Bringing up the idea of a prenup can be a tricky topic for someone who’s about to be married. But prenuptial agreements can be a delicate matter for advisors, too.
“They can come back to give you trouble,” says Sheryl Rowling, who heads a tax advisory and financial planning firm in San Diego.
Nevertheless, “Financial advisors should tell clients to consider a prenup, and point out what could happen without one,” says Rowling, who is also CEO of Total Rebalance Expert, a portfolio rebalancing software company.
A high-net-worth individual who goes into a marriage without such an agreement might suffer financially if the union ends in a divorce and a costly settlement. Similarly, if that HNW client dies and most or all of the assets pass to the surviving spouse, that outcome might not be desirable to other potential heirs, such as children from a prior marriage.
For Rowling’s clients planning to wed, she’ll send a memo pointing out the reasons for executing a prenup. A copy in her files can show that she did indeed offer the cautionary advice.
In some cases, clients will use her advice to help broach the idea and get a prenup executed: an HNW individual who tells an intended spouse, “My financial planner says I should have a prenup” is less likely to douse a romance than one who opens the conversation with, “Let’s talk about how much of my money you stand to get, dear.”
While documenting prenup advice may protect a planner from subsequent claims if the lack of a prenup proves costly, the presence of a prenup also has its perils.
“Generally,” says Rowling, “I’ll first discuss a prenup with a wealthy client who is about to be married. After a couple decides to go through with the agreement, I’ll meet with both parties to go over the financial aspects. If I appear to be siding with my original client, I’ll risk alienating someone who is likely to be the new husband or wife.” Rowling’s ongoing advisory relationship with this couple could be jeopardized.
How does Rowling avoid this double jeopardy? “I explain that I am not a couples counselor,” she says. It’s between the two spouses-to-be to decide whether they want a prenup, and to work out any issues that might arise from agreeing to agree.
Rowling also makes it clear that she is not an attorney. It’s up to the couple to decide upon legal representation. “Often,” she says, “the wealthier individual will hire the attorney to draft the agreement and the other party’s attorney will review it, to suggest any changes.”
As for her role, Rowling sees herself as the advisor who prepares the couple for meeting with their attorneys. “I’ll meet with the couple and get an idea of what their goals are, in case the marriage ends in divorce or death,” she says. “By explaining the financial details, I try to help them both understand what the agreement will mean.” Then it’s up to the lawyers to produce a palatable prenup.
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