Admittedly, a prenuptial agreement does not make for light conversation. But with the divorce rate as high as it is in the U.S., currently 40 percent, it’s often a topic broached by couples getting married. Three local lawyers explain the ins and outs of today’s prenups.
“A prenup is a contract entered into between two people who are contemplating marriage, spelling out what would happen in the event of a divorce or a death, and how their individual property would be handled,” explains Margo Green of Green Cordonnier & House, LLP. Years ago, it was typically the man who sought such an agreement, Green says, but in the last 10 years more women who have joined the workforce or inherited money are also thinking about protecting their assets in the event of a failed marriage. “Start planning your prenup as early as you can. You propose on Tuesday and on Thursday start working on your prenup,” Green recommends. “That’s when you need to, because there’s so much work involved in getting it right.”
The purpose of the agreement, Green likes to tell clients, is to help the couple have a more pleasant parting of the ways. Prenuptial talks look at the issue of commingling of assets ”for instance, if a couple builds a house together. Today’s courts enforce prenups made under specific conditions: where there has been a full disclosure of assets and liabilities on both sides; where there was no duress upon signing the agreement; and where there was no ‘unfair bargaining,’ such as in a case where, three years into a marriage, a multimillionaire threw his indigent spouse into the street and gave her nothing. “Many judges would call that an unfair agreement and would not uphold it,” says Green.
Lest you think bringing up the issue of prenuptials during the joyful engagement period is inappropriate, think again. “There’s a popular perception that prenups are a cynical way to enter into a marriage. It’s true there’s recognition of the possibility of divorce, but to think otherwise is contrary to reality,” says Joseph Cordell of Cordell & Cordell. “It’s more incumbent upon some people entering a marriage than others,” he adds. “If you have a young couple getting married, and they’re both broke, then marital property is probably subject to a 50/50 division. By contrast, when you have an older couple, where parties have been married before or have accumulated substantial amounts of property, through a slight misstep in the normal judicial process of divorce, separate assets could be converted to become marital property. It would be reckless for a couple in that second example to ignore the possibility of divorce,” says Cordell.
To get a sense of what marital property is, Cordell says, imagine three circles, one with the husband’s assets, one with the wife’s assets, and one in the middle for marital assets. One can intentionally or unintentionally gift property and assets into the middle circle, such as by placing assets in a joint account. Assets can become “hopelessly commingled. For people who marry with substantial separate assets, there’s a minefield here which, if they fail to navigate adroitly, could result in their losing assets to the other party,” Cordell cautions.
Getting through the process of drafting prenups can be problematic, points out Jeff Schechter of The Schechter Law Firm. “Here’s somebody you’re about to walk down the aisle with and somebody pipes up and says ‘Ok, this is really a business deal, isn’t it? I need you to get a lawyer and have your lawyer talk to my lawyer and start working on some documents.’ It can create tensions. I have seen marriages not go through based on attempts to have a valid prenup,” Schechter says. “Another problem with prenups is sometimes they’re found to be not valid, a judge has to decide that the agreement is conscionable, and that’s always in question, because it’s up to the judge. Yet someone with substantial assets is better off having a prenup than not having one.”
People often overlook the most important thing about prenuptial agreements, says Schechter, which is taking steps beyond the prenup to protect oneself, just in case it’s found not to be valid.
“Don’t transmute what used to be personal property into marital property, if you can avoid it,” Schechter says. “That way, in the event of a divorce you’re as protected as you can be. I think it’s very important, even if you don’t have a prenup, to get advice so you know what to do financially during the marriage.”