Prenuptial Agreements...Not For Everyone
by Elliot D. Samuelson
One of the most difficult negotiations for an attorney is representing a client about to choose a spouse for a first or second time who wishes some financial protection in the event of death or divorce. While monetary considerations are important, permitting your client to arrive at the alter is far more important! With this caveat in mind, a full appreciation for the provisions of the Domestic Relations and Estate Powers and Trust laws is important.
DRL section 236B (1)(c), defines marital property as all property that is acquired by the parties between the date of marriage and before the execution of a separation agreement or the date of the commencement of a matrimonial action, with three exceptions. Gifts from third parties (not interspousal gifts), proceeds acquired from a personal injuries case, and inheritance received are excluded from the definition, and are deemed to be separate property. DRL section 236B(1)(d)(3) states that the increase in value of separate property remains separate except to the extent that such appreciation is due in part to the contributions or efforts of the other spouse. Case law interpreting the statute has made it clear that where the value of a husband's business has increased during the marriage, the appreciation, due to his efforts, is a marital asset. [See, for example, Hartog v. Hartog, 85 N.Y.2d 36, 623 N.Y.S.2d 537 (1995)]. Accordingly, substantial protection is afforded to the non-moneyed spouse entering marriage to insure they will receive a share of whatever assets are actually acquired during the marriage or separate assets that have increased in value during the marriage. The moneyed spouse is also afforded protection, in that assets owned before marriage, gifts and inheritances received from members of their own family, as well as proceeds from a personal injuries cases are defined as separate property. All this is accomplished without the need of a prenuptial agreement.
The other statute to consider when deciding whether or not your client needs a prenuptial agreement, is what protection the estate laws provides to limit inheritance of a spouse. To do so requires a consideration of the spouses right of election, which is limited to one third of the deceased's estate. Recently, the law was amended to include testamentary substitutes, which include insurance policies and trusts, rendering it virtually impossible to exclude a spouse from electing against a will to obtain one-third of the testamentary estate. Earlier law permitted the one-third threshold to be met by counting the principal left in trust, regardless of the income produced, but this no longer is possible.
Armed with such knowledge, it now becomes clear that there are limited instances where a client actually requires a prenuptial agreement, and includes circumstances where the client desires to provide less than one-third of their estate to their husband or wife, or wishes to exclude from the definition of marital property the appreciation in value of investment portfolios, businesses or other assets that occur during marriage. Essentially, that is all the protection that can be obtained in the distribution of property either upon divorce or death. However, there is substantial protection that can be afforded by a prenuptial agreement in the areas of both maintenance and to a lesser extent child support.
Maintenance can be dramatically reduced, or in some instances eliminated, by a validly executed prenuptial agreement, provided the provisions can meet the test of being fair when made and not unconscionable at the time of divorce. The key to doing so, is to make certain that both spouses are represented by independent counsel, and complete financial disclosure is made. More disclosure, is always better than less. Recent case law, has established a new standard for setting aside an agreement, making it clear that an attempt to draft an onerous agreement or to prevent full disclosure , will not be countenanced. Conversely, where full disclosure is made, even a waiver of support might resist judicial scrutiny. Each case is decided upon its own facts, and it is hard to fix inflexible rules that will be applied in every case.
Young couples entering into a first marriage find it very difficult to make substantial deviations from these statutory guidelines. Asking a perspective husband or wife to agree to eliminate or reduce support, or to permit the court to disregard the appreciation in value of a business or profession that occurred during marriage, may be too much to ask. Your client must balance his or her desire to obtain a financial edge with the desire to consummate the marriage. That is why the negotiations of a prenuptial agreement cannot be as adversarial as those of a separation agreement. Where the couple are both professionals, one having obtained a law or medical license prior to marriage, and the other anticipating acquiring the license during marriage, it is hard to consider one degree as a marital asset, and the other as a separate asset, even though the law makes such application. Similar considerations occur when attempting to provide less in an inheritance than the statute provides. One way to obviate concerns is to consider an increase in benefits to a spouse, based upon years of marriage. For example, the provisions to pay support, divide property, or provide an inheritance can be increased each year or groups of years, as the marriage matures. Couples entering a second marriage have different considerations, especially where there are adult children born of a prior marriage. There, a desire to provide for one's children before considering their new spouse, can be a mutual desire of the couple. And where each person has substantial assets of their own, or are self supporting, the financial terms upon death and divorce become far less important.
Whether a client needs a prenuptial agreement really must be addressed by a case by case determination, the ultimate goals of your client, and their respective financial circumstances. To many clients, consummating the marriage, may be far more important than consummating the prenuptial agreement.
*Mr.Samuelson is the senior partner in the Garden City law firm of Samuelson Hause & Samuelson, LLP, the author of Matrimonial Motion Practice in New York, a past President of the American Academy of Matrimonial Lawyers and listed in The Best Lawyers in America.