The Benefits Of Prenuptial Agreements And How To Do Them Right
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By Sherri Donovan , Guest Author - August 06, 2014 - Updated August 12, 2014

Fotolia_65608021_XS.jpgPrenuptial agreements are designed to protect the financial interests of those entering into a marriage. A prenuptial agreement can specifically define separate and marital property, limit one’s spousal support obligation and responsibility for the other’s debts, back up an estate plan and set out any other special agreements or procedures for decision-making upon divorce.

Prenuptial agreements may be particularly beneficial to those who have been married previously and have children from a prior relationship, taking into account prospective child support obligations and protecting inheritance rights. Those who have business or professional interests may use a prenuptial agreement to ensure that they retain control over and avoid dividing such interests in the event of a divorce. Prenuptial agreements may also help those who are closer to retirement age protect accumulated wealth.

Another major benefit of a prenuptial agreement is the opportunity it provides to discuss the touchy issue of money before marriage. Perspectives, goals, intentions and expectations can be frankly and openly discussed, letting a couple know if they are on the same page. Financial disclosure is essential and parties will also have the opportunity to obtain full knowledge of a prospective spouse’s income, assets and debts.

If a couple decides to execute a prenuptial agreement, it is important to do it right so as to avoid lengthy, costly and bitter litigation over the validity and terms of the agreement should a divorce ever come to pass. Courts are increasingly willing to intervene by rescinding all or part of a pre-marital agreement if it is found to be unfair. Two recent New York decisions, Petracca v. Petracca (101 AD3d 695, 2nd Dept. 2012) and Cioffi-Petrakis v. Petrakis (103 AD3d 766, 2nd Dept. 2013), provide insight into some of the principles to consider.

In Petracca, a postnuptial agreement was set aside due to the husband’s overreaching. The terms of the agreement were found to be manifestly unfair to the wife given the nature and magnitude of the rights she waived. Pursuant to the agreement, the marital residence (which had been recently purchased by the couple for $3.1 million) was classified as the husband’s separate property. The wife also waived her interest in the husband’s business interests and his estate and agreed to an extremely limited amount of spousal maintenance. The husband’s net worth was found to have been significantly undervalued—by at least $11 million—at the time of signing. Finally, the wife had testified that she felt bullied into the signing the agreement, had not understood its terms and had not even consulted with an attorney.

In Petrakis, a prenuptial agreement was set aside due to the court’s determination that the wife had been fraudulently induced to sign the agreement. Although the agreement included a general provision disclaiming reliance upon oral statements, the wife claimed that the husband had orally promised to tear up the prenuptial agreement once she had children.

In each case, the wife’s minimal award as compared to the substantial nature of the husband’s separate assets contributed to the invalidation of the agreement.

Thus, a prenuptial agreement should be fair, if not generous. The longer the marriage, the more likely a court is to invalidate an agreement that prevents one spouse from sharing a fair portion of assets accumulated over the course of a lengthy marriage.

Many agreements address this issue by providing an increased benefit as far as asset distribution and support the longer a marriage lasts. If parties intend to waive estate or retirement interests in the prenuptial agreement, consider including a provision requiring life insurance or a lapse of the waiver once the marriage reaches a specified number of years.

In addition, a fair agreement should avoid classifying property acquired during a marriage as separate unless held by the parties jointly. Such a classification could encourage a monied spouse to hold assets acquired during the marriage in his or her sole name, thus depriving the other spouse of his or her share of what would otherwise be considered marital property.

Both parties should retain independent counsel of his or her own choosing. The agreement should be reviewed and executed well in advance of the wedding, with ample time and opportunity for information exchange, negotiation and review.

All assets should be disclosed, identified and valued as accurately as possible. Specifically state agreed upon disclaimers in the agreement, rather than relying upon broad, generalized language. Last, but not least, prenuptial agreements must be signed, notarized and acknowledged properly in order to be upheld.

Have a legal question or need a legal document, about divorce or life in general? No question is too small, find all your legal needs here.

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