Prenuptial Agreements

In last month's newsletter we noted that the euphoria brought on by the prospect of an upcoming marriage can be replaced by anger, fear and distrust when one of the parties presents the other with a prenuptial agreement to sign. Your advice to the non-monied future spouse on the issues that need to be covered during negotiations and the pitfalls to avoid can make all the difference in calming the situation and ensuring your client is not shortchanged in the event of death or divorce. Herein, we continue our discussion.

Death

Estate Rights

Estate rights provisions in a pre-nuptial agreement may include a partial or total waiver of rights in the other party's estate. As that waiver will include the statutory right of election and rights in intestacy, at times the terms of the prenuptial agreement will track the language of the statute providing for the surviving spouse's right of election in order to ensure that the minimum statutory requirement for the surviving spouse is met.

Often, the consideration for such a blanket waiver of estate rights is the contractual promise to make an outright bequest to the waiving spouse in a Last Will and Testament. Such a bequest might be accompanied by an acknowledgment in the pre-nuptial agreement that there is no affirmative obligation on the part of the testator to make any further bequest and none will be construed.

Retirement Assets

The Internal Revenue Code mandates that the surviving spouse is the beneficiary of many retirement-type assets (such as qualified benefit plans) unless he or she has executed a “spousal consent to waiver.” Prenuptial agreements, therefore, frequently provide that the non-titled spouse will sign such waivers, the goal being to keep those assets intact for beneficiaries designated before the marriage, such as children from a previous marriage. Because such waivers are only valid if executed at a time the waiving party is the legal spouse, the prenuptial agreement should obligate the non-titled party to sign the waivers after the wedding.

Life Insurance

Often, the titled spouse will agree to be contractually obligated to provide life insurance for the surviving spouse's benefit in consideration for waivers of estate rights and rights to retirement-type assets. A common device in the prenuptial agreement provides that the face amount of such life insurance increases for each year or otherwise agreed upon period of the marriage. The advantage to life insurance is that the estate remains intact and free from any claims by the surviving spouse, while the surviving spouse is made financially secure.

Personal Representative or Executor

Typically, parties using a pre-nuptial agreement to keep their estates free of any claims by the surviving spouse also want to keep the surviving spouse from serving as an executor or personal representative of the estate. On the other hand, where estate rights waivers are not included, a party may want to make sure in the pre-nuptial agreement that the surviving spouse will be named the executor of the estate.

Marital Residence

Frequently, a surviving spouse who signed a pre-nuptial agreement is in the unenviable position of grieving for the loss of a spouse while occupying a residence owned solely by the deceased spouse and to which the survivor has waived all rights. Therefore, if the titled spouse wants to ensure that after death the surviving spouse has undisturbed occupancy, the pre-nuptial agreement should provide the surviving spouse with a life estate in the residence. If the parties so desire, the agreement could limit continued occupancy until remarriage or cohabitation, and may, depending upon the financial circumstances of the surviving spouse, obligate the estate to pay the carrying costs of the residence.

Prioritize Goals

Now that the less-monied spouse (LMS) has some knowledge of the landscape, she must set and prioritize her goals. If she is elderly, she may be more focused on the eventuality of her husband pre-deceasing her, and will want to ensure that she is not dispossessed of the marital residence which may be titled in her late husband's sole name and that she can afford to continue to live there for her lifetime. Another LMS may be more concerned with spousal support payments only if there are children of the marriage, believing that if the marriage ends before there are children she can resume her career and economic self-suffciency. These goals are idiosyncratic and the LMS must deliberate and communciate her priorities to her lawyer.

Taking Time to Do It Right

Negotiating a pre-nup takes time and patience. The LMS must understand that being patient is not the same as being passive. By clamoring and appearing anxious for a quick resolution, the LMS will lose leverage and bargaining power. While it is difficult to be patient during the negotiation and drafting stages of the pre-nup, the LMS needs to understand that rushing the process will ultimately be detrimental to her objectives and best interests.

Conclusion

For many couples who are planning to enter into a pre-nuptial agreement, the subject is viewed as a distasteful topic that tarnishes the romance of their wedding plans. Often, they leave it for the last minute or delegate the task entirely to their attorneys. But pre-nuptial agreements have many serious, long-lasting implications. If done at the last minute, the pre-nuptial agreement will take on a life of its own ' an inevitably stressful distraction from the joy and celebratory nature of their wedding. Lawyers, therefore, must encourage clients who want a pre-nuptial agreement to address it early, honestly and frankly. If the agreement is handled in that manner, the parties will be able to work through their hopes, dreams and fears in a positive way ' and avoid “pre-nupitis.”

Marcy L. Wachtel, a member of this newsletter's Board of Editors, is a partner in Katsky, Korins, LLP.

In last month's newsletter we noted that the euphoria brought on by the prospect of an upcoming marriage can be replaced by anger, fear and distrust when one of the parties presents the other with a prenuptial agreement to sign. Your advice to the non-monied future spouse on the issues that need to be covered during negotiations and the pitfalls to avoid can make all the difference in calming the situation and ensuring your client is not shortchanged in the event of death or divorce. Herein, we continue our discussion.

Death

Estate Rights

Estate rights provisions in a pre-nuptial agreement may include a partial or total waiver of rights in the other party's estate. As that waiver will include the statutory right of election and rights in intestacy, at times the terms of the prenuptial agreement will track the language of the statute providing for the surviving spouse's right of election in order to ensure that the minimum statutory requirement for the surviving spouse is met.

Often, the consideration for such a blanket waiver of estate rights is the contractual promise to make an outright bequest to the waiving spouse in a Last Will and Testament. Such a bequest might be accompanied by an acknowledgment in the pre-nuptial agreement that there is no affirmative obligation on the part of the testator to make any further bequest and none will be construed.

Retirement Assets

The Internal Revenue Code mandates that the surviving spouse is the beneficiary of many retirement-type assets (such as qualified benefit plans) unless he or she has executed a “spousal consent to waiver.” Prenuptial agreements, therefore, frequently provide that the non-titled spouse will sign such waivers, the goal being to keep those assets intact for beneficiaries designated before the marriage, such as children from a previous marriage. Because such waivers are only valid if executed at a time the waiving party is the legal spouse, the prenuptial agreement should obligate the non-titled party to sign the waivers after the wedding.

Life Insurance

Often, the titled spouse will agree to be contractually obligated to provide life insurance for the surviving spouse's benefit in consideration for waivers of estate rights and rights to retirement-type assets. A common device in the prenuptial agreement provides that the face amount of such life insurance increases for each year or otherwise agreed upon period of the marriage. The advantage to life insurance is that the estate remains intact and free from any claims by the surviving spouse, while the surviving spouse is made financially secure.

Personal Representative or Executor

Typically, parties using a pre-nuptial agreement to keep their estates free of any claims by the surviving spouse also want to keep the surviving spouse from serving as an executor or personal representative of the estate. On the other hand, where estate rights waivers are not included, a party may want to make sure in the pre-nuptial agreement that the surviving spouse will be named the executor of the estate.

Marital Residence

Frequently, a surviving spouse who signed a pre-nuptial agreement is in the unenviable position of grieving for the loss of a spouse while occupying a residence owned solely by the deceased spouse and to which the survivor has waived all rights. Therefore, if the titled spouse wants to ensure that after death the surviving spouse has undisturbed occupancy, the pre-nuptial agreement should provide the surviving spouse with a life estate in the residence. If the parties so desire, the agreement could limit continued occupancy until remarriage or cohabitation, and may, depending upon the financial circumstances of the surviving spouse, obligate the estate to pay the carrying costs of the residence.

Prioritize Goals

Now that the less-monied spouse (LMS) has some knowledge of the landscape, she must set and prioritize her goals. If she is elderly, she may be more focused on the eventuality of her husband pre-deceasing her, and will want to ensure that she is not dispossessed of the marital residence which may be titled in her late husband's sole name and that she can afford to continue to live there for her lifetime. Another LMS may be more concerned with spousal support payments only if there are children of the marriage, believing that if the marriage ends before there are children she can resume her career and economic self-suffciency. These goals are idiosyncratic and the LMS must deliberate and communciate her priorities to her lawyer.

Taking Time to Do It Right

Negotiating a pre-nup takes time and patience. The LMS must understand that being patient is not the same as being passive. By clamoring and appearing anxious for a quick resolution, the LMS will lose leverage and bargaining power. While it is difficult to be patient during the negotiation and drafting stages of the pre-nup, the LMS needs to understand that rushing the process will ultimately be detrimental to her objectives and best interests.

Conclusion

For many couples who are planning to enter into a pre-nuptial agreement, the subject is viewed as a distasteful topic that tarnishes the romance of their wedding plans. Often, they leave it for the last minute or delegate the task entirely to their attorneys. But pre-nuptial agreements have many serious, long-lasting implications. If done at the last minute, the pre-nuptial agreement will take on a life of its own ' an inevitably stressful distraction from the joy and celebratory nature of their wedding. Lawyers, therefore, must encourage clients who want a pre-nuptial agreement to address it early, honestly and frankly. If the agreement is handled in that manner, the parties will be able to work through their hopes, dreams and fears in a positive way ' and avoid “pre-nupitis.”

Marcy L. Wachtel, a member of this newsletter's Board of Editors, is a partner in Katsky, Korins, LLP.