Prenuptial Agreements

Prenuptial Agreements Defined

Prenuptial agreements start with a declaration of the parties of their intent to marry and that the agreement does not come into effect until the marriage. Typically, a prenuptial agreement declares that all property brought into a marriage is separate property and that it remains separate properly for intestate succession and divorce purposes. The separate property is listed, or at least referenced by category. There is usually a discussion as to what might happen with the separate property in the event of (1) the death of a spouse and (2) the dissolution of marriage. There are frequently, but not always, provisions dealing with spousal support in the event of death.

Be Wary Of The Unknown!

While there may be standard Wills and even standard separations agreements, we suggest that there can be no ‘standard’ prenuptial agreement. And one entered into without much thought can be disastrous.

A client will often time present an attorney with a prenuptial agreement in a consultation setting with a request that it “be quickly reviewed to see if it is okay.” The client needs to understand that this expectation is not reasonable.

A prenuptial agreement, when property considered, frequently presents a more complex drafting challenge than a separation agreement negotiated at the time of a failed marriage.

In a divorce setting, the issues are concrete. Everybody knows what assets are to be divided. Standards of living have been established. The children and their needs are known and parenting responsibilities have been established by custom of the parties, if nothing else. With prenups, very little is known, except that the most pressing thing on someone’s mind is getting married.

While prenups attempt to achieve a bit of fairness and predictability in the event the marriage goes south or a spouse dies, people generally draft them ‘in the blind,’ under pressure and while wearing bright rose colored glasses. “Sure, I’ll waive spousal support,” says an anxious spouse-to-be, who is not fully comprehending that the marriage might end with the other running off with another (after 20 years of raising his children, giving up job advancements to tend to domestic responsibilities, with him secure in the knowledge that spousal support is a ‘known quantity” (i.e., zero).) Let’s get real!

We’ve Experienced Thousands of Scenarios

In fact, prenups are much more important and challenging than most people imagine. It is a forward looking document drafted when it is not possible to accurately assess exactly what the situation will be at the end of a 1-year, 5-year, 10-year, 25-year marital relationship. Unlike other documents, the prenuptial agreement needs to contemplate two very distinct events when it might come into play: the death of the parties (or either of them) when the parties (likely) are still in love, and the parties’ divorce when they (likely) are not.

Because of these complexities, you might expect to pay more for the drafting, review and negotiation of a prenuptial agreement that properly addresses all of the necessary issues than you would pay for a separation agreement. So when your attorney quotes you his or her exorbitant fee, the above discussion might explain why.

The typical topics that could be (but, as you get further down the list, frequently are not) covered by Prenuptial Agreement are:

• The expectations the parties have with regard to separate property.
• The expectations that the parties have for the growth of separate property.
• The expectations that the parties have regarding transfers of separate property into joint names. (Do they remain separate or do they become marital? Was the transfer a gift or titled jointly solely for inheritance and tax purposes? It makes a difference at divorce time.) What will happen with separate property in the event of a divorce?
• What will happen with separate property in the event of a death?
• The increase in the equity of separate property as a result of passive activity (market changes over time increasing the value of real estate or stock) vs. active efforts to improve the value (ranging from making the mortgage payment to making or supervising improvements, thereby building ?sweat equity?, or actively managing the other partner?s securities in the stock market).
• The approach that the parties wish to contract to take in the event of problems that arise during the marriage (counseling, mediation or arbitration).
• Payment of expenses and savings.

• The effect of the accumulation of marital wealth when one party is marrying into an existing family. Blended families bring their own special issues, especially in situations where a spouse who is entitled to receive child support receives none and the step-parent is footing all or part of the costs of raising his/her stepchildren. What if after the end of a long marriage, the absent/obligor parent finally begins to pay support, but it is at end of the marriage of the party?s contracting in a prenuptial agreement. Does the spouse get to claim an interest in the arrearages owed by the absent parent?
• Time off from work to care for children.
• Career expectations.
• Relocations.
• Religious expectations.
• Responsibilities of a spouse because of disability or incapacitation.
• Requirements for obtaining disability, long-term care and/or life insurance.
• Agreements to permit a religious divorce or annulment.

Sunset Provisions:
Many newlyweds (and engaged couples) understand and accept as “fair” that the separate property of the spouse remains his or her separate property. They also generally accept that the more dependant spouse should not have much, if any, of a claim to support in the event the marriage is a short one.

But what if the marriage is long? Certainly the hope and initial expectation of newlyweds is that they will remain married forever, or at least a long time.

Let say (because we know it will be true) that you devotedly took care of your side of the marital duties. You helped to raise your children (your own and/or step-). You contributed your resources to building security and a little bit of wealth, and fully supporting your spouse’s career. Maybe you had given up a career path yourself in order to allow your spouse to take a promotion in a new location.

Then you become disabled. Or your spouse simply says, “I’m done. You take the kids. I’ll pay child support.

What if the prenuptial agreement has a ‘no-alimony’ provision?

What if you are 1 year into the marriage. 10 years. 25 years. Is it “fair” that your spouse has no support obligation?

“Fair” is a relative term. It depends upon the situation at the time that it is being evaluated. Few people will quibble with the 1 year scenario. “No support” sounds fair even though the disability is not your fault. But 10 years feels wrong. 25 years? It absolutely is wrong (but it could still happen).

To avoid the above, many couples will add a ‘sunset’ provision into their prenup. The provision may declare void all or certain portions of the agreement after the passage of time, and defines the event that constitutes the cut-off point. (I.e., “these provisions will continue in full force and effect for a period of 10 years.

Definitions of how to measure that need to be agreed upon as well. Is it 10 year period, or is it 10 years if the parties are still living together? It matters because a spouse could manipulate the times to avoid the sunset or to promote the sunset even though the marriage has already failed.

Medicare Issues:
Be advised that no matter how strongly a prenuptial agreement may be worded, it cannot prevent against the government’s call for the spouse’s assets before Medicare allowances for long-term healthcare is allowed. So, if one spouse develops health issues and requires hospitalization or long-term care, the hope of the parties that Medicare will take over when the ailing spouse’s assets are depleted is misplaced.

Medicare will not contribute towards the long-term health care of the ailing spouse until the resources of both spouses are substantially exhausted. This is true irrespective of the length of the marriage.

There are known cases where, with prenuptial agreement fully in hand declaring separate property interests in strong terms, and clearly defining who can touch what for what purpose, the financially weaker spouse was hospitalized shortly after marriage. Medicare required the spend-down of the other spouse’s assets.

Under the current state of the law, there is no total protection against this. However, you can insure against this situation by purchasing the appropriate type of long-term health care insurance coverage. Medicare will not require a spend-down of assets in the amount of long-term health insurance benefits paid. (Medicare recognizes its savings and will not require you to spend-down below the amount of that “savings.”)

Long term care insurance not only provides health insurance coverage, but it also protects against the dreaded spend-down requirements, at least to the extent of the coverage. So, if you anticipate the problem presented above, run, don’t walk, to a knowledgeable long term care insurance advisor or agent.