Pre-Nuptial Agreements

I am often asked “Do I need a prenuptial agreement?”  “What should be in the prenuptial agreement?”  “How do I talk to my spouse about a prenuptial agreement?” While I do not handle divorce actions for clients, nuptial agreements can be a key part of a lifetime plan and an estate plan. Just as the state writes a will for you if you don’t write one for yourself, the state writes a nuptial agreement for you if you and your spouse don’t write one.  You can effectively “opt out” of the Domestic Relations Law in New York if you take the time and are willing to incur the expense of creating a nuptial agreement. My philosophy is that a marriage is a business.  And all relationships end in either death or divorce.  Just as you would create a partnership agreement for your business, you should create a nuptial agreement for your marriage.  It is always better to address these issues in advance when times are good and everyone is excited, rather than at the end when the relationship is deteriorating and tensions are high. Yes, marriage is about love and romance and all that stuff, but at the end of the day, marriage is a legal and financial relationship.  If you don’t recognize that going into the marriage, you are in for a rude awakening when you are leaving it.  I also believe that spouses should keep some if not all of their assets separate, but that’s a topic for a different blog post. In my experience, couples who face and discuss the issues needed for a pre-nup have a better survival rate than those who do not discuss them, or who discuss them but can’t work through these thorny issues together. If you’re already married, it’s not too late to do a marital / nuptial agreement.  These are called “post-nuptial” agreements. So what are some suggestions for getting a pre- or post-nuptial agreement?

1. Prepare and attend the discussion like a business meeting.  Think through your “wish list” of bullet points of things that you think you would want if the marriage implodes.  If you have a self-owned business, you need to address what happens to the business if the marriage terminates.  Is your spouse an investor?  Does he or she hold equity?  If so, an LLC for the business that is governed by an operating agreement may be useful.  If not, you may want your spouse to waive any rights to that business.  This is especially crucial because if your business grows, its fate is not just about you but also the people who work for you and your investors.  Those employees do not want to work for a future-ex-spouse, nor do your investors want him or her running the business.  There are many people that will depend on the stability of your business; that stability can get disrupted in the divorce of an owner.
2. Reduce it to writing.  A nuptial agreement must be in writing, signed by both parties, and acknowledged.  An acknowledgment is not just a notary; it is specific statutory language that must be included, otherwise the nuptial agreement might not be enforceable in court.  The nuptial agreement should address several key points, such as the following:

• Which spouse will pay the other “maintenance” when the marriage terminates?  How will that maintenance be calculated?  (In NY, there is no alimony anymore, it is called maintenance, and it does not continue forever).
• How will temporary maintenance be calculated?  Temporary maintenance is the amount paid to a spouse between the time someone files for divorce and the time a judgment of divorce is rendered – that time period could be two years to as much as 10 years if it is contentious.
• How will the Primary Residence be split?  Who gets to stay in the Primary Residence?  Who will leave the Primary Residence while the divorce action is pending?  This tends to be one of the stickier points in a divorce proceeding.
• How will property be split?  What will constitute “separate property” (not subject to equitable distribution), and what will constitute “marital property” (subject to being divided).
• How will your respective businesses be divided?

Keep in mind that, absent a nuptial agreement, the appreciation of separate property constitutes marital property that is subject to division in a divorce.  Among other things, this can be a forensic nightmare to calculate.  Also, child support cannot be addressed in a pre-nuptial agreement. A few points of advice:

1. Even in the absence of a nuptial agreement, I advise my clients to keep assets separate and not commingle them.  This is especially so if you own a business.  This obviously does not apply to all situations and might not work in a situation where there is an income or asset disparity between the spouses.  If you inherit money from someone and keep it separate, that inheritance is separate property, however, if you commingle it in a joint account or use it to purchase a house that your spouse lives in, it could be construed as having lost its character as “separate property” and can be deemed a marital asset.
2. Keep organized records of contributions to assets, such as checks written and expenses paid.  This will be helpful in the event of a termination of the marriage so that you don’t have to go scrambling around for documents.
3. Have regular business meetings with your spouse.  It is helpful and healthy to have regular business meetings with your spouse to discuss household and financial issues in a non-emotional manner.  Think of them as “mini-shareholder” meetings!

Last but not least, if you own your own business, don’t forego taking a salary.  In a divorce proceeding, your spouse could claim that you were being supported by his or her income and not by the business.  This can jeopardize your own equity in the business and subject it to being marital property. This can also be addressed in the nuptial agreement. As with all legal documents, forms off the web can leave you open to risk.  A lawyer can help educate you on what you need to address, how it should be phrased, and what the consequences of each clause in an agreement mean before you sign it.