the contracts drawn up. But here’s the interesting twist: Many matrimonial attorneys, including myself, are seeing an increase in the number of millennial parents inserting themselves into the prenuptial agreements process for their children and making their own voices heard as the contracts are being negotiated and drafted.
In many cases, the parents are encouraging—and even insisting—that their child enter into a premarital agreement. Inevitably, this insistence can cause tensions in the relationship and the wedding plans. However, in some circumstances, it can also provide a type of cover for the request, by making it clear to the future spouse that the parents are the true source of the request. In other circumstances, the future spouse may be expecting the request, especially where there is significant family wealth or family businesses.
This direct involvement by the parents is often motivated by concerns about protecting family wealth, inheritances and businesses that could very well be placed at risk if the marriage ends in divorce. Parental involvement can start early. Sometimes, parents involve themselves at the beginning of the process by offering the initial recommendation or assisting with the selection of an attorney. Often it is the parents’ business, trusts and estates or family attorney that recommends the consideration of the premarital agreement or the attorney.
There are unique advantages to having parents involved in the negotiation process. In some cases, the parents, as opposed to their millennial child, have a more intimate understanding of the family’s finances. The child may be unaware that he or she owns certain familial assets or is a beneficiary of a trust established by the parents. In those situations, parents can be helpful to both the child and the child’s lawyer in making sure that all of the child’s assets are properly disclosed and accounted for in the prenuptial agreement. Since the process can become very stressful for the child and future spouse, it can be a source of relief to have the parents assume the adversarial role rather than the child; in my experience it alleviates much of the millennial child’s stress. A direct parent can help streamline negotiations, thereby reducing the possibility of delay.
Of course parental involvement in the prenuptial agreement process is not without its disadvantages. Problems can arise if the parents become overly involved and try to undermine the wishes of their child, who is ultimately the client. All too often, I have found there is a real temptation for a parent to dominate the prenuptial agreement process. It is essential to remember that the goal of drawing up a prenup is to protect the assets and interests of the family and the child; it should not be used as a way for the parent to impose his or her views about finances or the future spouse onto the child.
Some parents involve themselves in the process in an attempt to limit the disclosure of information relating to certain assets, such as family businesses and trusts. An unwillingness on the part of these parents to fully disclose certain assets only causes further delay and will likely impact the enforceability of the prenuptial agreement in the event of a divorce. When this occurs, many lawyers, including myself, have refused to draft prenuptial agreements for the child. Privilege issues will also arise if the parents insist on attending meetings or participating in phone calls with their child and the lawyer. To avoid these issues, all involved should be open about their expectations and clear about their roles as early in the process as possible.
A prenuptial agreement can provide both high net worth parents and their millennial child with an extra layer of protection and peace of mind regarding the family’s wealth. As with all prenuptial agreements, however, the hope is that once it has been signed, it will never be seen again.
Janet Battey is a founding partner at the Darien, Conn.-based matrimonial law firm of Ferro & Battey.