Where shall we live? Shall we have children? How many children shall we have? How do you feel about pets? I love cats; are you allergic to cats? These are just a few topics that couples talk about in contemplation of their marriage and their future together. One topic they often avoid is how to deal with their finances—not only how they will deal with them in the course of their marriage, but what will happen to their assets in the event they file for divorce.
If one party mentions creating a prenuptial agreement (a prenup), the other party may resist, thinking it takes the “romance” out of the upcoming marriage. In reality, entering into a prenup at a time when the couple is feeling loving toward each other may be the most important thing either one of them can do in preparing for their life together.
Prenups can help everyone, not just those who are wealthy; however, they are more commonly used by those entering second or subsequent marriages and in cases where one party has significantly more assets than the other.
Although there are no guarantees in the law, if drawn up properly so that the legal requirements of the particular state in which the agreement is signed are met, a prenuptial agreement should withstand a court challenge.
Not very long ago a high-profile couple, both country and western singers, who had been together for 10 years and married for four of them, were divorced before there had even been public acknowledgment that they had split up. They had a valid prenup that neither one of them contested. Division of their assets was done without argument or court intervention.
There was no long, drawn-out, expensive court process. Their Oklahoma divorce was quickly granted and they both moved on with their own lives without the animosity that often results from a difficult and contentious divorce proceeding.
Some lawyers who prepare prenuptial agreements equate having such an agreement with having insurance to cover catastrophic events, like earthquakes or floods. You hope nothing like that ever happens to you, but if it does you are glad you have coverage. The following situations make it particularly beneficial to have a valid prenup:
According to a report in Forbes, the current president of the United States had a prenup with his first wife that was declared invalid. The couple had been married for 15 years and had three children together. One clause of the prenup said that the wife would return any gifts, including cars and fur coats, to her husband in the event of the divorce. During the divorce litigation, the president did not object to deleting that clause from the agreement.
After a prolonged court battle, they eventually settled their financial differences in an agreement that remains confidential. The president later said he learned a lot from the battle with his first wife, so he had an “ironclad” prenup with his second wife. As indeed he did. His second wife was unsuccessful in her attempt to have the prenup invalidated. Rumor has it that he has a similar ironclad prenup agreement with his third wife.
There have been prolonged court battles when one party challenges the validity of the prenup. A few years ago, the first wife of a well-known baseball player filed a petition for divorce. She requested sole custody of their two children, their $12 million Florida mansion, her Mercedes, and a court order invalidating their prenup. That would mean the court would then make an equitable distribution of their marital property under Florida law.
The baseball player got angry. He was pretty vocal about claiming she would lose in court. The prenup was airtight he said, and if she pursued her claim she would lose and he would ask the court to order her to pay all of his legal fees. Eventually, the couple settled their financial differences in an agreement that remains sealed.
In another famous case, the court invalidated a prenup between Steven Spielberg and his first wife, Amy Irving. The prenup had been scribbled hastily on the back of a bar napkin without the assistance or advice from any legal counsel. When the couple divorced four years later, the court invalidated the agreement. It was 1989 in California and, since the prenup was invalid, Amy Irving was awarded $100 million as her share of their community property, which was half of Spielberg’s assets at the time.
In a recent case out of New York, the appellate court invalidated a prenup finding it was "unconscionable." Shortly before the couple married they signed a prenup. Two of the terms the court took issue with was that property purchased during the marriage from proceeds of separate property remained separate property. In this case, the husband, a physician who earned $300,000 a year, purchased the family home with proceeds from his separate property and put the deed solely in his name. The wife lived in the home, did not work outside the home, and cared for the husband and their three children, one of whom had special needs.
The court also took issue with the term of the prenup that called for the husband to only give his wife a lump sum settlement of $20,000. She got no share in the family home. The court noted that a prenup that is not unconscionable when entered into may be unconscionable at the end of the marriage. In this case, the prenup was invalidated as unconscionable when enforcing it would mean:
The court stated that, "An agreement is unconscionable if it is one which no person in his or her senses and not under delusion would make on the one hand, and no honest and fair person would accept on the other, the inequality being so strong and manifest as to shock the conscience and confound the judgment of any person of common sense." Using that definition of unconscionable, the appellate court held that the wife had met her burden of proof and the agreement was indeed unconscionable and therefore invalid.
No matter how carefully a prenup is crafted, there is a chance that circumstances will change and a court will find a reason to invalidate the agreement. A way to decrease the chances of that happening is to follow carefully the law of the state where the agreement is drafted. Using common sense also helps. Important factors that will influence courts to uphold the agreement as valid include the following:
Agreements that comply with these requirements will likely be deemed valid when challenged in court. A prenup that is even more airtight will include a clause stating the rights that the person is giving up according to the specific state law.
In the event of a divorce and there is no prenup, some states consider that all property accumulated during the course of the marriage is community property and will be divided essentially equally in case of a divorce. Other states distribute property according to the principles of equitable distribution, which means fairly, and not necessarily equally. If the parties acknowledge they are giving up the rights that would be in place if they did not sign the prenup, it is more likely the prenup will be valid. If the prenup is declared invalid, property will be distributed according to the law of the particular state.
Although it is possible for a court to find certain clauses invalid but uphold the rest of the prenup, it is a better practice to know what clauses could be offending and just leave them out from the beginning.
A prenup can provide more support for a child than what is required by state law, but it cannot provide less. Neither party can waive the right to receive child support according to the law of the state in which they file for divorce.
If the agreement is grossly unfair in that one party will prosper financially and the other one will face severe financial hardship, the agreement will likely be declared invalid. This is the main problem with the recent New York case where the doctor earned $300,000 a year but had a one-time payment to his wife of $20,000. The doctor would prosper, but there was a strong possibility the wife would need to seek public assistance.
Well-known divorce attorney Raoul Felder, in an interview with Forbes published a few years ago, said, “With a prenup you know where you stand. A good prenup requires full financial disclosure and the consent of both parties. When there are no surprises and you know what you are getting into, then you have as good a chance at making a marriage work as anyone does these days."
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