Protecting Individual Wealth in New York with Prenuptial Agreements

Prior to 1980, New York’s statutory regime for the distribution of property at divorce was a simple one.  The property in question was awarded to whichever spouse held title to it.  Given that women had recently begun entering the labor force as a result of the feminist movement, few women had accumulated much wealth before marriage or even after marriage.  Most husbands still held title to the property shared by the couple.  More often than not, the title system of property division at divorce left the wife in financially difficult circumstances.  A wife could be awarded alimony, but courts were reluctant to do so.  Thus divorced women easily slipped into poverty, at times becoming wards of the State.

Then in 1979 the United States Supreme Court in Orr v. Orr (440 U.S. 278 (1979)) declared that divorce laws that only provided alimony for wives and not husbands were unconstitutional because these laws violated the Equal Protection Clause of the Fourteenth Amendment.  The New York law was thus unconstitutional under Orr, and the State legislature was pressured to act to reform New York’s divorce law.

The enactment of Domestic Relations section 236 part B, known as the equitable distribution law, was the result of the redrafted law.  Equitable distribution means that a court can look at the totality of the marital assets acquired jointly or separately during the marriage and divide them fairly between the spouses.  In practice and under the law, this means that no two marriages are alike.  Under equitable distribution, the goal is fairness and judges have latitude and discretion to assess each spouse’s economic and non-economic contributions to the marriage.

In New York, marriage is viewed by the courts as an economic partnership and not solely as a sacred bond.  The judge determines the dollar value of a spouse’s non-economic activities, such as housework and child-rearing, and then adds that figure to the totality of the assets to be divided equitably.  Equitable distribution replaces alimony in New York.  Thus, a spouse’s post-marriage economic welfare often depends upon the size of the equitable distribution award.

Since the passage of New York’s equitable distribution law in 1980, an individual’s ability to earn a living and to create wealth prior to marriage has vastly increased.  Women and men are earning college and professional degrees in increasing numbers.  Career and professional women are also delaying marriage and child-bearing, factors that contribute to wealth-building.   Both men and women are saving for retirement in their own savings vehicles.

As a result, each person’s personal wealth acquired prior to a marriage may need to be protected in case of a termination event (divorce, separation, and death).  It is possible that one spouse entering a marriage may have substantially more assets than the other spouse and that one person’s ability to earn money may far outstrip the wage-earning capacity of his/her spouse after the marriage.  Should the couple divorce at a later time, absent a prenuptial agreement the court under equitable distribution will look to the couple’s standard of living during the marriage, among other things.

In order to be valid, each person engages separate legal representation so that the prenuptial agreement can be negotiated at arms length, as with any contract negotiation.  In addition, each party must fully disclose all assets and liabilities.   Like any other contract, it must be a signed writing that clearly states that the parties understand and intend to circumvent equitable distribution.

Therefore, a couple about to enter marriage and wishing to protect their separate future earnings and capital investments from equitable distribution in the event of a divorce or separation may want to budget for the legal fees associated with the drafting of a prenuptial agreement.

If you would like to discuss your own personal situation with me, or put together a prenuptial agreement that is tailored for your needs, you can get a free 30-minute consultation simply by filling out this contact form. I will get back to you promptly.

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A Thanksgiving Checklist as We Count Our Blessings…

More than any other holiday, Thanksgiving is the time when we gather around the table to celebrate with family and friends.  Many of you are traveling to visit your family, and many of you are receiving family and friends for Thanksgiving.  Soon there will be the familiar and anticipated aromas coming from the kitchen and we will gather around the table to enjoy a fabulous meal prepared by loving hands and give thanks for all of our blessings.

This is also the time of year that I suggest for an annual review of your legal life plan because the people you love and want to protect are right there with you.  So this weekend, as you savor the leftovers, ask yourself the following questions.

  • Do I need a Will?
  • If I have a Will, has anything major occured in my life this past year so that I should review it with an attorney?
  • Do I need to look into setting up a trust?
  • Have I reviewed all of my beneficiary designations on such things as life insurance policies and retirement plans?
  • Do I need a living Will?
  • Do I need a Power of Attorney for financial matters?
  • Do I need a Power of Attorney for health care?
  • Do I need a prenuptial agreement?
  • Do I need a postnuptial agreement?
  • Do I need a domestic partnership agreement?

If you would like to discuss your own personal situation with me, review your current legal life plan, or put together a legal life plan that is tailored for your needs, you can get a free 30-minute consultation simply by filling out this contact form. I will get back to you promptly.

From my home to yours, I wish you a very Happy Thanksgiving!  May you and your family continue to be blessed.

Prenuptial Agreements: Providing for the Children

For many couples, the decision to marry includes a desire to start a family.  Some couples come to the marriage with children from prior relationships.  These parents and parents-to-be all desire the same thing:  the best for their children.  A prenuptial agreement can memorialize the agreements between the parties regarding the children.

New York’s Domestic Relations Law (DRL) 236[B](3) permits the inclusion of “provision for the custody, care, education and maintenance of any child of the parties, subject to the provisions of section two hundred forty of this chapter.”

There are complex and emotional issues to be discussed, such as those regarding religious upbringing; parenting styles; allowances and other money issues; choice of schools (public; private; homeschooling); the appointment of guardians in the event of the death of the parents; which holidays are celebrated, and with whom; vacations with the children; and the amount of time spent with grandparents.  Provisions may be made in the prenup for health care coverage (medical, dental, vision, psychological) and how unreimbursed medical costs will be handled.  With the rising costs of higher education, some couples may want to set out a provision for how these costs will be funded.  Depending upon the circumstances, some parties may choose to set up education accounts as separate property.

Time spent with grandparents may seem like a given to most couples, but in the event of a separation or divorce the right to visitation by the grandparent is not automatic.  In 2000 the U.S. Supreme Court in Troxel v. Granville (530 U.S. 57 (2000)) held that forcing a parent to allow a grandparent visitation rights violated a parent’s fundamental rights and liberty interests concerning the upbringing of their child.  After Troxel, grandparents who wish a court to order grandparent visitation must show that the absence of such visitation is not in the best interest of the child.  Therefore, if such visitation is important to the parties, it should be clearly stated in the prenuptial agreement.

If one party is already paying child support for children from a prior relationship, then it is important to talk through how the family finances will be organized fairly so that resentment does not become a factor in the marriage.  And where stepchildren and visitation are concerned, having clarity about parental responsibilities, the role of the step-parent, and household responsibilities for the blended family are paramount to prevent disagreements, divided loyalties, and harsh feelings.

Coming to terms in a prenup concerning children requires an open discussion about these and other issues that concern the welfare of children in the planned marriage.  Your attorney can assist you in drafting an agreement that will satisfy your needs and the needs of present and future children.

If you would like to discuss your own personal situation with me, you can get a free 30-minute consultation simply by filling out this contact form.   I will get back to you promptly.

I invite you to join my list of subscribers to this blog by clicking on “Sign me up!”  under Email Subscription on the left-hand side of the page so that you can receive a notification when the next installment has been published.  Thank you.

Prenuptial Agreements: Defining the Terms of the Marriage

During courtship, a couple may choose to look at some of the more complex issues that arise within the context of a marriage.  Some couples may take a premarital course or counseling to prepare for their life together.  Some States, like Florida, have enacted laws that provide a discount on the marriage license fee for couples who elect to take a four-hour premarital preparation course.  Other States have followed suit.  And while these laudable efforts encourage awareness of issues that traditionally bring stress into the marriage relationship, premarital counseling does not create any contractual obligations between the parties. A prenuptial agreement, on the other hand,  defines the terms under which the couple will live together during the marriage.  It can also spell out terms should the couple separate or divorce.  This is particularly important if the parties have children from prior relationships, or one party has substantially more assets or income than the other.

New York’s Domestic Relations Law (DRL) 236[B](3) allows “provision for the amount and duration of maintenance or other terms and conditions of the marriage relationship, subject to the provisions of section 5-311 of the general obligations law, and provided that such terms were fair and reasonable at the time of the making of the agreement and are not unconscionable at the time of entry of final judgment.”  We will now deconstruct the language of this statute to see how each section applies to the drafting of a valid prenuptial agreement.

DRL 236-B(6) sets out the statutory provision for spousal maintenance in New York.  “In determining the amount and duration of maintenance the court shall consider:

(1) the income and property of the respective parties including marital property distributed pursuant to subdivision five of this part;

(2) the duration of the marriage and the age and health of both parties;

(3) the present and future earning capacity of both parties;

(4) the ability of the party seeking maintenance to become self-supporting and, if applicable, the period of time and training necessary therefor;

(5) reduced or lost lifetime earning capacity of the party seeking maintenance as a result of having foregone or delayed education, training, employment, or career opportunities during the marriage;

(6) the presence of children of the marriage in the respective homes of the parties;

(7) the tax consequences to each party;

(8) contributions and services of the party seeking maintenance as a spouse, parent, wage earner and homemaker, and to the career or career potential of the other party;

(9) the wasteful dissipation of marital property by either spouse;

(10) any transfer or encumbrance made in contemplation of a matrimonial action without fair consideration; and

(11) any other factor which the court shall expressly find to be just and proper.”

Each of these eleven points can become the subject of a term in a prenuptial agreement.  However, the statutes makes clear that any such agreement regarding spousal maintenance must not run counter to the provisions of 5-311 of the General Obligations Law:

§ 5-311. Certain agreements between husband and wife void. Except as provided in section two hundred thirty-six of the domestic relations law, a husband and wife cannot contract to alter or dissolve the marriage or to relieve either of his or her liability to support the other in such a manner that he or she will become incapable of self-support and therefore is likely to become a public charge. An agreement, heretofore or hereafter made between a husband and wife, shall not be considered a contract to alter or dissolve the marriage unless it contains an express provision requiring the dissolution of the marriage or provides for the procurement of grounds of divorce.

New York requires grounds for a divorce; it is not a no-fault state.  Also, New York does not recognize irreconciable differences as grounds for divorce.  A couple may obtain a divorce in New York only on the basis of the following grounds (Domestic Relations Law §170)

  • Cruel and inhuman treatment (Domestic Relations Law §170.1)
  • Abandonment for a continuous period of one year or more (DRL §170.2)
  • Imprisonment for more than three years subsequent to the marriage (DRL §170.3)
  • Adultery (DRL §170.4)
  • Conversion of a separation judgment (DRL §170.5)
  • Conversion of a written and acknowledged separation agreement after living separate and apart for more than one year (DRL §170.6)
  • The relationship between husband and wife has broken down irretrievably for a period of at least six months, provided that one party has so stated under oath. No judgment of divorce shall be granted under this subdivision unless and until the economic issues of equitable distribution of marital property, the payment or waiver of spousal support, the payment of child support, the payment of counsel and experts’ fees and expenses as well as the custody and visitation with the infant children of the marriage have been resolved by the parties, or determined by the court and incorporated into the judgment of divorce (DRL §170.7).

Therefore, a couple may not contract to separate or divorce in a prenuptial agreement, or to contract to procure grounds for a divorce.  Nor may a couple stipulate terms in a prenuptial agreement that would render one party a public charge of the state in the event of a divorce.

What permitted provisions might a couple place in a prenuptial agreement?  Some health -conscious couples may want to include provisions about smoking or weight-gain.  But such provisions are not enforceable.  But provisions in a prenuptial agreement about the continuation of health coverage should the couple divorce can be enforceable.  A prenuptial agreement could also stipulate that any transfer of property in exchange for a release of a substantive claim on the other party’s estate occur after the wedding in order to mitigate adverse income tax and gift tax consequences.

What makes a prenuptial agreement unconscionable?  In Schultz v. Schultz (2009 NY Slip Op 00199 [58 AD3d 616]), the Appellate Division, Second Department defined unconscionable agreement as “one which no person in his or her senses and not under delusion would make on the one hand, and no honest and fair person would accept on the other, the inequality being so strong and manifest as to shock the conscience and confound the judgment of any person of common sense. However, an agreement is not unconscionable ‘merely because, in retrospect, some of its provisions were improvident or one-sided’ and simply alleging an unequal division of assets is not sufficient to establish unconscionability.”

Therefore, within the scope of the statute, there is room for a couple to define the terms of their marriage, terms that will provide for harmony and for fairness during the course of their life together.

If you would like to discuss your own personal situation with me, you can get a free 30-minute consultation simply by filling out this contact form.   I will get back to you promptly.

I invite you to join my list of subscribers to this blog by clicking on “Sign me up!”  under Email Subscription on the left-hand side of the page so that you can receive a notification when the next installment has been published.  Thank you.

Prenuptial Agreements and Property: Getting Clear about Title

In January 2010, the New York Times published an article in the real estate section about the growing number of unmarried couples purchasing real estate together (“Come Buy With Me and Be My Love“).   While the attraction may be low mortgage rates or the ability to buy a more desirable property that the current housing market has placed within an unmarried couple’s reach,  the couple in consultation with their attorneys should give care and thought to such issues as to how the property will be titled, how the property will be treated in each party’s Will, how payments and tax issues will be apportioned, and whether a new deed will be drafted and recorded in the event that the couple marries.

For an unmarried couple wishing to purchase real estate together, a prenuptial agreement can resolve these issues before the purchase is made.  Domestic Relations Law (DRL) 236[B](3) recognizes provisions in prenups “for the ownership, division or distribution of separate and marital property.”  As we shall see, the way in which a property is titled has some serious repercussions.

To simplify this discussion, I have divided ownership types by whether or not they have a right of survivorship, meaning that the surviving tenant will become the owner of the entire property without Probate.  The surviving tenant’s claim on the property will be first in line over any other claims on the property. 

There are two ways to title property to ensure the right of survivorship.  The first is available only to married couples:  tenancy by the entirety.   For married couples in New York, this is the default title.  It affords certain rights not available to unmarried couples.  Tenancy by the entirety presupposes that in marriage the two become one.  The law views the couple as a single unit.  Each spouse owns an undivided 100% of the property.   Neither spouse can sell or diminish the 100% share that each owns without the consent of the other.  Should a creditor obtain a lien on one spouse’s interest in the property, the lien will only survive if the debtor spouse is the surviving spouse.  Otherwise, the lien is extinguished with the death of the debtor spouse.  Moreover, the property cannot be reached in a bankruptcy proceeding. 

Joint tenancy with right of survivorship provides some of the same protections for an unmarried couple.  Each person owns an undivided 100% interest.  However, one party may transfer or put a lien on his/her interest without the knowledge or consent of the other joint tenant, thereby severing the joint tenancy and making the property a tenancy in common.  Moreover, the interest of each joint tenant can be attached by creditors or in bankruptcy.  When attachment takes place, the property can be sold to recover against the debt, and the proceeds of the sale will be divided between the unencumbered party and the bankruptcy trustee.

When a joint tenant transfers his/her interest to a third party, the joint tenancy with right of survivorship is severed and the parties become tenants in common with no right of survivorship.  Why is this important?  First, it can be done without the knowledge or consent of the other party.  Secondly, it can undo the estate planning that the other party has done, particularly if there is every expectation by the non-suspecting party that the property will pass outside Probate to the surviving party.

Tenants in common have no right of survivorship.  When one tenant in common dies, their property rights pass according to their wishes in their Will, or by the applicable rules of intestacy if they die without a Will.  Each tenant in common enjoys full possession of the property and may not be excluded without compensation.  Tenants in common need not have equal shares, and more than two persons may own the property together.  A tenancy in common affords no protection from creditors or the bankruptcy court.  One joint tenant can transfer his/her ownership rights to a third party without the consent of the other, effectively giving the other co-tenant a new “roommate.”  That third party will now be in possession with the remaining original co-tenant.  The only remedy that the remaining original remaining co-tenant has is to demand a sale of the property and a division of the proceeds.

With a prenuptial agreement, the couple can clearly designate how the property will be titled.  In addition, they can agree to apportion payments based on a percentage of each other’s earnings, reviewable on a yearly basis.  Since each party will be filing taxes separately until the marriage, the prenuptial agreement can spell out the pro rata percentage that can be used for deductions on the IRS’s Schedule A.

Finally, the prenuptial agreement can spell out if and how the unmarried couple will re-title the property as a tenancy by the entirety in the event of a marriage.  Will the property become marital property, or will it remain separate property?  Being up-front about one’s intentions can spare both parties much anxiety and grief, and also bring clarity to each party’s estate planning.

If you would like to discuss your own personal situation with me, you can get a free 30-minute consultation simply by filling out this contact form.   I will get back to you promptly.

I invite you to join my list of subscribers to this blog by clicking on “Sign me up!”  under Email Subscription on the left-hand side of the page so that you can receive a notification when the next installment has been published.  Thank you.

Prenuptial Agreements and Wills: Loving Acts for a Stable Marriage

As I emphasized in a prior posting, the prenuptial agreement has gotten some bad press because it has been portrayed in celebrity divorces as a way to shield assets from one’s spouse in the event of a divorce.  As a result, many couples shy away from prenups because they see them as signs that the couple is already planning for a divorce even before they are married.  But a prenuptial agreement can be just the opposite:  a foundational element for long-term marriage stability.  In this post, we will look at how incorporating into a prenup an agreement to draft Wills makes sense to protect the couple’s estate, family, and wishes.  Having such a provision in a prenup can bring great peace of mind.

Domestic Relations Law (DRL) 236[B](3) is the statute that controls prenuptial agreements in New York.  The statute states that a prenuptial agreement may include (1) a contract to make a testamentary provision of any kind, or a waiver of any right to elect against the provisions of a will.  We will examine in detail what this provision means to you.

A prenup may include a provision to make a Will (this is called a contractual Will) or, in some cases, not to revoke a Will.   In New York, a contractual Will must contain an express statement in the Will that its provisions are intended to constitute a contract between the parties.  Contractual Wills may be revoked by an agreement of the parties.

Having a Will is not only a good idea, it is a loving act.  According to a 2007 article in Forbes, a survey done by Harris Interactive found that 55% of the general population had no Will.  If you die without a Will (i.e., intestate) in New York, New York State has a default plan for your estate, but you may not like the plan.  New York’s Estates, Powers and Trusts Law (EPTL) § 4-1.1 governs the distribution of estates from persons who die without a valid Will.  This chart summarizes the law:

 

As you begin to have a frank conversation about how you want your estate distributed in the event of your death or the death of your spouse after marriage, it is a good idea to begin by having each of you fill out a family tree, like this one provided by New York State.  You will want to update this family tree yearly, and you will want to bring it with you for your attorney during your yearly visit to review your Will and estate planning.   And if you have not done so already, you will want to have a frank discussion about any known congenital diseases that are present on your family tree.  By being honest and open about your family tree issues with each other, you will build invaluable bonds of trust that will support your marriage when the difficult times come.

Each of you may also want your Will to reflect a gift to a favorite charity or non-profit organization, like a college or university.  That charitable gift will have to be expressed in your Will.  Likewise, there may be heirlooms or other family memorabilia that you would like kept in your family of origin.  Your Will is the place where you will want those exclusions made known. 

The prenup is the place where you can agree to include in your Will an added provision specific to your future spouse after the marriage takes place.   For instance, you might include a bequest to your spouses’s alma mater creating a scholarship fund in his or her name.  When the gift is one of tangible property, during your yearly review with your attorney you will want to make sure that the promised item still exists as part of your estate.  If the item has been lost or destroyed, the gift is said to adeem.  But this situation can be easily rectified by modifying the prenup as we discussed in a prior post. 

The statute also says that either party can waive any right to elect against any provision of a Will.  Here the statute is referring to the elective share statute (EPTL § 5-1.1-A).  The elective share statute protects against disinheritance by either spouse by giving the surviving spouse a minimum share of the decedent’s estate.  In New York, the elective share amounts to the greater of 50K or 1/3 of the net estate after the payment of debts, but before the payment of estate taxes.  In a prenup, either party can waive their right to the elective share.  One reason to exercise this waiver might be to protect children from a prior marriage.  Whether to waive an elective share in a prenup is a decision that must be made carefully and with full disclosure of the salient facts, including full financial disclosures. 

One advantage of drafting a prenup is that it encourages financial disclosures before marriage.  It will also encourage discussions about the emotional aspects of money (saving and spending habits, attitudes concerning debt, and issues surrounding dependency, control and self-image).   Each party should fill out a personal statement of net worth, such as this example by the Small Business Administration.  Getting into the habit of talking about financial issues before and during the marriage will go a long way in building trust in the relationship.

If you would like to discuss your own personal situation with me, you can get a free 30-minute consultation simply by filling out this contact form.   I will get back to you promptly.

I invite you to join my list of subscribers to this blog by clicking on “Sign me up!”  under Email Subscription on the left-hand side of the page so that you can receive a notification when the next installment has been published.  Thank you.

Can a Prenuptial Agreement Be a Foundation for a Strong Marriage?

This blog post begins a series of articles examining prenuptial agreements in New York.  While “prenups” have often been portrayed using the language of warfare as either “weapons” or “shields” to be used in the event of a divorce, I would like to cast the prenuptial agreement in a very different light.  I would like to focus on the prenuptial agreement as a document that empowers each party in the marriage through consensus to establish a working framework for the marriage.  By bringing to light and agreeing upon the most thorny of issues that are known to divide a couple (including the care and upbringing of any children; financial support by and for the parties; and ownership of property), the prenup allows each party to stipulate the elements that will make each comfortable as they enter the marriage.   

While the statute that controls prenuptial agreements in New York is found in the context of a matrimonial action (separation or divorce), the prenup need not be a pre-emptive strike that envisions the dissolution of the marriage.  Rather, the prenup can be the manifest of the agreements that the couple considers foundational to their long-term relationship.  In fact, the ability to come to an agreement before the marriage on a set of difficult issues may be a strong indicator of future marital stability.  The prenup can also be a starting point for the couple’s estate planning strategy.

Let us begin our discussion with a close examination of the statute that controls prenuptial agreements in New York, Domestic Relations Law (DRL) 236[B](3):

An agreement by the parties, made before or during the marriage, shall be valid and enforceable in a matrimonial action if such agreement is in writing, subscribed by the parties, and acknowledged or proven in the manner required to entitle a deed to be recorded. Such an agreement may include (1) a contract to make a testamentary provision of any kind, or a waiver of any right to elect against the provisions of a will; (2) provision for the ownership, division or distribution of separate and marital property; (3) provision for the amount and duration of maintenance or other terms and conditions of the marriage relationship, subject to the provisions of section 5-311 of the general obligations law, and provided that such terms were fair and reasonable at the time of the making of the agreement and are not unconscionable at the time of entry of final judgment; and (4) provision for the custody, care, education and maintenance of any child of the parties, subject to the provisions of section two hundred forty of this chapter.

The first thing to notice is that a prenup is an agreement by the parties.  The statute uses contract language to describe the necessary condition for a prenup:  a meeting of the minds of the parties.  There can be no duress (fear of violence or economic hardship, for instance) imposed by one party over another during the formation of the agreement.  The parties must come to an agreement of their own free will.  This is why I stronly recommend that each party be represented by independent counsel. 

The second thing to notice is that the agreement can be made before or during the marriage.  This means that the prenup can be modified during the marriage to reflect changing life circumstances.  Before they marry, no couple can predict the joys and challenges that they will encounter in their life together.  One of the best things a couple can do is to review their prenup on a yearly basis to make sure that the elements that they agreed to are still current, and to take into account new factors that have arisen in their life as a couple by adding, modifying, or deleting sections of the agreement.  This is a healthy marital exercise that can bring a couple closer together.  Any such modifications to the original agreement should be done with the assistance of an attorney for each party.   The modifications must also demonstrate an absence of duress.

There are a number of formalities that must be observed in order for the prenuptial agreement to be valid.  The agreement must be in writing.  The legal names of each party must be in the document.  Because it must be proven “in the manner required to entitle a deed to be recorded,” the document must be legible.  The agreement must be signed and dated by each party.  In New York, a prenuptial agreement must be notarized.  Each party should have an original of the signed and notarized prenup, with either originals or certified copies deposited with representing counsel.

Over the next four posts on prenuptials, I will deconstruct the four elements of the statute and discuss how each one can become a pillar in the building of a strong marriage.  I will also discuss how the forethought put into these four elements can be the first steps towards building an estate plan for a couple that will further solidify their life together, bring clarity to decision-making, and build trust in the relationship.

If you would like to discuss your own personal situation with me, you can get a free 30-minute consultation simply by filling out this contact form.   I will get back to you promptly.

I invite you to join my list of subscribers to this blog by clicking on “Sign me up!”  under Email Subscription on the left-hand side of the page so that you can receive a notification when the next installment has been published.  Thank you.