Prenups, the Second (or Third) Time Around

By Anne Paape, J.D., Managing Director, Head of Wealth Strategy

Prenuptial agreements (“prenups”) have always been a bit of a sensitive topic among couples planning to get married, for obvious reasons. Prenups, when done well, can be thoughtful, equitable agreements that safeguard the assets and best interests of everyone involved, but too many couples still shy away from broaching the topic, let alone implementing an actual agreement. That can be a big mistake.

And for couples of significant wealth who are considering getting married for the second (or third, etc.) time, the stakes can be much higher … as well as the risk. Consider this: divorce rates among those over age 65 have tripled in the last few decades, from 5% of divorces in 1990 to 15% in 2022 (source: National Center for Family and Marriage). And while many people assume the divorce rate for second and third marriages is below the rate for first marriages, the opposite is actually true: 60% of second marriages fail and 73% of third marriages fail (source: USA Today, Sept. 2024).

That’s a lot of couples who will not experience their “happily ever after” the second (or third) time around. A thoughtfully executed prenup can help soften the blow. Below are some of the reasons why:

• Your balance sheet is likely larger than the first time you got married, maybe a LOT larger. Or perhaps you now own a business(es) you have spent years building before your new relationship blossomed. That of course can significantly complicate the division of assets in case things don’t work out.
• You also may have inherited assets from a first spouse or parent that you want to protect or at least have autonomy over where those assets will go after your death and potentially exclude those assets from those that may be divided in a divorce.
• You also may have children from a previous relationship, and you probably want to ensure the assets you bring into a new marriage are ultimately destined to be inherited by your children. A prenup later in life is primarily about protecting and providing for the children you have from other relationships, while balancing the financial needs of a new spouse and the next chapter of your life.
• It is also common later in life to have “family properties” or other significant assets that children, siblings, or others may have an emotional attachment to. It is important to include in a prenup how you would like those assets to be owned after your death or divorce. Otherwise, your new spouse may have a right to occupy or own those assets after your death or divorce.

It’s important to point out that prenups are often based on state law, with many states requiring a “fairness test” based on specific facts and circumstances. Some important circumstances to consider include:

• Your health condition, and the possibility of needing future long-term care from a partner. I had a client go through the prenup process at age 60, get married, and then the spouse suffered a major stroke. The wife had to quit working in order to care for him. To accommodate for that, they amended their prenup to provide her with more assets at his death in recognition of the change in her earning potential. While you can’t anticipate every calamity that could come your way, it’s worthwhile to consider what could happen and develop a prenup accordingly.
• Financial support for adult children or grandchildren from a first marriage. Many parents have arrangements with adult children to pay for their children’s education and other ongoing expenses, or even to make rent/mortgage payments. It is important to discuss these ongoing agreements and account for them in your “recitation of facts and circumstances” in a prenup agreement. Not that these things can’t change or arise in the future, but if you know about them going into a marriage, it is important to address them when developing a prenup.
• Retirement timing and/or decisions to prematurely retire. Often newlyweds have different ideas about the timing, as well as lifestyle expectations, in retirement. Maybe one partner is already retired and would like the other to retire when they marry so that they can enjoy more time together. But that also can mean a change in finances and earning potential for one party and should be addressed in a prenup.
• Relocating seasonally or permanently or traveling extensively. Sometimes couples decide to spend dedicated time in another location (such as over the winter) or increase the travel they do throughout the year. These decisions could mean that one spouse forgoes some career advancement, takes another job, or retires early. Or the couple may want to purchase or rent a second home or choose to move closer to an elderly parent. Any of those decisions could have significant financial implications and are worth considering in the prenup process.
• Combining households and equity in prior homes. I had a client who lived in a very modest home and who planned to sell it when she got married and moved to her new partner’s much larger home. The plan was to use her home equity to buy furniture for the new home, rather than set it aside as a separate, traceable non-marital asset. It was especially important for her to document that in the prenup so that they could use the funds in the way they wished as a couple, but without forgoing any financial rights she might have if the marriage ended in divorce.
• Health care decisions. I have seen too many families deteriorate during a family member’s illness or at the end of someone’s life because the new spouse and children did not agree on health care decisions and what ultimately happens when the family member dies. There are presumptive rights given to a spouse, so if you desire to have children or others involved in any health care / end-of-life decisions, it is important to incorporate those wishes into a prenup, as well as  your estate plan. For example, I had one client go to court over the location of the remains of her father. The father’s second wife had him buried in a cemetery plot for her family rather than the planned plot next to his first wife of 50 years. Obviously, not good for the family dynamics. Again, it is best to talk through these types of wishes and document them within a prenup.

Other Considerations for Prenups Later in Life

Qualified retirement accounts automatically pass to a spouse at death under ERISA (Employee Retirement Income Security Act) law, unless legally waived in a prenup or similar document. It is more likely that your retirement account is a significant asset later in life, and your intentions for how to pass on those assets may have evolved along with your relationship status. Without a prenup or similar legal document, your wishes for your retirement assets may not happen as you intend.

Many states consider the growth on businesses or other assets, even if owned well before a marriage, to be marital property unless agreed to otherwise in a prenup. Make sure to account for those assets in a prenup if this is a potential concern.

Increasingly I am seeing older couples struggle or not appropriately align on how to gift split or otherwise utilize both spouses’ estate and gift tax exemptions. For example, I had a couple plan to get married and then use both of their estate/gift/GST exemptions of $13.99 million to set up a $28 million dynasty trust that would benefit only her children and grandchildren, leaving no exemption left for his family, meaning anything passing to his family on his death would potentially be subject to 40% federal estate tax. This should be considered in a prenup, as the estate and gift tax exemption is an important “asset” to consider. It should not be assumed that the new spouse will agree to gift split without first discussing it in the context of the prenup.

Similarly, if you would like your new spouse to agree to provide for your children on their death through their estate plan, the only way to legally bind that is through a prenup or postnuptial agreement.

Lastly, it should come as no surprise that many older couples deal with some serious emotional hurdles in the prenup process, especially if there are wounds from a prior marriage. Ultimately, a prenup can help the healing process by allowing the couple to feel more secure regarding what they may receive in a divorce or in the event of their spouse’s death so that they can relax and enjoy their new life together. Negotiating a legally binding contract that everyone agrees is fair creates a less stressful environment, which can be extremely helpful going into a new relationship.

Contact us to explore your options for developing a prenuptial agreement.