I had a conversation with a friend the other day about who a prenup matters to most. Someone with $80M dollars or someone with $20,000. Assume net worth here, and also assume that without the prenup, each person potentially faces to lose half their net worth.
My friend’s theory was the person with $20,000 has a lot more to lose without a prenup because his purchasing power decreases at a much greater magnitude than the person with $80M. The wealthier party’s lifestyle isn’t too dramatically affected by a 50% loss, whereas the opposing party most likely won’t be able to pay the bills anymore. So the poorer person should care about the prenup more.
I disagree and on the same basis of purchasing power. First of all, $10,000 is a lot easier to recover than $40M. Regardless of the person’s working capabilities, it will certainly take much less time for any given individual to redeem the smaller amount. Second, and the guiding principle behind my argument; the wealthier person can just do that much more with more money. This isn’t about buying cadillacs and islands, its about translating purchasing power to production power.
$10,000 will pay the bills and could possibly be invested/gambled/leveraged to produce more money. Considering the wealthier person’s expenses are proportional to the less wealthy person, the $40M will also be used to pay the bills, but the remaining balance will still produce greater relative purchasing power. So the wealthier person should care about the prenup more.
Bottomline: Prenups have a relative repugnancy cost depending on culture. Net worth may not be as important as other personal costs in determining the need for a prenup. Based on divorce rates upwards of 50% in America, it bodes well for most people to get a prenup. As the argument stands though, the wealthier person should care more about the prenup and not necessarily for the most obvious reasons.