Hi Jim,
Normally, the custom.css file will place in: /templates/your_template/css/ folder.
In new version of template, we don't include this custom.css file so your existing 'custom.css' file will not be replaced when updating template.
Before you update, you can check again by downloading the latest version of template manually >> unzip that file and see if the 'custom.css' file exist there or not.
Regards