Volume 18, Number 7
October/November 2001
Prenuptial and Postnuptial Agreements
By Robert J. Nachshin
There are few things in life tougher than going through the breakup of an intimate, personal relationship. Beyond the emotions involved, there are questions of property division and financial support that must be settled. Married or not, the laws in most states are such that when a couple dissolves a romantic union, each partner can be required to share both the assets and the liabilities of the union.
When you consider that in every breakup at least one of the parties, if not both, is probably experiencing a tremendous degree of emotional trauma over the split, having to haggle over who gets what is not only distressing but can also become overwhelming. Many couples can ease the frustration ordeal by having a prenuptial (or, later on, postnuptial) agreement in place in case the relationship fails.
Prenuptial or Postnuptial?
Many people don't know that there is a significant difference between the prenuptial agreement and the postnuptial agreement. Although some think both are equally valid and protective, this is not true. A prenuptial agreement is the best possible agreement, for the courts prefer a statement of who came into the union with what that is drawn up before the union, not after the fact. Certainly, a postnuptial agreement is better than no agreement at all, but many clients are under the misconception that they are as "covered" with a postnuptial as with a prenuptial agreement. The harsh reality is that the courts tend to assume that a prenuptial agreement is always valid, but they have the opposite reaction to the postnuptial agreement-the assumption is, in the majority of cases, that that type of agreement is not valid.
When asked about the merit or need for such agreements, the lawyer should first educate the client, informing him or her of the differences between the two agreements. The lawyer's next obligation is to inform the client about the pros and cons of the two types of agreements and the importance of having one of them. In the course of handling various business matters for a client, you may also want to make certain your client is protected on the personal front. Clients may suggest that they might have the need for either a prenuptial or postnuptial agreement, but then they put it off-"I'll do it some day," they say. You can remind your clients that protecting their interests in their personal lives is just as imperative as protecting their business affairs. So, if your client is moving in with a significant other, or getting married soon, set up a meeting to discuss his or her options.
Try to keep it simple when explaining the differences between the prenuptial and the postnuptial agreement. Tell your clients that the prenuptial agreement will protect all of the assets they had prior to entering into the marriage or union, should that relationship fail. If they hedge, indicating they would rather wait and "one day" have you prepare a postnuptial agreement, caution them. A postnuptial agreement is hard to enforce simply because once married, a couple has a fiduciary duty to care for one another in all ways. However, if your client is already married, you will need to explain what protection he or she might receive by entering into a postnuptial agreement.
Are These Agreements for Everyone?
Should everyone have a prenuptial or postnuptial agreement? I think you can never be cautious enough. In every partnership there is always the potential possibility of a breakup. Put it to your client this way: If you were going into business with any partner, wouldn't you first draw up an agreement as to who was contributing what assets to the venture? And, further, wouldn't such an agreement also clearly spell out how the assets and liabilities of that arrangement would be divided, should they decide to close the doors? Most certainly, the answer would be "yes, of course." At that point your client should see the parallels between a business partnership and marriage or cohabitation. When you consider that more than half of all marriages end in divorce, it isn't being alarmist or an overreaction to consider having a prenuptial agreement in place. Should the marriage end, at least the people going through it aren't also having the compounded agony of fighting over "questionable" properties and belongings-both tangible and intangible-during their divorce.
Here's what most people forget: Everyone has some property-tangible or intellectual-something of value or worth that they bring with them when they enter into a domestic partnership. However, most people fail to make a list of these items, putting those items into dispute once the relationship ends. At that point, the tug of war becomes costly and draining-emotionally, physically, and financially. Wedding gifts from relatives are particularly tricky, as once given, they became property of both the husband and the wife. Later on, those antique tea cups from grandma could set off a bigger fight than financial assets. It is good practice to itemize and list even the most easy-to-forget "things."
Another mistake clients tend to make is forgetting to factor in their "potential" and what it can ultimately generate. People need to realize that brain training, talent, and expertise can produce income and should be considered assets. Quite often these intangibles may not produce revenue and goodwill until much later in life, long after the marriage takes place. However, if it is not clearly spelled out in a prenuptial agreement that an individual retains those "rights," any income or goodwill can shift to the "community property" pool. Obviously, this can cause further heartbreak and frustration, as one spouse can cash in on the other's more ethereal assets for a long time.
For example, if a person has expertise and talent in the public relations field, has built up a networking and media contact base, and has amassed great skills in learning to be successful in this business, but has taken a hiatus from it, this expertise could easily become an area of strong contention during a dissolution process. For if this individual resumes a public relations career after the marriage, and then there is a divorce, the ex can make claim to the rewards of the person's public relations capabilities and success, entitling the ex to up to half of the benefits of that person's professional resources. This being the case, a prenuptial agreement may be the most important agreement a person can sign, ever!
Helping the Client Take Stock
After you've explained the nature of both types of agreements, and the importance of having one of them, you need to see that one is drafted properly. If your clients forget to tell you about an item, it could be troublesome later on, so helping them take stock of what is of value is critical. The guidelines for assessing what is of value are fairly simple; however, most people tend to overlook some of their assets, both tangible or intangible. The following list sets forth a few ways to help your clients take inventory of those things they will want included and mentioned in the prenuptial agreement:
2. Next, have your client make a list of less tangible assets-intellectual properties-such as the manuscript of a novel or an idea for an invention, either of which may possibly generate income in the future. On this list could be "goodwill"; doctors, lawyers, dentists, and others in service professions may have amassed a great deal of goodwill in their practices. Celebrities and sports figures are not the only people who can put a price on their goodwill.
3. List any financial assets such as stocks and bonds, savings accounts, annuities, and IRAs. Itemize each of these assets. Don't overlook the frequent flier miles!
4. Most people have some special family heirlooms they bring with them. List these carefully. In the dissolution process, I have found that there is more heartbreak over family treasures (and pets) than anything else other than the children.
5. In many cases, spelling out who gets the gardener, the cleaning service, and various personal assistants can also be important. If your female client is now sharing a personal trainer with her fiancé, she may just want it specified that in the event of a breakup there would be no question as to who continues to work with the trainer.
Postnuptial agreements are harder to enforce than prenuptial agreements, because the courts follow the logic that married people have a fiduciary duty to each other. Still, people enter into postnuptial agreements that, if properly drafted and maintained, will hold up in court. The following suggestions should help get you started:
1. Have your client make a list of the assets that he or she has amassed since the marriage occurred-specific things that the client feels belong to him or her. This could be the assets of a new business started by your client, a benefit package earned at a corporation, or regular yearly bonuses.2. Gifts received after the marriage from friends or relatives that both spouses have enjoyed the use of, such as an expensive vase, a Persian rug, or the cappuccino machine, should be listed.
3. Note any items purchased with your client's personal funds (that is, not money from a joint checking or savings account). These items could include the patio furniture, a CD player, or a PalmPilot, for example.
4. Make certain that your client continues to supply you with a list of new items he or she has received or purchased. It might be wise for you to do an annual "checkup" with those clients who have postnuptial agreements to make sure all items are included. Naturally, you can include language in the wording of the postnuptial agreement that allows for any new additions. You may also find it helpful to provide addendums to the postnuptial agreement for absolute clarity.
Never "One Size Fits All"
While assisting your clients with their prenuptial and postnuptial agreements, always remember there is no such thing as a "one size fits all" agreement. Each client will have particular properties, assets, and possessions that are very different from those of another client. So, make certain that you give attention to detail. Listen very carefully to your clients so that you can understand their priorities and their preferences. Some people don't verbally express which items they really think are important to include, so you need to make every attempt to ferret out those specifics during your discussions prior to drafting the agreement.
One last suggestion: Tend to your own prenuptial and postnuptial needs. I have many colleagues who either avoided or simply forgot to practice what they preach! Certainly, there is a great deal to be said for community property, and the courts work hard to determine what is an equitable division of assets. But in the end, a prenuptial or postnuptial agreement will allow us to keep possession of what is rightfully ours.
Handling the Prenuptial Agreement
1. Make certain your client doesn't wait until shortly before the wedding to present a prenuptial agreement to his or her intended. This casts a pall over what should be a joyous occasion and may be seen as coercive.2. The client's will should be updated in conjunction with writing a prenuptial agreement. By doing this, your client can financially protect any children from a prior marriage, as well as provide for any children resulting from the new marriage.
3. Check that your client's intended has taken the agreement to his or her lawyer for review. There have been many prenuptial agreements disputed on the grounds that one party did not receive proper representation.
4. The agreement should be signed in the presence of legal counsel and a witness, and should be appropriately filed.
Robert J. Nachshin is a partner and Certified Family Law Specialist at Nachshin & Weston in west Los Angeles, California. His family law practice caters to celebrities and other high-profile and high-net-worth individuals in the areas of divorce, custody, paternity, prenuptial and postnuptial agreements, and guardianships.