Designing a Healthy Family Prenup System

This post introduces an essay on creating a prenup system that preserves human, not just financial, capital.

Many multigenerational business families decide at some point to encourage family members to enter into premarital agreements. Often families are motivated by one experience with a “bad divorce” – whether that means a divorce that disrupts the family or business, removes an unexpected amount of assets from the family’s control, or causes undue suffering for children or grandchildren. Particularly as enterprising families move into their second, third, or fourth generations (and have therefore had such experiences), they may ask or require marrying family members to consider entering into a prenup.

Unfortunately, the process typically used to create premarital agreements can do all sorts of harm to the engaged couple, their relations with others in the family, and the family system as a whole. Too often, premarital agreements inject conflict, legalistic posturing, impersonal arguments, and financial confusion into what should be a happy and very personal time. Lawyers are hired, drafts of complex documents are exchanged, financial disclosures are made—and feelings are hurt, relationships are bruised, and tensions mount. Sometimes prenup discussions are scrapped mid-way by an aggravated bride or groom; many times an agreement is finalized, but begrudgingly or with real cost to relationships all around. Over time, creating a premarital agreement can be something that family members come to resent—medicine they realize must be taken, but that they swallow with some bitterness.

It does not have to be this way. Multigenerational families can design systems to avoid these harmful side-effects—systems that lessen the risk of relational damage while still protecting family members and their financial assets. This essay tries to explain how to design a family premarital agreement process that protects all forms of family capital: intellectual, social, spiritual, and financial. It first explores why premarital agreements are difficult to negotiate, then how thoughtful process design can help, and finally some examples from families that have tried to change the prenup process for the better .

Throughout, my focus is on system design: how families can create a process that will be used repeatedly by multiple family members over a long period of time. That said, the ideas discussed here could also be applied to a one-time prenuptial negotiation. I will say a bit more about this towards the end.

Scott Peppet

Scott Peppet is striving to create the enlightened family office. He writes about the challenges and joys of managing the family enterprise with the hope of sharing ideas with like minded people

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