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Trust But Verify: The Value of Prenuptial Agreements

Why advisors should initiate a difficult conversation

If you want to prevent a cold war between your client and his future spouse, then do them a financial favor and urge them to consider executing a prenuptial agreement before they marry.

We live in a “trust but verify” era of relationships; we “Google” information about others, we check their Facebook pages, we examine their LinkedIn accounts to see with whom they’re connected.  Before we order the appetizer at the first date, we’ve already performed a virtual background check to ascertain information that may be revealing about the character of a person.

Unfortunately, prenuptial agreements in our society have often been misperceived as a sign of greed, distrust and a bad omen.  However, entering into a prenuptial agreement can have many benefits for a married couple both within a happy marriage and if the marriage should end in dissolution.  One of the first benefits of discussing a prenuptial agreement is that it forces the couple to closely examine their financial future together.  Discussions about prenuptial agreements also provide an opportunity for the soon-to-be-betrothed parties to openly discuss and disclose their current and future financial circumstances, such as what assets they currently have in their name, what debts they have and who will be responsible for those debts, the existence of trusts, assets they may inherit in the future and information concerning their respective incomes.  Trust but verify.

In the context of same-sex marriages and in light of the recent United States Supreme Court decision in Obergefell v. Hodges, prenuptial agreements can go far to protect individual rights in the event a marriage doesn’t work out.  For many same-sex couples who have lived together for many years and weren’t permitted to marry, assets were acquired and titled in the individual’s name, rather than jointly owned.  Without a prenuptial agreement that specifically delineates how these assets should be distributed, only the titled spouse who owned the asset prior to marriage would be legally entitled to retain ownership of the separately owned property in the event of a divorce.

Parties are given wide latitude with respect to the content of a prenuptial agreement.  Those provisions may include the following:

  • proposals for asset distribution in the event of a death or divorce;
  • distinguishing between marital property subject to distribution and separate property that each party retains;
  • protecting one spouse from the other’s debts;
  • predetermining or waiving spousal support, including the amount or duration of spousal support;
  • protecting income from being considered a marital asset;
  • financially protecting children from a previous marriage;
  • protecting an estate plan;
  • protecting businesses from a full forensic examination by an accountant; and
  • protecting confidentiality.

Marriage brings financial rights and responsibilities.  If your client divorces, he can be required to share marital property and perhaps pay support.  If your client dies, his spouse might be able to claim one-third to one-half of certain of his assets, depending on the state in which he lives.  A prenuptial agreement frees your client from these general rules and allows him to set the parameters for himself.  It also potentially saves the marital estate substantial funds that would otherwise be spent on matrimonial attorneys during the tumultuous time that follows the breakdown of the marriage. 

Public policy favors individuals deciding conflicts on their own; prenuptial agreements are valid contracts that allow individuals to do exactly that.  When properly drafted, such agreements withstand challenges when a marriage fails.

If your clients have taken the time to enter into a prenuptial agreement, you want to make certain that it cannot be successfully challenged.  Make sure that the agreement is within the realm of “fairness”; be certain that both parties have independent counsel; ensure there is adequate financial disclosure; consider sliding scale formulas for division of marital property and when setting maintenance amounts and duration; carefully consider mutual estate waivers, waiver of right of election, and mutual waivers of retirement assets; and be certain that the non-monied spouse (and his/her attorney) have the draft agreement substantially in advance of execution of the agreement and the wedding date.  If you follow these points, your client’s trust should be well placed.

Marilyn Chinitz is a Partner at Blank Rome LLP in New York. She is a matrimonial attorney who focuses on family law, with particular emphasis on complex divorce actions.

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