When Charles Dougherty decided to get married again, he knew there were some things he and his bride-to-be ought to get straight.
They both were widowed, both had children from their previous marriages and both had a lifetime of savings. Both wanted to be financially secure in their old age, and both wanted to pass as much as possible on to their children.
So Dougherty, 65, and his wife Gloria, 59, did something that a few years ago only Hollywood stars and financial moguls would have done--they signed a prenuptial agreement.
"What she owned before is hers and what I owned before is mine" under terms of the contract, said Dougherty, who is retired from his job at Travelers Insurance Co. and lives in Rocky Hill, Conn.
"The kids all know" and are happy with the arrangement, he added. Dougherty and his wife will each control their own savings and real estate interests and can pass those assets along to children from their previous marriages. With the insurance the couple has taken out together, his pension and 401(k) plan savings, which they will share, they hope they have themselves and their offspring protected.
"We think we have" done a good job, Dougherty said but added realistically, "I can tell you when something happens to one of us we'll find out we made some mistake."
Longer lives, more frequent divorces, stiffer taxes and more complex property laws are making Americans' financial lives vastly more complicated. Trying to make sure that the accumulated wealth of a lifetime ends up in the hands of loved ones, and not in the hands of the government or an ex-spouse, has become a task requiring expertise and planning.
As a result, the prenuptial agreement--or ante-nuptial agreement, as it is sometimes called--is becoming increasingly common. Although it may seem cold-hearted to divide property before marriage, planners say it is simply a recognition of reality.
"Unfortunately, we are planning for death and divorce here," said Roy Dixon, a planner with Cigna Individual Financial Services Co. "Some people say it takes the warmth out of the relationship, but it's prudent planning" in many circumstances.
For all their seeming coldness, prenuptial agreements can foster family harmony in the long run, several experts said, especially in second marriages.
"It's good to get (property issues) out up front so the children (of previous marriages) feel good about the marriage," said Glenda A. Fowler, an attorney with Arnold & Porter. "It reduces family tension because everyone understands they are not being cut out of family assets."
The purpose of a prenuptial agreement is to decide in advance how the assets will be divided in the event of a divorce or the death of a spouse. If there is no such agreement, these decisions will be left up to the courts, in the case of divorce, or state law, in the case of death.
State laws commonly give widows rights to a substantial share of their deceased spouses' assets, regardless of what the spouses' will says. These laws are designed to keep a person from leaving a surviving spouse penniless. They allow the survivor to elect to take a share of the property that is laid out by statute--to "take against the will," as it is sometimes described--if the share listed in the will would be smaller.
"One of the purposes (of a prenuptial agreement) is to get around those spousal rights," said Carlyn McCaffrey, a partner in the law firm of Weil, Gotshal & Manges in New York.
Most states allow a spouse to waive all rights with such an arrangement. But under the legal "concept of unconscionability," it is possible that a court could set aside a premarital agreement if the court deemed it too harsh, she said.
The process of drawing up prenuptial agreements can be helpful to the couple, financial planners said. It compels the individuals to list their assets. The process can clarify the couple's financial picture, making it both easier to plan for the future and, in the case of a death or divorce, resolve questions of when assets were acquired.
"No matter what happens, your property acquired during the marriage is going to be treated as community property, while what you had before (the marriage) is separate, but that can be hard to document," said Mary Malgoire, a planner with Malgoire Drucker Inc. in Bethesda, Md.
Although the agreements generally cannot be used to eliminate a spouse's rights to get property, they can protect specific things, such as a family business or a special piece of property.
A spouse can agree to waive the right to such assets in exchange for something else. This could prevent a non-family member from gaining control of a family business, or a vacation hideaway that has been in the family for generations.
And while the emphasis is often on protecting assets from a new spouse, the agreement can also protect the spouse by guaranteeing a specific share. In other words, the prenuptial agreement can say to the spouse, you can't have the whole cake but you can have a slice.
Prenuptial agreements also help in estate planning.
"People tend to not pay attention to how they are titling assets," said Fowler, with the result that they can miss out on estate tax breaks.
Federal estate taxes exclude the first $600,000 of anyone's estate, so that a married couple can pass up to $1.2 million to their heirs tax-free.
But there is also no tax when assets pass from one spouse to another at death. There is a tendency, therefore, simply to allow all of the assets to go to the spouse. That situation in well-to-do families could cost the heirs some tax benefits when the second spouse dies and only $600,000 of the estate is tax-free. Carefully titling assets and then leaving them to other heirs or in trust can preserve the tax exemption from the spouse who dies first.
At the same time, Cigna's Dixon cautioned that both spouses' wills and other planning documents should be coordinated with the prenuptial agreement.
"If not, you can run into all kinds of difficulties--different sets of instructions" and other complications, he said.