Would You Invest in a Marriage Fund?

Every one of my mega-rich peers says I would be insane not to have a prenuptial with Jenny. A life time is a long time. Things change. Imagine the unimaginable. Keep money matters separate from emotion. And so on.

I say: Spoilsports!

Meanwhile, Jenny refuses to have an agreement where she receives money in a failed marriage.

For some assets like my business interests I am required to have a contract with Jenny or any other related party to avoid situations where assets are forced to liquidate against the best interests of a company.

Prenuptials may be irrelevant anyhow, depending upon where we decide to live. Of our top candidates for places to live, England does not respect prenuptial contracts, but the United States, Canada and Australia do. Much of Asia is unclear except China, which enforces them.

There are several analysis papers done on the value of prenuptials, for example in reducing litigation costs. But the more interesting papers are the ones discussing the value of not having a prenuptial. The argument goes something like this: not having a prenuptial increases the perceived faith in the relationship by increasing the risk while eschewing insurance; or, conversely, that asking for a prenuptial is a bad signal. See, for example, this PDF, which also models the ensuing moral hazard problem.

I hate conventional solutions. So let’s see if we can come up with something different.

Let’s start with some background:

First, let’s review my concept of modern relationships. Recall also the points about three party system and honesty in the context of my relationship with Jenny.

The financial asymmetries between Jenny and I are, frankly, huge. Apparently the lifetime earnings ratio is about the same as that of the WalMart CEO to the average full time employee salaries. I have had bad experiences with such asymmetries, so my main concern is how to prevent such asymmetries from distorting what we have built.

Perhaps as a consequence of our situations and possibly our different cultural upbringings, our views on money and personal security are different. I have always had the Dorito’s view about money: “Crunch all you want, we’ll make more.” I have always felt fairly comfortable that I could make money. Maybe not very much money, but always enough to live on. And I know I can live on very little. Jenny, on the other hand, places more importance on tangible financial security. Although she is entrepreneurial, she is the primary provider for her family and keeps healthy rainy day reserves. She weathered the Asia economic crisis that, among other things, wiped out her real estate holdings, a huge setback for her and her family.

She has always been very straightforward regarding aspects that might affect our relationship.

FLASHBACK: How Not to Start a Relationship

It is one of our first dates when I am feeling particularly close to her. It is that warm state between attraction and love, a hazy fog of lust and need battling it out with reason and pride. Call it pleasant confusion spiced slightly by a touch of alcohol, just enough to lower some inhibitions.

I’m holding Jenny’s hand. I ask he what she thinks will become of us, what is in our future together.

She looks into my eyes and says, “You will probably hurt me, and it will not end well for me.”

A shocking thing to say early in a romance.

She was devastated in her last meaningful relationship seven years ago, betrayed by a close friend. Since then it was just casual sexual partners, mostly movie and music stars, good-looking meat, nothing meaningful. And then a long gap while she was working her day job and her night job. No time for a relationship with needy boys or patronizing captains of industry.

Now she faces me down and tells me that I will hurt her.

I am a foreigner. It isn’t clear how long I will be in town or where my business will take me. I am from a different world. And yet she is with me that evening. Why?

That is the discussion that starts us down the uncommon path of our relationship.

Prizes are classic motivators for people. Some prizes motivate athletes and scientists. It motivated Lindbergh, our commercial reach for space and computer chess. Carrots work.

Punishments also work as motivators of people. Pain is the most obvious one, but in relationships it often perverts a person into a minimax approach: how to minimize their pain and maximize the pain of their partner. As I have written elsewhere, in a zero sum two party game a relationship is doomed.

Money is only a tool. When it defines your goals rather than enabling them, that’s when money has taken over your life. So let’s think about how money can enable our goals.

Given all this, here is where I am, Sigmund Fuller’s key to marriage contracts:

1. Create the explicit rules that are the foundation of our relationship. I wrote about the importance of doing this here. We have been doing this, but memory fails. We are now working on actually writing them down, which reiterates the operating constraints noted in here. I would never do a hundred million dollar business deal relying on human memory and spur of the moment thinking. I would think carefully about the rules and write them down. My relationship is worth much more than any business deal, so why would I invest less effort and care into it?
2. Set explicit shared goals and projects to achieve them. See the point above. If it’s important I don’t think we should leave it to whim or nature. Nature is perverse and all about sex. Just watch Nova or those BBC specials. We need constructive projects to keep it together. These projects embody the interaction schema: intellectual, professional, social, sexual, exploration, sharing, friendship, and romance. It’s fun planning these. We track them all the time, but plan to review comprehensively every year.
3. Cover the basics to reduce extreme behaviors. To that end I have established a trust fund for Jenny. It doesn’t pay out too much, but it’s more than enough to live on comfortably, based on her current earning power with reasonable growth. Nobody should feel captive to their ability to afford living expenses. The trust also holds a modest condominium which can be used for rental income or as a living quarters.
4. Create shared incentives that support shared goals. I am creating a Marriage Fund! Family and close friends will invest into a Marriage Fund. The marriage fund will pay a quarterly dividend for each year past year five that we remain married. If the marriage fails the money goes to charity (under some definition of failure that does not include a narrow subset of orderly dissolutions). This is the embodiment of my three party system. It is not a contract between the two of us; it is a contract with the relationship itself. This also serves as an icon for the socioeconomic investment and obligation noted here. And, yes, Jenny and I also pay into the marriage fund.

The first two ideas above I’ve talked about quite a bit in this blog. The third is something I’ve done for family before, at least the housing part. The Marriage Fund is the key new idea.

The Fund involves our most intimate community because it is important to have a community recognize marriage. It is one of the pressure points on marriage. It pays quarterly because it is a good reminder to people that it exists: annual seems too seldom, monthly is too much of a bother, and quarterly seemed just right. The end of the fund lifetime is the end of both our lives. After that it goes to charity. While one of us is alive the dividend pays out. I think it should pay out regardless of remarriage. It is mostly symbolic, nobody gets rich from it.

A fascinating variation of this idea is to have the Marriage Fund hold a lot of our other marriage assets, such as the houses, cars, and so on. As the embodiment of the relationship, it may be an interesting wrinkle on the way we approach building equity in our relationship while respecting the three party system.

Too explicit? Not romantic? Tell me what you think.