Marriage of an adult child is typically an exciting time. While upcoming nuptials are often considered a celebratory milestone for families, they also mark an important moment to consider potential future issues that your adult child may not. Unfortunately, those considerations include divorce—and the loss of a significant portion of your child’s inheritance if no prenuptial agreement (“prenup”) is signed before marriage. While it may be a sensitive topic, a prenuptial agreement can be a useful tool in eliminating uncertainty, as it often addresses many issues that arise between prospective spouses, including: Defining Property: A well-written prenuptial agreement defines what property is deemed each spouse’s “separate property” (i.e., property he or she came into the marriage with) and may also identify gifts, inheritances or property from family trusts as separate property that cannot be subject to division in a divorce. Setting Terms of Spousal Support: A prenuptial agreement may waive alimony entirely (i.e., establish that a spouse is not entitled to any support in the event of a divorce) or may set forth the terms of that support based on length of the marriage. Addressing Debt: Typically, prenuptial agreements make each spouse individually liable for his or her debt (if any) prior to the marriage and then outline who is liable for any joint marital debts. Updating the Estate Plan: The prenuptial agreement also addresses each spouse’s disposition of assets on death and sets the “floor” of what each spouse must leave the other. For example, the estate planning portion of the agreement may include a requirement that spouses buy life insurance to protect the other spouse in the event of an untimely death. Carving out Family Assets: Prenuptial agreements often aim to keep family assets out of the marriage. Meaning, if a spouse is a beneficiary of a family trust, his/her spouse will not be entitled to distributions from that trust. Determining Jurisdiction: Prenuptial agreements address which state law will govern in the event of the couple’s divorce. In an increasingly global society, prenuptial agreements help eliminate a great deal of uncertainty with respect to the applicable law at the time of divorce. It’s important to understand—and communicate to your child—that wanting to protect their wealth isn’t only about money or completely cutting off the divorced spouse. Instead, it’s about adding clarity to these potential situations and establishing a shared understanding of who will get what. Clarity and shared understanding are the two key principles that we seek to resolve with the creation of a prenuptial agreement. Things like mementos and family heirlooms could fall into the hands of someone who was not intended to inherit those items. Without a prenup, an ex-spouse may go on to make a new family but also potentially inherit your wealth. That legacy could pass to their new spouse and children, who are not necessarily going to stay part of your family. The reverse is also true. If your child goes on to remarry, they may not be able to bring some of those valuable financial and intangible assets into their new relationship. Understandably, parents want to safeguard against those kinds of losses. Fortunately, there are ways to protect a child’s legacy while also allowing for the couple to benefit from a wealth transfer during their time together. For families who want to encourage an adult child to consider a prenuptial agreement, it is advisable to bring this topic up early and often. This way, signing such an agreement becomes a family precedent and is not viewed as a reflection of the family’s view of the child’s future spouse. If an adult child does not wish to sign a prenup, there are other planning techniques to consider, including updating or reviewing your estate and trust planning or establishing a family LLC. Marriage of an adult child is an important time for parents to review their estate plans and ensure that they are drafted in a manner that contemplates a child’s marriage – and potential divorce. In most states, trusts established by third parties (i.e., a trust established by a parent for a child) are less likely to be subject to division in a divorce. But to help provide increased protection from a potential creditor spouse, these trusts should not include mandatory principal distributions at a particular age or withdrawal rights for the beneficiary spouse. We also advise that the trusts are wholly discretionary and have an independent trustee to help mitigate any argument that the beneficiary spouse may make in an attempt to compel the trustee to make distributions to him/her. Another planning technique families may consider to protect assets in lieu of a prenuptial agreement is use of an entity, such as an LLC, to hold family assets. An LLC or other business entity may include buy-sell provisions that will help shelter assets from a child’s divorce and prohibit a non-family member from owning any interest in the family entity. Use of a family entity is often a preferred planning technique for cross border families and may eliminate the complexity of estate and trust planning across multiple jurisdictions. In all cases, we believe that thoughtful and careful estate planning, in conjunction with a prenuptial agreement, is best way to safeguard family assets. For a more comprehensive conversation, don’t hesitate to contact us MORE ON THIS TOPIC The Family Mission Statement and Strategic Plan We believe a family mission statement—and a strategic plan to implement that mission—allows a family to filter out the “background noise” of day-to-day challenges and focus on long-term goals and objectives. Developing these documents provides a process for reaching agreement on the family’s core values and creates a shared vision among all family members.Learn more > The views expressed are those of Brown Advisory as of the date referenced and are subject to change at any time based on market or other conditions. These views are not intended to be and should not be relied upon as investment advice and are not intended to be a forecast of future events or a guarantee of future results. Past performance is not a guarantee of future performance, and you may not get back the amount invested. 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