5 Reasons Millennials Get Prenups (hint: Boomer parents are involved…)

Apr 19, 2021 | Finances, Prenuptial Agreements, Second Marriages

Prenuptial agreements are often viewed as reducing marriage to a commercial transaction, with cynicism abounding when it comes to the reasons two people have agreed to marry. Most people used to think of prenuptial arrangements as an unromantic omen that a marriage would end in divorce, and that if it did, the supposedly rich partner who came in with more would be safe. As both men and women have the ability to accumulate wealth and debt, this mentality has been steadily evolving with the generations.

Prenuptial agreements have become increasingly popular among the millennial generation, who prefer to “lay all my cards on the table” when it comes to life. The generation as a whole is certainly not financially better off than previous generations at the same age, and have far more education related debt than generations prior. However, certain millennials are set to inherit great generational wealth from their baby boomer parents (more on that below). Nonetheless, this astute generation is concerned about financial security.

1. Millennial’s parents are a driving force behind their prenups.

A huge generational shift of wealth is on the horizon as the the baby boomer generation enters retirement. Over the next two to three decades, estimates of how much money will be passed from baby boomers to younger generations range from $30 trillion to $70 trillion. And, who are the beneficiaries? Generation X may be the primary beneficiary of the wealth transfer, gaining up to $48 trillion. Many economists believe that millennials will inherit a larger share of the wealth that has yet to be passed, as Generation X has already started to inherit wealth from their Silent Generation and older boomer parents.

It is safe to say that affluent parents are becoming more cautious about efficiently managing their family’s assets as those baby boomers age into retirement and plan for a historic generational wealth transfer. So it follows that their concerns surrounding the implementation of prenups flows to the millennial generation, who will be in charge of handling inherited estates and enterprises, as well as gifted properties.

According to a nationwide survey conducted by the American Academy of Matrimonial Lawyers, 62 percent of divorce attorneys surveyed have seen a rise in the overall number of clients seeking prenuptial agreements in recent years, with more than half citing an increase in the number of millennials requesting the agreements. But here’s where it gets interesting: Many family lawyers are seeing an uptick in millennial parents participating in the prenuptial agreement process for their children and having their input heard as the contracts are negotiated and drafted.

In many instances, parents encourage — even demand — that their child sign a premarital agreement. If not approached delicately, this determination may inevitably trigger problems in the relationship and jeopardize the wedding plans. However, in some cases, it can act as a sort of shield for the request by making it clear to the potential partner that the request originated with the parents. In other cases, particularly where there is considerable family wealth or family businesses, the future spouse may be anticipating that a prenup is part of the package.

Concerns over maintaining family income, inheritances, and businesses, which could be jeopardized if the marriage ends in divorce, also drive parents’ desires for direct involvement. Parents can become involved in the process early on by making an initial recommendation or assisting with the selection of an attorney, or paying for that attorney.

Having parents participate in the negotiating process has its own set of benefits. In certain cases, the parents have a better understanding of the family’s finances than their millennial child. The child may be unaware that he or she is a beneficiary of a trust formed by the parents or that he or she owns or will own in the future such familial properties or businesses.

Parental participation in the prenuptial agreement scheme, of course, has its drawbacks. Parents who become too involved and attempt to undermine the desires of their kid, who is essentially the client, may cause problems. It is common in these sorts of arrangements that a parent’s need to control the prenuptial agreement process is all too common. It’s important to note that the purpose of drafting a prenup is to protect the family’s assets and interests, not to force the parent’s views on finances or the future spouse on the child.

Some parents get involved in the process to keep details about those properties, such as family companies and trusts, out of the public eye. The refusal of these parents to completely report those properties just adds to the delay and would certainly have an effect on the prenuptial agreement’s enforceability in the case of a divorce. Many attorneys will decline to prepare prenuptial arrangements for the child when this happens, because, as we have stated before, full financial disclosure is essential for enforcement. If you are not disclosing assets, how can the other party relinquish their rights to them?

A prenuptial agreement can offer an extra layer of security and peace of mind for both high-net-worth parents and their millennial child when it comes to the family’s money. However, as with all prenuptial agreements, the expectation is that once signed, it will be forgotten about.

2. Millennials are familiar with the divorce rates.

The truth of divorce is ingrained in the minds of millennials. Millennials became the poster children for switching homes every other weekend as divorce became more socially acceptable and widespread decades ago. The divorce rate among baby boomers, who were born between 1946 and 1964, is the highest of any generation. This may be because their parents were known for sticking it out “for better or worse.” Many baby boomer children grew up in dysfunctional homes and vowed never to bring their own children through it, which may explain why millennial parents have a higher divorce rate.

An important difference from previous generations is that the majority of millennials are not actually married, the oldest of which are about 39 years old in 2021. Only 44 percent of millennials were married in 2019, compared to 53 percent of Gen Xers, 61 percent of Boomers, and 81 percent of Silents.

In comparison to previous generations, millennials are marrying later in life, for a variety of reasons, including the fact that they are well acquainted with divorce- thanks to their parents. According to Pew Research, in recent decades, the median age at first marriage has steadily increased. In 2019, the average man married for the first time at the age of 30, and the average woman married at the age of 28. This is three years later than in 2003, four years later than in 1987, and seven years later than in 1968 for both men and women.

3. Millennials have more money and more assets prior to marriage.

Millennials are more likely to marry with money in the bank. Many people in their twenties and thirties have spent more time at home than previous generations, allowing them to save more money at a younger age. They also marry later, and therefore have greater earning potential.

In addition, women of the millennial generation are more financially independent and savvy than generations past. Female millennials are more likely than their male counterparts to purchase a house or piece of property, and therefore are becoming more open to discussing prenuptial arrangements as a sensible tool to secure their hard work as a result of their ability to earn higher wages and receive college degrees at higher rates than their foremothers.

Then, there is the fact that millennials marry later in life than previous generations, and many marry at a later stage in their careers than previous generations. It’s tempting to believe that because “we both make good money,” “we’ll be fine if we get divorced…we’ll just go our separate ways and no alimony would be needed.” This may be true, but the aim of prenuptial agreements is to have further financial stability — for each of you — and this necessitates careful consideration of potential changes in circumstances. Will either of you cut your work hours, change jobs to fit your children’s schedules, or give up your job entirely to care for your children full-time if you choose to have children? What happens if one of you becomes ill? This could put one spouse in a position where you would need alimony if you were to divorce. A prenuptial agreement will spell out all of the details, leaving nothing to chance. Millennials know this, and depend on having an agreement on these issues in advance of marriage.

4. They have more debt than generations past.

“Student loans” is one of the scariest terms in modern relationships. Yes, prenuptial agreements are there to protect you from losing everything you’ve worked for during your marriage, but that isn’t their only goal. These financial agreements often help to shield one another from accumulating crippling debt as a result of obtaining degrees, taking out loans to start a company, or making bad financial investments in the event that you divorce in the future.

Finally, dispelling the myth that prenups are just for the ultra-wealthy, the most pressing concern for many millennials when considering a prenup is what to do with premarital debt. And, there is a lot of millennial debt floating around. The typical millennial has $27,900 in debt, which includes exorbitant student loans and credit card debt. If a prenuptial agreement is in effect, debt can be designated as distinct and separate, which means that if the couple divorces, debt will not be included in the marital asset/debt division and will remain the responsibility of the partner who incurred it. If you marry with a loan balance of $20,000 and divorce 10 years later with a loan balance of $5,000, the $5,000 is yours alone and will not be resolved in your divorce. A prenup also has the power to detail that if your spouse goes to medical school and has a soaring student loan debt of over 200K (which is about average for medical school), it is not a joint debt.

Both spouses-to-be must make full financial disclosure (commonly known as a Schedule A or B financial schedule) as part of the prenuptial agreement process. This degree of openness can help all sides understand the magnitude of their debt, which can lead to further bargaining points. Prenuptial agreements may, for example, determine how to handle debt (e.g., a certain percentage of marital income should be used to pay off personal debts) and/or whether certain debts incurred during the marriage should be considered a joint or separate responsibility.

5. Millennials don’t lose sight of the details

Social Media Clauses. More millennials are opting for a social media prenup clause in their prenuptial agreements, in which the couple decides about what they can and can’t post about each other on Instagram, Twitter, Facebook, and other social media platforms throughout their marriage. Negative posts that may harm a person’s credibility, disclosure of private information (e.g., no talking about infertility or financial difficulties), or photographs of children are examples of this.

Pet Clauses. Your dog is your best friend, but could your spouse claim ownership after you marry? Since some couples consider their pets to be as important as their children, it’s no surprise that stipulating pet ownership in a prenup is becoming more popular. Spouses will also pre-agree on who pays for vet expenses and who oversees the pet’s care and feeding as part of the “pet-nup.”

Frozen Embryos. Are you thinking about starting a family with IVF or surrogacy? One of the most important aspects of your preparation should be to consider what would happen to any leftover frozen embryos if you divorce. Since the law on this is still murky, millennials are taking matters into their own hands by including prenuptial agreement clauses that spell out a post-divorce strategy.

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