Scott Peppet, president of the Chai Trust Company and interim president of the Zell Family Office, is a second-generation married-in family member. He has published suggestions for improving the prenuptial agreement process. He discusses what’s wrong with the current system — and how to fix it:
What got you started thinking about improving the prenup process?
Years ago, I was facilitating a family meeting for a family I was working with. At one of the breaks, a young woman came up to me – she was the youngest adult in the family, and she had just gotten married. She asked to talk with me in private, and she told me, ‘I got married nine months ago, and this is the first family meeting my husband has been to. He doesn’t know anything about any of this. My dad really wanted me to have a prenup, but I said no, and we procrastinated until the week before the wedding, and then we didn’t do it. When my statements from the business come to our house, I make sure I get the mail before my husband so he doesn’t see them. Now he’s here at the meeting.’ I asked, ‘How’s that going?’ And she said, ‘Not too well.’
What I realized was there’s just so much dysfunction around all this stuff, and these young people are kind of stuck in the middle of all of it. Doing a prenup feels terrible, but not doing one is also problematic. The whole process just doesn’t feel productive.
In my own experience, my wife and I did not have a prenup. Her family’s lawyers said she really should have one, but she said, ‘No thank you,’ so we didn’t. We did a postnup 20 years into our marriage. Our oldest daughter was getting married, and we felt that it was inconsistent and unkind to ask her to consider a prenup without having one ourselves. The process taught me a lot. Even after 20 years of happy marriage, it’s really hard to do — they’re very hard agreements to figure out, and it taught me a lot about what we’re asking of these young couples. So I do think you can design a much more humane and healthy prenup system.
How is the typical prenuptial process working now?
I think it’s often pretty inhumane. You take a young couple and throw them into a legal process. Often, neither of them has ever hired a lawyer, so they’re totally unprepared for what it means to hire and work with an attorney. If one of them has financial resources in their family, they often don’t understand those financial resources completely. If they’re in their 20s, they may have just started to learn about what their family has.
Suddenly they have to disclose all of their financial assets to their fiancée. They’re told, ‘You’re a beneficiary of this trust, you’re a beneficiary of that trust. And there’s also this trust over here.’ Often, they’re in shock. Then, usually it’s Mom or Dad saying, ‘You really need to have a prenup.’ They don’t really know why. They’re not sure what a prenup is supposed to be or how it’s supposed to work. And they’re in the middle of trying to get married!
I’ve seen many of these systems where Mom or Dad, or the lawyer, says, ‘Well, this is what it’s got to say.’ In the worst cases, they just say, ‘Here, sign this.’ In the best cases, they often say, ‘Work with Jim – he’s been our family lawyer for 100 years. Good luck!’
To me, none of that feels particularly humane.
What should be the goal of the prenup process?
For me, the standard is that the prenup process should leave these relationships better off than when they started. That should be the goal of any family or family office. You are asking a young couple that’s in love and is trying to get married to do something technical – and you should design a system that’s going to enhance their relationship, not destroy it.
What needs to change to accomplish this?
If you set that as the goal, then how do you do that? Well, the first thing is, you don’t do all the stuff I just said — you don’t just throw them into the shark tank and say, ‘Figure it out.’
You have to give them a bunch of education together: what the family’s assets are, where they came from, why they’re in a trust, why the family wants to protect them, and why it’s in their mutual interest, most likely, to protect them.
My advice is to always hire them a coach before they get anywhere near the lawyers. Hire them a prenup coach — find a really good advisor who knows a lot about family systems therapy and can do a weekend or a day with them. Have them discuss: How do you feel about money? Where did you learn about money? What were your parents’ implicit messages about money? How do you want to raise kids together? How do you feel about the fact that there is this inequality of financial resources, if there is one? Have a normal, human conversation with them about all of this, and then lead toward the prenup itself.
I have worked with families where I have said, ‘Not only should you have a coach, you should actually also hire a mediator.’ I’ve given families serious mediators to control the lawyers — to say to the lawyers, ‘OK, yes, we’re going to go through this. But there’s going to be a process, and what we’re not going to do is destroy this couple’s relationship.’ Just like you would mediate any complex litigation or transaction, control the process with the relationship in mind so that there aren’t surprises and there aren’t 11th hour demands — so there aren’t conversations still happening at the rehearsal dinner.
Basically, my advice to these families is, ‘You’ve got to think about this and wrap a process around it so that this has a chance of not being destructive.’
How do the families benefit from improving this process?
It’s actually in the family’s and family office’s and the family wealth’s best interest to do all this, because what ends up happening otherwise is that you get an 11th hour agreement the night before the wedding that later turns out to be unenforceable. Judges don’t like agreements reached right before the wedding, because it feels coercive. So it’s actually in everybody’s best interest, including the family’s best interest, to not have surprises, to make sure both sides are well represented, to have a coach — because it makes the prenup more likely to be enforceable, which is also a good thing. If you’re going to go through all the trouble of creating one, it might as well stick!
And then there’s the deeper issue: These families are wasting this unbelievable resource, because bringing in spouses that are smart and engaged and care about your family is one of the greatest injections of human capital into a family system that you can have. These new spouses are smart, and they come from a different family that doesn’t have your family’s weird emotional baggage. If you turn those spouses away, if you turn them off at the very beginning because of the prenup process, that’s a disaster. You’re just squandering your opportunity to bring those family members in and make them feel welcomed.
I tell families, ‘You have a family prenup system. You didn’t architect it intentionally, perhaps, but you have one. You have the family lawyer, and you have a model agreement, and Dad sort of sits down with the kid and says, ‘OK, it’s really time for you to learn about the prenup.’ You have a system — you just didn’t design it intentionally. So just step back and design a system intentionally that actually aligns with your values and is welcoming in the way that you want to be.’
