A prenuptial agreement can be a delicate topic. Here’s how it can help protect your wealth and legacy.
The idea of a prenuptial agreement may seem like an unromantic start to what should otherwise be a joyful occasion. Yet it can be an important and useful document for marriages involving families with significant assets.
Since 2000, crude divorce rates have increased in most Asia Pacific countries. Overall, countries with higher crude marriage rates tend to have higher crude divorce rates. While no soon-to-be spouse wants to plan for a marriage to end, the fact is divorce happens. Making sure your prenup is right for you, and drawn up correctly, can help protect you and your wealth.
A prenuptial agreement is a written contract between two people who are planning to get married.
A prenup generally addresses the division of assets if a marriage breaks down. And if done properly, and discussed early, it can be an effective solution for all parties involved.
A prenuptial agreement can also be an effective way to avoid court proceedings and minimize the potential financial and emotional toll on a couple if the relationship ends in a divorce.
“A prenuptial agreement can be very clear in laying down an understanding from both parties [on] what properties are shared between the couple,” points out Vivian Kiang, head of Wealth Planning and Trust Administration at RBC Wealth Management in Asia.
Bringing up the idea of a prenup with a potential spouse can be a delicate matter. The first step for multi-generation wealth holders is to have an early conversation with their children around expectations when it comes to any future partners joining the family.
When families have a prenup conversation early—perhaps even before the child has met their future partner—it reduces the emotion attached to the topic. The focus should be on how a prenup can protect the family’s wealth and legacy, and not an emotional reaction to the person joining the family.
That crucial conversation also needs to start well ahead of the marriage.
“It’s important to consider how a prenuptial agreement is drafted and executed,” Kiang says. She explains that as a prenup is a legal document that requires time to write and review, the best way to begin a prenup process is to structure it as a conversation.
“It may be difficult but as a couple, as you get to know each other, that is the time you can fit prenup [in] as a topic rather than waiting until after the marriage proposal, which can be unromantic,” Kiang points out.
She suggests normalizing the conversation on prenuptial agreements rather than making them seem like a taboo topic. This will reduce miscommunication and misunderstanding from both sides.
As a prenup involves the division of assets between a couple, they should first separately list out all their assets and liabilities, suggests Octavia Liu, wealth planner at RBC Wealth Management in Asia.
“Put that list on the table and decide which assets you prefer to keep,” Liu says. She suggests checking with a trusted advisor if this list of preferred assets works for you before having the agreement drafted.
Then sit down with your soon-to-be spouse and your legal counsel and discuss these things candidly. Which assets will be held separately and which assets will be treated as marital property, and why?
Fully disclose each party’s assets and debts. Decide how property will be purchased and titled during the marriage. Are you willing to commingle marital funds to purchase assets? How will the joint property be divided in case of divorce? How will household expenses be paid? How will you deal with personal debts incurred before the marriage?
It is important to note that the legislation on marriage varies between jurisdictions. Couples in a cross-border marriage with assets in different jurisdictions should consider the law of all related jurisdictions when drafting their marriage agreement.
Below are how a few jurisdictions treat marriage agreements:
Liu points out that while it’s true that a cross-border marriage involves complexities when it comes to prenup discussions, “having a prenup is still better than not having a plan at all.”
“A prenuptial agreement lasts forever but circumstances change, and that would mean that the contract might have to change as well,” Kiang highlights.
A prenup agreement is aimed at preserving wealth, protecting assets and clarifying the financial rights of both spouses. It should establish and clarify the couple’s financial relationship and intentions regarding separate property, inheritances and property acquired during the marriage.
It should also delineate how assets will be divided, whether and how spousal support will be paid and how future earnings will be handled. This plan should explain the process and treatment of specific assets such as those set aside for children or assets that have been in the family for generations.
“Sometimes in reality, [a] marriage is not between just two people but between two families,” says Kiang. While there may never be a perfect time to broach the subject, doing it early, honestly and sensitively can help remove a lot of the emotion and maintain family harmony going into what should be a happy occasion.
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