Seven “Do Nots” Before They Say “I Do”
Of all the milestones in a family business owners’ life, perhaps none are more stressful and uncertain as the dreaded prenuptial agreement, or prenup. At what should be the one of the happiest times in any family’s life, badly handled prenups can throw a damper on that joy.
Often what trips family business owners is not the concept of a prenup – it’s the myopic way that many owners approach prenups. Because the prenup agreement is typically initiated by parents worried about protecting both the business and the family, or well-intended lawyers doing their best to prevent any possible disruptions to the family business, the process can have lasting, negative consequences for both the newlyweds and the whole family.
In our experience, there is a better way to navigate the emotional, social, financial, and legal minefields of prenups, but it requires a careful consideration of the prenup process from start to finish. Starting this process right is critical, and missteps can happen at any turn. We offer here a collection of “Do Nots” that will give you the best chance for an enduring marriage and healthy relationship with the family business after the lucky couple says “I Do”.
#1: DO NOT link the prenup to a higher calling or value, such as protecting the business.
When parents tell their engaged children that they need a prenup to “protect” the family business, the immediate question it prompts is: “protect from whom?” Suddenly, the future in-law has been transformed into an “outlaw” who threatens to disrupt or take what generations of family members have built. The implication is clear: the family must unite to protect the business from this external threat.
Instead, reframe the conversation from protection to predictability. The real focus of a prenup is the ability to plan. It provides some certainty in an uncertain environment—certainty of transition of assets (whether it is because of divorce or death), including to the next generation of family members. It also provides predictability for the larger family because everyone recognizes that it’s very difficult when a divorce looms to come up with a fair and reasonable settlement.
In our experience we do find that having a uniform, family-wide policy on prenups is preferable over something that appears to be a one-off targeted at one person or one couple. But there is a big difference between saying “this is a family-wide policy to provide more predictability for everyone” versus “a family-wide policy to protect the business”.
#2: DO NOT play hardball. Marrying into a family business often involves asymmetries of wealth, resources, information, relationships, and trust. Giving a little upfront can get you a lot down the road.
Any sensible prenup process will involve the new in-law getting independent legal representation. And many times, that attorney will end up advising the client not to sign the prenup. That’s a tough sell when the in-law’s attorney is saying it’s their professional recommendation not to sign.
Why do attorneys advise in-laws not to sign prenups? Because at the end of the day, prenups often are contracts between unequals. Objectively, it is against the in-law’s interest to sign and waive away so many rights that are provided under law.
Instead, look for ways to give the in-law the dignity that they had the option not to sign the prenup by adding value and certainty for the in-law through upfront gifts and parting gifts. By making the prenup less one-sided, it creates more of an element of choice – the in-law is choosing to sign the prenup (they receive some meaningful value/certainty in connection with the prenup) rather than being forced to (they receive zero benefit/certainty in connection with the prenup).
For example, one 3rd generation business owner purchased a multi-million-dollar house for their 4th generation son who was about to be married—the house was picked out by the couple (not the parent), titled in the son’s name, and upon marriage was retitled in the couple’s name. Another business founder provides seed capital ($2-3 million) to support a new business venture of the in-law or the couple. “I thought it was important to give the couple a new start. Something they can build together.”
We also have clients who add parting gifts to the prenup, which are preset considerations in case a divorce or death does happen. Sometimes these parting gifts are based on the length of marriage. Sometimes they take the form of term life insurance which can be very inexpensive for young couples.
Whatever you design, the goal is to promote the idea of agency – that the in-law chooses to sign.
#3: DO NOT let the focus of conversations be on the legal and technical terms.
Lawyers who help clients negotiate prenups are overwhelmingly worried about one thing: if a divorce does happen, they DO NOT want to get sued for malpractice. So, they cover themselves by taking a “kitchen sink” approach, including every conceivable scenario in order to protect the family and going to great lengths to ensure the document is legally binding. They make sure it’s documented that the spouse actually agreed to the prenup terms, that there was full disclosure made, that the spouse really did understand and agree to waive any additional rights they have. And then they ask the couple to sign in 50 different places to make extra sure.
This whole process often feels transactional and adversarial to the couple. Yes, these legal terms must get negotiated and finalized. But the legal process shouldn’t control or set the tone for the family process. Instead, keep focused on the emotional journey of the prenup. This means you have to consider the end-to-end customer experience of your child, their future spouse, and the couple. Sometimes, business owners need to open their aperture and consider the experience of others who are close to the couple, such as the in-laws’ siblings and parents.
#4: DO NOT let your regular legal advisors, such as your general counsel or estate planning firm, represent your child in the prenup process.
This advice might sound strange to some family business owners. “But no one understands our business and estate plans better!” And that’s a great point. Your regular legal advisors should still be involved in the review process. But another law firm can be the primary handler of your prenups. This helps to insulate your key legal advisors against any negative feelings or resentment the couple feels about the process.
If a prenup process is difficult, there might be scorched earth. In these situations, it is natural for the couple – both of them – to blame the attorney or advisor who “caused” all this trouble. In some extreme cases, that can sideline your advisors and prevent them building trusting relationships with the couple, and possibly even extend to the next generation of the couple’s family.
For example, one family business owner had a pre-nup process go completely sideways. His daughter was represented by the business’ general counsel, who also attended all annual family meetings and was in charge of coordinating the entire family’s estate plans. The daughter still got married, but her husband refused to attend annual meetings out of deep resentment for what he felt the general counsel put him through.
Instead, to insulate your current advisor and their law firm, consider getting a separate law firm to handle your prenups. But make sure they confer with your regular legal advisors to capture all idiosyncrasies of your business and your multi-generation estate plans.
#5: DO NOT do too much too soon, or “force” the conversations
More damage is done in family businesses by cramming down prenups. Often there is a time element. The wedding date is often set before the first prenup conversation happens. This begins a tense drumbeat towards that date. As you draw closer to the date, the intensity grows.
One of the most important things to handle well with prenups is the tone of the very first conversations. Whether it is your first conversation with your child, with the spouse-to-be, or with the two of them together, it is critical to go in and listen. Resist the urge to say something has to happen or to set a deadline.
This is very hard for business owner parents – yes, you may think they are naïve (most newly-engaged couples are everyone is!) and yes, this prenup needs to get done and it will. But the reality is the newly engaged couple are very intimidated right now. Often, they are intimidated by the sheer scale of the economics, by the daunting task of negotiating a prenup, by the fear of either damaging the business, and importantly by the fear of ruining their relationship.
So, make sure you start the conversations early and then give the couple space. Go in and listen but DO NOT rush to the next step. Often it makes sense to start the conversation with your child – ask them questions like “what do you want,” “what do you fear,” “what are the tone of conversations about this with your fiancé like,” “what do you aspire to with the business,” and “do you or your fiancé know what the family business is worth?” Your objective is to start to understand what they are thinking and feeling and not push for information or an outcome.
Consider offering a few possible next steps and let them choose which is best. These might include a conversation with both of them to explore those same questions or identify any hot points. Offer but DO NOT force conversations or resources onto them.
The objective is to set the couple on a prenup path in the least confrontational way and give them autonomy to start down that path together.
#6: DO NOT leave it to the last minute
But wait a second – didn’t we just say to give the couple time and space? Yes, and you need to start the process early enough so you have the time and space to give.
Start the process early before all the pressures and expectations of the wedding take hold. Weddings are stressful events on their own. But when coupled with a prenup it’s like placing a powder keg next to the unity candles. Many times, family business owners hesitate to bring the topic up so close to the engagement. You can celebrate their engagement and begin the prenup discussion through proper framing, which is easier if you are also considering what value/certainty you can offer as part of the prenup process.
#7: DO NOT forget that when the couple does get married, the spouse will be in the Owner Room.
Remember, at some point, the new spouse will become part of your business family. It may take one or even two generations, but over time spouses can grow to become important voices in the “Family Room” and “Owner Room”. We even know of one prominent business family where the matriarch is not a direct descendant of the founder, but a spouse who married into the family decades ago. But she has since become the key influencer of all family and ownership decisions; now virtually every family member, whether they are descendant or spouse, listens carefully to the nonagenarian.
Even setting aside that example, the reality is that even though a spouse may not be an owner, a director, or an employee, they can have a huge impact on the business. In-laws have an important voice with their spouse and their future children. Over time an in-law can shape the perspectives of their immediate family to promote or vilify the business, regardless of whether that in-law is involved with the business.
For those reasons, it’s important to remember throughout the prenup process that this person will have a lasting impact long after the prenup is signed. Do you want that person to be resentful? Do you want them to be a secret pillow-talk enemy of consensus? The more you can think of them as a key influencer of owners, both your child and your future grandchildren, the better.
Conclusion
As family business advisors, we see the aftermath of a lot of prenups and divorces. Unfortunately, you can read about many of them in the newspapers. You don’t have to resign yourself to that fate. Our hope is that this article helps you think about and design a better start-to-finish prenup experience. We believe following these “Do Nots” will help guide you and the couple towards healthier and more enduring relationships.
*Identifying details have been changed