Understanding Prenuptial Agreements
A prenuptial agreement, commonly referred to as a prenup, is a written agreement between two people that formalizes certain arrangements with regard to property and financial rights in the event of a divorce. For example, a prenup may confirm that particular property is exempt from division as marital property; it may establish a fixed sum for alimony; or it may clarify that one spouse will be responsible for a debt. The idea is to determine rights with regard to property and finances at the outset of the marriage so that these issues do not need to be litigated if the marriage ends.
Although they are closely associated with wealth, many people do not realize that prenups can be beneficial even in modest marriages. In fact, even short-term marriages or relationships in which the partners earn about the same income may benefit from a prenup, which can clarify rights if the relationship ends.
A significant misconception is that prenups are only effective if one spouse completely surrenders his or her financial interests in order to protect the other spouse. For example, it is not uncommon for one partner to have debt when the couple marries . In some cases, the debtor spouse’s willingness to shield the other spouse from liability for this debt may be contingent on the other spouse not having the right to a mistake-free divorce. This concern is unfounded.
There are legal requirements for prenups to be enforceable. In particular, both spouses need to enter into the agreement voluntarily, after disclosing their financial situations to each other. A court will not enforce any agreement that is made with coercion or fraud. Generally speaking, a court will not enforce a prenup if doing so would be manifestly unjust, though courts generally afford parties the full latitude to decide what financial issues are important to them.
In addition, there are enforcement criteria for a prenup with regard to obligations for future child support and future alimony. A court will not enforce a prenup that waives a parent’s obligation to support a child, nor will it enforce a prenup to the extent that it makes an otherwise valid provision regarding future spousal maintenance that is related to a dissolution.
Legal Enforceability During Divorce
When entering into a prenuptial agreement, it is key to consider all of the factors that affect the legal enforceability of such an agreement in the event of a divorce. In order to be legally enforceable, the agreement must have been entered into with full and fair disclosure, it must not be unfairly one-sided or unreasonable, and it must not have resulted from duress or coercion of the party. At the same time, prenuptial agreements are not intended to provide "iron-clad" protections as the circumstances may change going forward in a marriage. Would the agreement still make sense in the event of a death or divorce later in life? That being said, the agreement should not be so one-sided or unreasonable as to be unenforceable in all circumstances.
Timing is also a critical element to consider when entering into a prenup. You do not want to wait until the day before your wedding to sign an agreement, as the pressure of impending nuptials should not be used to coerce someone into signing. While it is not a statutory requirement that a prenuptial agreement be entered into a certain number of days in advance of the marriage, you should consider a reasonable timing for entering into an agreement.
Division of Assets and Debts
Divorce is usually the most traumatic event in your life. However, if you have a prenuptial agreement, the trauma will be greatly diminished. The divorce will go through much more quickly and smoothly. You will not be fighting about what happens to your property, finances, or business interests. While you may need the assistance of an attorney to interpret the agreement, that should be the only legal assistance you will need.
If your prenuptial agreement contains clear and specific provisions to address your property, finances and business interests, then the division should be relatively simple. For example, if you owned a golf course before meeting, and the provision states that you and your spouse agree that you will remain the sole owner of that golf course, then no problem arises.
If the property was acquired during the marriage, then the situation becomes more complicated. For example, if you owned that same golf course before the marriage but put during the marriage all the profits from operating the golf course into the marriage or family savings account, then the marital portion may be subject to equitable distribution. If the portion that was subject to equitable distribution is significant, a mediator can help you settle it. I have settled many cases where the parties cannot agree on the division of ownership interest in a business. I have reached mediation settlements of 10% to 50% of a business value. In one case, my client received 50% of the value of a golf course. While the parties divorced, no future claims against the golf course were waived and the ex-spouse could not transfer its interest without the other ex-spouse’s consent. The ex-spouse planned to transfer the interest in the golf course to his two sons, without any type of consideration, after transferring the golf course to a corporation. I was able to get an injunction against the transfer and have a 30 expert appraised value attached out of the Florida scope of equitable distribution. In other words, my client’s ex-spouse had to pay 50% of the appraised value to my client as part of the settlement of the divorce. This allowed my client to keep 100% of the business (no downward adjustment for my client due to his ex-spouse’s new ownership interest in the golf course) but to pay her ex-spouse over time and at a reasonable interest rate. You can believe this golf course will always be in the name of the client because the whole family has learned the lesson not to put the profits into a marriage or family account.
Considerations for Spousal Support
A variety of provisions are often included in a prenuptial agreement addressing the issue of spousal support or alimony. A party can waive the right to receive spousal support or alimony and/or waive the right to request an increase in the amount and/or duration of spousal support. The parties can also agree to a specific amount that constitutes spousal support or alimony or agree to a formula or a set of factors upon which spousal support or alimony would be based. An agreement can also provide for an amount of support to continue for a specific period of time and then convert to a lesser amount or terminate altogether.
In some circumstances, a court will not uphold a provision which restricts a payor spouse’s ability to request an increase in the amount or duration of alimony or which limits career opportunities of one spouse which would have an impact on the amount or duration of spousal support/alimony. In other words, the court may "strike down" such provisions if they are considered to be unconscionable in the event of a divorce.
A court may also decide that despite the waiver of the right to receive spousal support/alimony, the case before it warrants modification of the agreement. For example, a party with a sudden disablement or catastrophic health issue may require modification of even the most restrictive of agreement provisions.
Concerning support obligations for children, typically the parties will designate in the agreement what support obligation is to be paid from one parent to the other, or what child support obligation has been agreed upon based on an accounting of net incomes and application of the acceptable child support limits as set forth in the Pennsylvania Rule of Civil Procedure that governs support matters (well known as "support guidelines"). Ideally, the parties will have cooperated in preparation of a quad chart which provides all of the necessary financial information to generate the guidelines.
Challenging a Prenuptial Agreement
Though prenuptial agreements are typically thought to be ironclad, they are nevertheless vulnerable to challenge in Connecticut courts. Under the law, a prenuptial agreement may be deemed invalid if any of a number of conditions are met. A prenuptial agreement may be challenged if the following conditions exist: If it is found that one or more of these conditions do, in fact, exist, an agreement can be deemed invalid and unenforceable. Because there are some provisions of a prenuptial agreement that are considered to be public policy concerns, an agreement may also be deemed invalid if such a provision is included. Such a provision may be found when an agreement seeks to limit an agreement to caring for children or any provision requiring either spouse to do or pay for something that is against the law. An agreement may also be rendered invalid if it addresses an issue for which divorce court is responsible, such as custody of the children or child support. A clause is, however, permitted in which one divorcing spouse agrees to pay the other spouse a sum of money should there be a divorce. The issue is whether the amount is so unreasonably in favor of one spouse and so disparate from the amount the other spouse would receive upon dissolution of the marriage that the agreement may be found to be nothing more than an unenforceable contract. As mentioned above , courts will also strike down provisions for preexisting children given that they are not party to the contract by proxy. The statute of limitations for challenging a prenuptial agreement is set at three (3) years from the date of the signing or the date of the execution of the agreement; however, the statute can be extended if the parties agree to it. Regardless, any agreement must not have been signed prior to the date of the marriage. One exception to the statute of limitations is where one spouse may have been coerced into signing the agreement. If the situation is discovered within three years of the execution date, then the court has the authority to extend the statute of limitations. A court also has the right to exclude equitable defenses to an agreement (such as equitable estoppel and laches) from being used in challenging the enforceability of such an agreement. As indicated, the most common methods of challenging a prenuptial agreement in Connecticut are (1) duress, coercion and fraud, (2) lack of due process, (3) unconsented to by both spouses, (4) not executed under free will (undue influence), (5) not entered into voluntarily (involving coercion or duress), (6) failure to fully disclose both parties’ assets, (7) incompleteness of the agreement, and (8) unreasonableness based on the circumstances of the parties.
The Importance of Engaging Legal Counsel for a Prenup
The role of attorneys in any contract is generally the same; to ensure that the agreement adequately protects your best interest, and that you fully understand your obligations and rights under any given agreement. In addition to this general role that an attorney plays, here lawyers focus on the experience and expertise provided by that counsel at different stages of the prenuptial agreement process.
Legal Representation When Drafting a Prenuptial Agreement
Many attorneys have begun offering pro-forma, fill in the blank prenuptial agreements for couples that are extremely amicable and therefore, perhaps quite commercial in nature. By simply offloading a draft of a pre-written agreement and encouraging the couple to come up with the numbers that they would like to use, some attorneys significantly diminish the importance of legal counsel to a spouse on the amicable side, and create a situation in which the incoming spouse has little to no protection.
This practice is not illegal, and in fact many couples find it to be quite helpful, as they do not want the relationship to be tainted by a battle over the terms of a prenup. However, there are still many pitfalls that can be present even if the parties find it unnecessary to have extensive legal representations to help them craft their agreement.
Commitment To the Detail
A notice from the lawyer, to help the couple understand that they should have their own counsel review the agreement, will generally suffice in ensuring that the agreement is valid. However, as there is no written verification that each spouse was really afforded the opportunity for independent counsel, if they ever did go to court, issues may arise.
Conversely, representing each spouse by a different counsel is a much more thorough process but is still guided by the idea that each party is available to ensure that the prenup is fair. Through this kind of representation an experienced attorney can make efforts to make sure that a prenuptial agreement is fair to all parties, and that it has continued value throughout the course of the marriage.
Legal Representation After Signing
Just as there are important roles that an attorney can play before a prenup goes into effect, there are also legal concerns that can arise once the terms are signed. In situations such as these, your attorney can also represent you as your representative for divorce or dissolution proceedings. This may seem like a small detail, however many agreements are written to take advantage of the fact that you likely will not be able to change or repudiate the prenup if you are no longer married to your spouse.
While this may be true, it should also be noted that many parties later realize that the agreement was not as favorable to them as they might have thought. Your legal counsel can advise you in such a situation, and help you to decide whether you should pursue an agreement modification or challenge based on any number of issues.
Examples of How a Prenup Works in Practice
Prenuptial agreements (also known as antenuptial agreements or premarital agreements) are written "pre-nup" contracts that "govern the economic rights of spouses." Spouses can draft these contracts prior to marriage that list all the interests that couples own and agree to the terms of its division if divorced.
There have been multiple cases where a prenup listed property and financial information, yet spouses likely believed it was too complex to be enforceable. Some of those cases included:
In re Marriage of Nazir. In this case, Husband was of Indian descent and his family owned assets valued at more than $1.6 billion. During the marriage, the couple submitted a prenup that Husband had drafted. Soon after their wedding, wife filed for divorce. In court, she argued the prenup was invalid because there was no disclosure of assets. Yet her lawyers failed to disclose that the prenup was valid in India because both parties presented the document to the Indian Government for approval. As a result, the court threw out her argument and the marriage was dissolved per the prenup’s terms.
Crane v. Crane. In Crane, Wife argued that the prenup between the couple in 2000 was invalid – even though it had been sent to her lawyers years earlier. The Court of Appeals found that because Wife allowed her attorneys to review the prenup and it was never challenged in 17 years, the prenup was valid.
This case proves the importance of taking the time to review a prenuptial agreement with your lawyer BEFORE signing the prenup or agreeing – PUBLIC POLICY is not a good reason to not uphold a prenuptial agreement.
Practical Steps for Getting a Divorce
When navigating the waters of a divorce with a prenuptial agreement in place, careful preparation is essential to ensure the process proceeds smoothly and that your interests are fully protected. Here are some practical steps to consider when preparing for a divorce after the signing of a prenuptial agreement:
Documentation
Gather all relevant financial documents related to your and your spouse’s assets, income, and debts. If your prenuptial agreement stipulates the assets or income sources that are considered separate property, you will need to provide documentation to demonstrate ownership and the timing of acquisition of these assets or income. This may include items such as bank statements, retirement account statements, property deeds, tax returns, and other documents demonstrating your respective financial standings before and during the marriage.
Full Disclosure
Be prepared to make a full disclosure of your financial circumstances. This means not only providing the documents noted above but also being forthcoming with information that your spouse may request. Transparency is crucial to prevent any allegations of hiding assets or withholding information from the court.
Valuation of Assets and Liabilities
A thorough valuation of the assets and liabilities covered by the prenuptial agreement might be necessary . This process helps to ensure that everything is accounted for and valued accurately. In some cases, a business appraisal may be necessary to determine the value of a business entity owned by you or your spouse.
Revising Financial Plans
If your prenuptial agreement contains terms regarding how to divide your real estate, bank accounts, retirement accounts, or other assets, this eliminates the need to come up with a separate plan. However, your legal adviser can help you evaluate whether the existing division strategies meet your current circumstances or if revision is necessary. Depending on the nature of your assets and the terms of your prenuptial agreement, an equitable division may still be negotiated to avoid protracted litigation.
Engaging Experts
Depending on your circumstances, it may be beneficial to engage the services of other professionals, such as accountants, tax advisers, and appraisers. They can provide assistance with valuing certain assets, determining the tax implications of various strategies, and providing additional financial support throughout the divorce process.
Taking these practical steps when preparing for a divorce with a prenuptial agreement ensures you are well-equipped to proceed with the process in an orderly and informed manner.