PRENUPTIAL AGREEMENTS
NOT JUST FOR MILLIONAIRES ANYMORE

By Jacqueline Harounian, Esq.

A couple of decades ago, prenuptial (a/k/a premarital) agreements were only used in rare instances, for the super wealthy Donald Trumps of the world, or the short term unions of Hollywood celebrities. Today, however, the high divorce rate and the desire to simplify court proceedings (and the attendant sky high legal costs) have made prenuptial agreements more widely used among different segments of society. As you might expect given the improved financial status of women, many of the prenuptial agreements are requested by the “bride to be”.

In general, prenuptial agreements are recommended in situations:

• When one party is entering the marriage with debts;
• When one party has children from a prior marriage or relationship;
• When one party expects a large inheritance;
• When there is a family business or real estate holdings;
• When one party is not working and will need support (for example, a wife who will give up her career to raise children).

In my law firm, aside from the agreements that might be required in a “typical” case, I have drafted customized agreements in the following situations:

• Protecting a family home that had been in the groom’s family for generations, which the parties expected to live in together during the marriage;
• Shielding the future income of an aspiring actress;
• Providing spousal support to a husband who cared for his new wife as she battled cancer;
• Protecting a husband’s pension in a second marriage

New York Courts have recognized a strong public policy favoring written agreements that are made knowingly and in good faith. Domestic Relations Law 236 (B)(3), New York’s equitable distribution law, allows parties to “opt out” of a judicial determination of their rights in favor of a settlement they create themselves through the process of negotiation. Pursuant to General Obligations Law 3-303, “a contract made between persons in contemplation of marriage remains in full force after the marriage takes place”. In fact, parties can even enter into an agreement after the wedding (called a postnuptial agreement). This type of agreement will have the same legal effect as a prenuptial agreement. Generally, a written agreement between two people overrides the laws that would otherwise apply

A prenuptial agreement that is carefully drafted usually protects both spouses in the event the marriage ends by death or divorce. Although some prenups address non-financial matters (e.g. religious issues, where the couple will live, or whether the couple intends to have children), the vast majority of agreements deal with financial issues. These can include spousal support, life insurance, medical insurance, separate property and inheritances, retirement assets, and debts.

However, prenuptial agreements that limit child support, or deal with child custody issues are not enforceable under New York law. Issues that affect children are determined based upon the “best interests of the child”, not a deal made between the child’s parents. Furthermore, child support calculations are based upon a formula set forth in New York’s child support statute, the Child Support Standards Act. A custodial parent cannot waive his or her right to receive the appropriate amount of child support. The child’s needs are paramount and for the most part, non-negotiable.

Because parties agree in advance what their rights and obligations will be in the event the marriage falls apart, the couple avoids many financial disputes that occur upon divorce. For obvious reasons, parties are able to negotiate agreements about financial matters more easily and amicably when they are getting along and about to be married. On the other hand, when the marriage sours, angry feelings and the desire to “punish” the other spouse can lead to unreasonable positions with regard to support and dividing up assets. Without a prenuptial agreement, anything is fair game. A contested divorced proceeding for even a short term marriage can last for years and cost tens of thousands of dollars in legal fees and court costs. In some prenups, the parties agree to be responsible for their own legal fees in the even of a divorce proceeding. This can be a strong disincentive to prolonged litigation.

A party challenging the validity of a prenuptial agreement in court has the burden of proof to show that the agreement was the product of fraud, duress, overreaching or other misconduct. Not every prenup will stand up to judicial scrutiny. In some circumstances, the agreement (or parts of the agreement) can be set aside by the courts or declared unenforceable. The conditions that can invalidate a prenup include:

Coercion: e.g. the wedding is tomorrow and the groom presents the prenup to the bride as a “done deal” or threatens to cancel the wedding if it is not signed.

Non disclosure, fraud/misrepresentation: The parties to the agreement must fully and accurately disclose all assets, debts and sources of the income at the time of signing the agreement. Failure to disclose can invalidate the agreement.

Unequal playing field: Each party should have their own lawyer, or at least the opportunity to consult with legal counsel. This will prevent a claim later on in court by a party stating “ I didn’t know what I was signing.”

Unconscionability: If the agreement is grossly unfair to one party, or there has been a material change of circumstances since the agreement was signed, e.g. one party is disabled or needs medical treatment, the agreement can be set aside.

Due to portrayals in the media, most people have preconceived (usually negative, or stereotyped) ideas about prenuptial agreements. When the subject is broached for the first time, the “non-moneyed” party may feel offended, insulted and even angry, thinking, “I’m not a gold digger. You know I’m marrying you for love, not your money. Why do we need a prenup?” Certainly prenups are not the most romantic part of wedding planning. When a couple is in love, the end of the marriage is unthinkable. But divorce is a statistical reality in our society, and the financial stakes can be very high. Besides the significant savings of legal fees and financial assets, a written agreement can save enormously on time spent in court and the emotional toll of a court battle. The legal protection afforded by a prenup can be compared to the protection of flood or fire insurance. Hopefully, you will never need it, but if you do, you’ll be glad it is in place.