As a trial lawyer who specializes in divorce work, I can say with confidence that having a prenuptial agreement is no more morbid, crass or unfair, than having a good will, trust documentation, or power of attorney prepared by an estate planning attorney. Just as there is nothing morbid about planning for one’s inevitable demise, it is also wise to consider that, statistically, at least half of us will experience the divorce courts. Like estate planning, a prenuptial agreement is simply another strategy for smart and fair asset protection.
In my work, I am often frustrated by the absence of prenuptial agreements, or even more, by shoddy, thoughtlessly-prepared agreements which do not thoroughly address certain key elements. More on this later, but first the basics:
In a divorce trial involving property, the judge is tasked with three things: (1) characterizing property as marital or separate, (2) valuing the marital property, and (3) equitably distributing the marital estate. Prenuptial agreements are designed to guide the court on (read: simplify) the first and third tasks, characterization and distribution of property.
Take, for example, the home owned free and clear prior to marriage. All it might take to transmute this into marital property, awardable in a divorce, is for the marrying couple to move in and occupy it as the “marital” home.
If, however, the prenuptial agreement specifies that occupancy and use of the home may not be interpreted to change “my” home into “our” home, then the question of the owner’s intent cannot be easily challenged.
The question of intent is now even more significant given recent changes in the laws of domestic partnership. In such a partnership, defined as cohabitation by partners in an intimate relationship, ownership of ALL partnership property is defined by intent. A good prenuptial agreement defines the owners’ intent, making the judge’s task of characterization all but complete.
Solid prenuptial agreements also define other important property issues, such as what property IS included in the marital estate, how property is split by percentage, entitlement (or not) to spousal support, and so on. To be enforceable, the touchstones of prenuptial agreements are full disclosure and fairness.
One final thought: No matter how thoughtfully your prenuptial agreement is prepared, it is equally important that the terms of the agreement be honored. One of my clients gave me permission to illustrate this point with his story. He and his now-ex-wife downloaded from the Internet a “canned” (form) prenuptial agreement which he believed protected his substantial premarital assets. However, my client then commingled his marital income into a sizeable premarital account (and the agreement failed to authorize this), so the entire account was considered to be marital. Similarly, his marital income paid the mortgage on his premarital home (and again, the agreement did not specify that this did not transmute the home), so “his” home became “our” home. It is critical that the terms of the prenuptial agreement be observed and followed.
We all should now know that asset protection, including a solid prenuptial agreement, is an important piece of our investment portfolio as a means of preserving what may be a lifetime of accumulation for your use if you divorce, or if not, for the later use of your heirs. Pairing the right team of financial advisor, CPA and estate planning attorney, with the right documents will help you protect your assets from taxation and from the expensive claims of others including perhaps in the case of divorce.