Carol Ann's Newsletter
This month, we are concentrating on Pre-Nuptial Agreements
There is so much talk about pre-nups nowadays. The first reaction when it is mentioned by one of the parties getting married is, "Oh, you don't trust me. You must not love me as much as you say you do!" It has been the common misconception that pre-nups are only for the rich and famous, but they are becoming much more common with couples who are marrying for the second or third time and already have some assets and/or children they want to protect.
Let's look at some famous couples who had pre-nups and then we'll look at some guidelines.
In 1968, Jacqueline Kennedy and Aristotle Onassis signed a pre-nup which would give her $3 million cash, $1 million in trust for each of her children, and $200,000 per year after a divorce or his death. Ari died in 1975.
In 1971, Mick Jagger divorced Bianca. According to their pre-nup he paid her only $1.2 million.
In 1977, Donald Trump married Ivana. Their pre-nup said she will get $25 million if and when they divorce. They separated in 1990 and Ivana sued for 50% of his assets - worth between $1.7 billion and $4 billion. She claimed the pre-nup was void because of his affair with Marla Maples. The court ruled in The Donald's favor and gave Ivana $14 million, a Connecticut estate, and $350,000 a year in maintenance.
In 1993, The Donald marries Marla Maples and she finally signs a pre-nup two days before the wedding. They separate in 1997 just before a clause making Maria's settlement larger would have taken effect. They fight over this for two years and Marla finally agrees to the original terms: $2 million plus expenses for their daughter. Their divorce was final in 1999.
In 1994, Roseanne and Tom Arnold divorce after four years of marriage. There was no pre-nup so according to the newspaper, Roseanne had to pay Tom $50 million. In 1995 Roseanne married her former bodyguard and chauffer. She insisted on a pre-nup. They filed for divorce in 1998.
As you talk to your divorcing clients, many of them will share information about their new boyfriend/girlfriend and about their wedding plans. Ask them if they have arranged for a pre-nup. Since the divorce is fresh in their minds, they will probably be very open to this idea.
What do you need to know about pre-nups?
1. There must be full disclosure.
Robert did not disclose several million dollars of assets because he didn't want Nancy to get half of those assets in the case of a divorce. Nancy found out about the assets and was so upset about the lack of trust that their relationship disintegrated and they finally ended up getting divorced. Nancy's lawyer was able to get the pre-nup overturned due to the non-disclosure of assets. What Robert should have done was to put into the pre-nup that he in fact did have those assets and they would remain his separate property, no matter how they were titled or co-mingled. He could have protected himself in that way. Full disclosure also includes information about debt.
2. Both parties should have legal advice.
When Kent and Karen were getting married, if he had insisted that she sign the pre-nup without having it looked over by her lawyer, this may make it possible for the pre-nup to be overturned. One lawyer should not act for two people, since there is a conflict of interest in advising them about their rights.
3. The pre-nup should be fair to both parties.
The Uniform Premarital Agreement Act (UPAA) of 1983 prohibits agreements that are "unconscionable," for instance, if the terms of the agreement leave one of the parties destitute. What's fair at the signing should remain fair when the couple splits up, or a judge may overturn the pre-nup. The UPAA also says that the agreement must be in writing, signed by both parties, and witnessed.
4. There should be no coercion.
An example of coercion would be if one party says to the other, "Sign this or we're not walking down the aisle tomorrow!" The emotions around the wedding itself are often running too high for a person to think clearly and someone might easily sign papers just to be "nice and not cause any problems."
5. Prenuptial agreements hold up in court.
If all of the above issues are addressed, the pre-nup will hold up in court. Therefore, couples can have it say just about anything they want it to say. However, common sense must be used to avoid language such as (this really happens!) they must have sex three to five times a week, not leave anything on the floor overnight and turn the lights off precisely at 11:30pm.
Who needs a pre-nup?
- If one party has significantly more assets that the other, a pre-nup will preserve those assets for that part and his/her children.
- If one party has significant debt, the other party may end up having to pay some of that debt if there is no pre-nup.
- Children from a prior marriage need to be protected.
- If one party owns a business, a pre-nup can prevent forced valuations and liquidations.
Let's end with a positive story: Michelle Andrews in Smart Money (Sep 2001) tells about Jeff and Jackie who were planning to get married. Jackie, age 40, had accumulated significant assets and she told Jeff she wanted a prenuptial agreement. Hi reaction was, "Why would we need it?" He didn't have as many assets as Jackie and found the idea of a financial contract governing their relationship off-putting. "I thought it would de-romanticize our marriage." But Jackie was firm. They finally came to an agreement and Jeff saw the practical side of the pre-nup. On the remote chance that the marriage ends, it makes sense to have the distribution as assets codified." He said they came to more generous terms with each other as they settled on them in the glow of love. After a year of marriage, Jeff says, "Having a pre-nup hasn't changed a thing between us."
13 Topics for a Prenuptial Agreement*
1. How income will be used from the separate property of each spouse.
2. How joint property will be acquired and used.
3. Premarital and postmarital ownership by one party.
4. How pensions will be paid out if one of the parties dies.
5. What to do if one party becomes incapacitated or disabled.
6. Intentions of having children.
7. Rearing of children from a prior marriage.
8. Financial responsibilities toward parents.
9. Responsibilities for debts acquired before and during the marriage.
10. Filing status for income tax returns.
11. Provisions in wills and trusts.
12. Spousal support if there is a divorce.
13. Property division of there is a divorce.