State laws govern divorce proceedings and distribution of marital property. By no means is this post meant to constitute legal advice or an exhaustive risk assessment of economic partnerships.
Prenuptial agreements are a sensitive topic that many partners seem to avoid before marriage possibly because it may force a discussion about the relationships worst case scenarios; separation and/or divorce. Some even believe that exploring the possibility of divorce and the risks associated may cause the events to take place.
If we consider the economic implications of marriage somewhat separate from the emotional, we may begin to look at prenuptial agreements and the discussions building one may inspire as a necessary step to protect the marriage, individual and marital assets rather than a divorce sentence.
Let us define our terms:
Economic: 1. of or relating to economics or the economy. (of a subject) considered in relation to trade, industry, and the creation of wealth. synonyms: financial, monetary, budgetary, fiscal; commercial. 2. justified in terms of profitability. Requiring fewer resources or costing less money. Synonyms: cheap, inexpensive, low-cost, economical, cut-rate, discount, bargain
Origin
late Middle English: via Old French and Latin from Greek oikonomikos, from oikonomia (see economy). Originally a noun, the word denoted household management or a person skilled in this, hence the early sense of the adjective (late 16th century) ‘relating to household management’ Modern senses date from the mid 19th century. (google.com)
Partnership: an association of two or more persons to carry on as co owners of a business for profit
Uniform Partnership Act (1997): provisions form a basis for a human relationship; partnership property consists of property originally brought into the partnership, property subsequently acquired on account of the partnership, and property acquired with partnership funds
“… each party is aware that marriage may end in divorce at any time and that his or her expectations may be unfulfilled” (Hader, 1989).
Planning fallacy: Plans and forecasts are unrealistically close to best case scenarios and could be improved by consulting the statistics of similar cases. (Amos & Kahneman, 1979)
Prenuptial agreement: agreement entered into before marriage that may set forth, what will happen to you and your spouses assets and income in the unfortunate event of divorce, separation or death
Maintenance: payments provided for a valid agreement between parties or awarded by the court to be paid at fixed intervals for a definite or indefinite period of time
community property: any assets acquired during the marriage
Equitable distribution: just and fair allocation of property acquired during the marriage between divorcing spouses
New York Equitable Distribution Law according to Hader;
“…American custom of holding real estate and savings in joint tenancy with right of survivorship (JTWROS) regarding:
- accumulation of property
- production and rearing of children
- enhancement of their own skills
- educational/professional degrees may be considered marital property… therefore divided equitably between spouses in accordance with the contributions of each. The amount to be divided is the future earnings attributable to the degree, discounted to present value.
- Professional practices may be considered marital property: Law, accounting, dental and medical practices have all been found to be properly subject to valuation and a subsequent distributive award – goodwill and sales value.
- Pension benefits; Personal injuries: pain and suffering is personal to the victim are excluded though loss of income from medical expenses may be included
There is little if any conceptual difference between the states ‘interest in promoting good faith in a business deal and its interest in promoting honesty and fair play in a marital agreement.’ (1989)”
Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas Washington and Wisconsin regard marital assets as community property meaning they are split evenly upon divorce.
Exit Strategy: Prenuptial Agreement
Considering the planning fallacy; according to the American Psychological Association, 40-50% of marriages end in divorce with rates being higher for subsequent marriages. A business plan may include an exit strategy.
“Upon dissolution of the marriage, an accounting is necessary which is similar to that required upon liquidation of a business partnership. (Hader)”
“Upon dissolution of the partnership each party is entitled to be repaid his contributions. After all liabilities are satisfied, the partners will share equally in the profits and the surplus remaining, *unless the partners had stipulated for an agreed share of the profits. (Hader)”
Difficult Discussions on Dollars, Death and Divorce: How might you begin a discussion about prenuptial agreements with your partner?
Let us consider the economic and noneconomic components as spouse, parent, wage earner & homemaker.
For the stay at home moms and dads; “Certainly, non remunerated services of a non titled spouse to the joint marital enterprise in the form of homemaking, raising children and providing the moral, psychic and emotional support necessary to sustain the other spouse in coping with the vicissitudes of life outside the home, thus enabling the other spouse to concentrate his or her efforts successfully in the furtherance of the economic interests of the marital partnership, are no less important or valuable than direct contributions made by the non titled spouse to enhance the value of separate property. (Hader)”
If assets among partners are unequal prior to marriage the nonasseted party may experience some distrust, fear of abandonment and/or feelings of powerlessness in the discussion especially if the topic is unexpected or presented as an anchor in a negotiation by the asseted partner.
Love vs Money; separating the business aspect of your romantic relationship may be challenging. A business plan may include financial projections and market research. One may consider professional mediation or suggest a risk assessment of your relationship:
- What are the risks if we get married?
- What are the risks if we don’t?
- What are the risks of getting married without a prenup?
- What are the risks of getting married with a prenup?
- What is the probability we remain friends if we do not get a prenup and get divorced or separate?
- What is the probability we remain friends if we have a prenup and get divorced or separate?
- What about the kids?
- How will we afford to take care of the kids if the wage earner dies unexpectedly?
- Who will take care of the kids if the homemaker unexpectedly dies?
- What are the associated costs?
- Can we afford not to have a prenup?
- Can we afford to have one?
It isn’t too late if you’re already married; consider a postnuptial agreement. Like business plans, postnuptial and prenuptial agreements should be regarded as living documents that are amended periodically for changes in the structure of the marriage, size of family, amount of wealth and legal environment.
Resources
Divorce Corp. Available on Netflix
National Conference of Commissioners on Uniform State Laws. (1997). Uniform Partnership Act, Available at http://www.uniformlaws.org/shared/docs/partnership/upa_final_97.pdf
Cheryl E. Hader. (1989). Marriage in New York: An Economic Partnership?, Pace L. Rev. 91 Available at http://digitalcommons.pace.edu/plr/vol9/iss1/3
Jennifer Safian. (2014). You want a Prenup, Why? don’t you trust me? Available at http://safianmediation.com/you-want-a-prenup-why-dont-you-trust-me/
