Engineering an effective prenuptial agreement requires a great game plan. As they say, “the best offense is a good defense.” Broaching the subject of such an agreement when a couple is in love can be a difficult and delicate task for any potential spouse, especially while they are planning their dream wedding. Thus, great care should be taken by a practitioner when drafting such an agreement, while fairly advocating for their client should a divorce, separation, or annulment (collectively “termination event”) ever be in their future. Not to mention, a prenuptial agreement can also come into play when one spouse predeceases the other. Here are some “pro tips” for best practices in negotiating, drafting, and executing any prenuptial agreement.
Pro Tip #1 > Do Your Homework
An effective lawyer should know not only the general laws of the state that will be governing the agreement and whether that state has adopted the Uniform Premarital Agreement Act, but also should stay up to date on all recent caselaw and/or statutory changes. Further, a practitioner should always educate their client regarding public policy exceptions and general enforceability of certain provisions should the parties ever relocate during their marriage. Of course, explaining to the client all of their potential rights and obligations with and without a prenuptial agreement is paramount.
Pro Tip #2 > Know Your Client
It is always important to understand your client’s desires, prior conversations with their future spouse regarding the prenuptial agreement (if any), their bottom line for terms, and the costs they are willing to accept if those bottom-line terms are not acquiesced to by the other party. We, authors, have, unfortunately, been tasked over the years with both advising the other party during negotiations that the wedding was off and advising our own clients that their partner called off their engagement. Definitely not fun moments.
Pro Tip #3 > Negotiations Take Time
The process of negotiating, drafting, and executing a prenuptial agreement takes months. No matter how many times we have been told that a client is in complete agreement with everything, there is always further negotiation. Generally, anticipate three to five months for the entire process. One of the first questions to ask any client is “When is your legal wedding date?” because the wedding ceremony is not necessarily the legal date because several cultures make their marriage legal prior to any ceremony. A general rule of thumb is to always advise your clients that it is best to have the prenuptial agreement executed at least one month prior to their marriage being legal. Of course, there are times when the marriage is right around the corner. It will be up to you based on that timing whether to take that client on, whether to have them sign a letter acknowledging your concerns regarding enforceability, or whether you are up for the task of moving “heaven and earth” to accomplish three to five months’ worth of work in a very short time frame—many times at the expense of your personal life and of your other clients. The more time the parties have to exchange financial information, understand their rights and obligations, and negotiate, the more likely a future court will uphold that prenuptial agreement. Always include language about how long the parties have been discussing entering into a prenuptial agreement and how long each has been familiar with the finances of the other.
Pro Tip #4 > Obtain Independent Legal Counsel
Each potential spouse should always hire their own lawyer to represent their individual interests. The party desiring the prenuptial agreement should always ensure the other party has the means for that party to hire independent legal counsel. There should be no direct contact between one party who is represented and counsel for the other. Obtaining independent legal counsel is essential. In the rare circumstances where the other party refuses to obtain counsel, include language regarding the other party being advised to hire legal counsel and that party refusing to do so despite knowing that the agreement will be binding and that they understand that they may be entitled to more without any prenuptial agreement.
Pro Tip #5 > Confidentiality and Nondisclosure Agreement
It is important to have the parties execute a mutually accepted confidentiality and nondisclosure agreement. Financial information is extremely sensitive, and neither party should be in fear of having such information discussed and/or disclosed to others or on social media, especially since there is no guarantee at the production of financials stage that any prenuptial agreement will ever be executed or that a legal marriage goes forward.
Pro Tip #6 > Disclose Your Financial Information
There is no such thing as too much financial disclosure. Each party needs a clear and accurate understanding of the financial state of the other so that they can make an informed and sound decision. Both parties should disclose their financial information sooner rather than later so the parties have time to review. This disclosure should include a financial summary statement of all assets, contingent assets, income, and liabilities, along with supporting documents such as statements, appraisals, and valuations (to the extent they exist). All financial disclosures should be bate-stamped and included on a listing within the prenuptial agreement, along with the date those documents were produced.
Pro Tip #7 > Plan for Future Events
Termination events are not the only important considerations for a prenuptial agreement. It is also very important to plan for the death of either party after they are legally married but prior to a termination event. This is even more important for spouses with children from a prior relationship. Although we always advise parties to have their estate planning completed once they are legally married, there are times where the will and/or trust document never gets completed or cannot be located, as many states do not have a registration and/or filing system for wills when they are executed. Nobody wants there to be a legal challenge between the deceased party’s children and their stepparent. We have seen cases where the will was in the parties’ home prior to the husband’s back surgery. Horrifically, there were unexpected complications, and the husband unexpectedly died. The adult children went to the parties’ home to obtain his will, only to discover it was now “missing.” Luckily, for the adult children of a prior relationship, the parties’ prenuptial agreement was enforced by the court since the agreement discussed what would occur upon death, had the needed waivers, had two disinterested witnesses attest to the parties’ signatures, and was notarized.
Moreover, while most states do not permit child support or access time be contracted for in a prenuptial agreement, the parties, if acceptable in their state, could include terms such as certain lump-sum payments as and for property distribution if there are children born of the marriage. This is a very effective negotiation tool where the disparity in income is so vast between the parties that a termination event could lead to a former spouse moving from a multimillion-dollar home to a rental or much more modest accommodations. Although child support would likely be available to that former spouse where there are minor children, depending upon the state, that amount could likely pale in comparison to how the child continues to live when with the other party. This is certainly not an ideal situation, and most clients would not want that for their children.
Pro Tip #8 > Waivers
Common waivers to consider:
- Life Insurance
- ERISA Benefits
- Elective Share/Homestead/Health Surrogacy/Personal Representative of Estate
- Attorney’s Fees (pendente lite and/or post-judgment)
- Alimony (pendente lite and/or post-judgment)
It is very important to inform your client about obligations that cannot be waived in a prenuptial agreement despite, depending upon the state, including those exact waivers. For example, in some states, pendente lite alimony and attorney’s fees cannot be waived despite a knowing and voluntary waiver. However, many times these waivers remain included in the hopes that the law changes. It is imperative to include a severability clause in these situations so the entire agreement is not thrown out if a provision in the prenuptial agreement is found to be unenforceable or invalid.
Pro Tip #9 > Stipulations
Must-have stipulations include those that make clear that no fraud, duress, or coercion induced either party to enter into the agreement, both parties entered into the agreement voluntarily and the agreement was a material consideration for entering into the marriage. It is also important to have both parties stipulate as to the reasonableness and fairness of the agreement as well as their full understanding with neither party having any additional questions regarding the financials of the other, the agreement itself, or any of its provisions. Lastly, parties should stipulate that there will be a bifurcation if a legal challenge arises in order to limit discovery and financial exposure during a termination event.
The inclusion of these stipulations speaks to various claims a party could raise in an attempt to have a prenuptial agreement voided and deemed invalid. Furthermore, certain stipulations like a “sunset clause” (or termination of the prenuptial agreement after so many years of marriage) can also be negotiated.
Pro Tip #10 > Legal Clauses
There are several important additional legal clauses to consider: controlling state law for enforcement; savings clauses, prevailing party clauses for enforcement, and continuing confidentiality and nondisclosure agreements. These clauses can protect a party from years of protracted litigation.
Pro Tip #11 > Certifications
For added security, certain certifications should be obtained to ensure and document full, frank financial disclosures produced and received from the other along with certifying complete understanding of the particular state’s laws with and without executing the subject prenuptial agreement. These certifications should assist upholding the agreement if there is ever a challenge thereto.
Pro Tip #12 > Execution
Consider having a court reporter and videographer present during the execution, along with two disinterested witnesses and a notary. This documentary evidence is nearly impossible to refute if ever needed to prove that one of the parties was under duress or being coerced into the agreement at the time and the parties are sworn in and thus under oath. Ask each party to affirm on the record and on video that the agreement is fair and reasonable, that this is the agreement in front of them that they negotiated and are agreeing to be bound by, and that they had independent legal counsel and received full and frank financial disclosures from the other party. Ask each party if they have any unanswered questions regarding the other party’s finances or of the agreement itself. Moreover, a practitioner we admire always ends the execution with each party stating three reasons why they love the other. This beautiful inclusion reminds the parties why they are going through this process in the first place and eases any tension.
Finally, always have the parties execute at least three originals so that they each receive one for safekeeping. The party who requested the prenuptial agreement should pay for and have their counsel send to them, along with the other side, a copy of the agreement (in addition to the original), a copy of the transcript from the court reporter, and a copy of the video for safekeeping. Help your clients through the process. It should go without saying that it is the hope that the parties proceed to the altar and remain married. The best practitioners do their best to ensure that the prenuptial agreement process does not impact the parties’ relationship.