'Pre-Nupitis' ' Diagnosis and Treatment

Your secretary buzzes to tell you she has seated a client in your conference room who, while desperately trying to hold it together and to look dignified, is frantically twisting the brilliant enormous “bling” on the ring finger of her left hand. She is pacing the floor, tearing and shredding papers, muttering epithets and registering incredulity: “How could he?” “How dare he?” “Is it too late to cancel the wedding?” “We've sent invitations to 500 guests!”

Her problem is apparent and susceptible to diagnosis. Clearly, she is suffering from “pre-nupitis,” a disease that afflicts the so-called less-monied spouse (the LMS) who, in upwards of 95% of the cases, is the bride-to-be. She has been presented by her soon-to-be husband ' a few weeks before the wedding ' with a one-sided grossly unfair agreement. It contains waivers of her marital rights under the law, in the event of her husband's death or a divorce, cutting her out of any income earned or property acquired during the marriage. It eliminates her rights to spousal support and provides her with a fixed monetary sum ' usually a disappointingly low figure ' not based on any prediction of marital property accumulation, but rather akin to a salary. This amount, however, will not be received unless and until there is a divorce.

Now that you have diagnosed the patient, the next steps are the treatment plan for the pre-nupitis sufferer.

Planning Early

The bride-to-be should be advised that a pre-nuptial agreement is not a pizza and cannot be popped out of the oven, each identical to the one before. Rather, because every pre-nuptial agreement is individually tailored, the parties should leave a four- to six-month window to negotiate, draft and execute it. Ideally, a wedding date should not be set until the pre-nuptial agreement is fully executed.

The wedding date should not drive the negotiations. Enormous, but artificial, pressure can be brought to bear on the bride-to-be in these situations, which often results in her capitulation and agreement to highly disadvantageous terms. Furthermore, when the timing of the pre-nuptial agreement negotiations, conferences with lawyers, and race to execution coincides with dress fittings, meetings with florists and caterers, and the invasion of out-of-town guests, the couple becomes overwhelmed. These events cannot be enjoyed, and are spoiled by stress and tension.

Participation in the Process

Negotiating a pre-nuptial agreement is not like surgery, and there is no “wake me when it's over” option. The LMS must be an active participant in the process from the outset. She must advise her soon-to-be husband that if he is insisting on entering into a pre-nuptial agreement, then she is insisting that the two of them discuss their understanding, wishes and expectations of the agreement before attorneys are retained to draft and negotiate. In this candid discussion, the LMS must be firm and resolute that she will not partake in a process wherein her fianc's lawyer drafts a pre-nup based on terms set unilaterally by him without prior discussion, which is then presented to her to take to a lawyer. That dynamic ' where the groom is unwilling to face his bride with the terms he is seeking to impose in a pre-nup, but rather hides behind the attorneys, making the bride's attorney the bearer of bad news ' is inherently fraught with tension and ill will and bodes very poorly for open communications in the marriage.

The LMS must be advised of the basic rights and claims that arise in a marriage, which become the terms of a pre-nuptial agreement. In this way she will acquire knowledge-based power ' essential to her enduring and succeeding in the negotiation of a pre-nuptial agreement.

A brief overview of the issues to address in a pre-nuptial agreement follows.

Marriage

Arrangement for Finances: The prenuptial agreement may provide for “financial separateness,” i.e., each party individually maintains a separate bank account, or the parties jointly maintain a “household account” into which each deposits a pre-determined fixed dollar amount or percentage of their respective incomes for use in the payment of household expenses. Also, there may be a provision that each party is solely responsible for any debts incurred solely in that party's name.

Acquisition of Property: Plans to acquire a marital residence are often discussed before the marriage. The pre-nuptial agreement can memorialize the parties' intended contributions to the purchase price in terms of either a fixed dollar amount or percentage of the total cost. It also can set forth the parties' respective ownership interests in the residence, either in relation to their respective financial contributions or otherwise.

Divorce

Property Distribution/Settlement: The most common reason for entering into a pre-nuptial agreement is to ensure, in the event of divorce, the retention of the property with which the monied spouse enters the marriage. The pre-nuptial agreement can provide a mechanism for determining what property is separate and statutorily exempt from division, and what is included in the marital estate. In setting up such a “yours, mine, or ours” allocation procedure, one might, for example, define as separate property the property each party has at the time of marriage (including any increase in its value or income generated by such property) and any gifts, inheritances or bequests received by each party during the marriage. Customarily, the agreement includes a mechanism to assure that where property is acquired during a marriage by a spouse, that spouse will keep that property as separate. Often, that is accomplished by agreeing that there is a presumption that any property acquired after marriage by a spouse is separate property (or property immune from the non-titled spouse's claims in the event of divorce) unless that property is characterized as marital in writing, is bought with joint funds, or is held in joint name.

Once a method is agreed-upon for determining how marital property is created, the next step is deciding how to distribute it in the event of divorce. For example, marital property may be divided equally, on a fixed percentage basis, in proportion to respective annual incomes during the marriage, or in accordance with the original investment/acquisition percentages of the parties, or otherwise. The agreement also may provide that to the extent separate property becomes a component of marital property, the contributor of the separate property should be given an “origination credit” for the value of the contributed separate property before any distribution is made of the affected marital property.

In situations where the pre-nuptial agreement effectively forecloses the possibility of creating a marital estate of any real substance in which the non-titled spouse might have the opportunity to share, the titled spouse may agree to give the non-titled spouse a set dollar amount for each year of the marriage or number of years ' a “distributive payment”' in exchange for a waiver of whatever claims the non-titled spouse may have to the marital estate.

Spousal Support/Maintenance/Alimony: Another common motivation for entering into a pre-nuptial agreement is to eliminate or limit demands for ongoing financial support in the event of divorce. That is why pre-nuptial agreements commonly contain blanket waivers of maintenance and alimony. However, as there is frequently a disparity in the spouses' incomes, and the marital standard of living may be driven by the higher earner's income, post-divorce spousal support is often warranted and appropriate. In those cases, the pre-nuptial agreement may provide for a fixed dollar amount to be paid on a monthly or other schedule over a period of time based upon the length of the marriage (e.g., one month payment for each month of marriage or one month payment for each two months of marriage). The pre-nuptial agreement also may provide for termination events (e.g., remarriage, cohabitation, death) and a varying of the amount of spousal support depending on the presence, number, and age of any children that may be born to the marriage.

Marital Residence: Because the marital residence is typically one of the most valuable assets of the marriage, pre-nuptial agreements usually contain provisions dealing with issues of ownership and occupancy in the event of divorce. The agreement may provide a mechanism for selling the residence (e.g., notice, appraisal, and terms of sale), and dividing the proceeds of sale (e.g., each party receives back its separate property contribution and the balance is then shared equally). Given the likelihood that one spouse may wish to remain in the residence, the agreement would then provide for a buy-out of the other's interest. If a buy-out is not economically feasible, terms should be agreed upon that will provide for the termination of occupancy and/or the sale of the property based on events such as remarriage or the graduation of children from high school.

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

Your secretary buzzes to tell you she has seated a client in your conference room who, while desperately trying to hold it together and to look dignified, is frantically twisting the brilliant enormous “bling” on the ring finger of her left hand. She is pacing the floor, tearing and shredding papers, muttering epithets and registering incredulity: “How could he?” “How dare he?” “Is it too late to cancel the wedding?” “We've sent invitations to 500 guests!”

Her problem is apparent and susceptible to diagnosis. Clearly, she is suffering from “pre-nupitis,” a disease that afflicts the so-called less-monied spouse (the LMS) who, in upwards of 95% of the cases, is the bride-to-be. She has been presented by her soon-to-be husband ' a few weeks before the wedding ' with a one-sided grossly unfair agreement. It contains waivers of her marital rights under the law, in the event of her husband's death or a divorce, cutting her out of any income earned or property acquired during the marriage. It eliminates her rights to spousal support and provides her with a fixed monetary sum ' usually a disappointingly low figure ' not based on any prediction of marital property accumulation, but rather akin to a salary. This amount, however, will not be received unless and until there is a divorce.

Now that you have diagnosed the patient, the next steps are the treatment plan for the pre-nupitis sufferer.

Planning Early

The bride-to-be should be advised that a pre-nuptial agreement is not a pizza and cannot be popped out of the oven, each identical to the one before. Rather, because every pre-nuptial agreement is individually tailored, the parties should leave a four- to six-month window to negotiate, draft and execute it. Ideally, a wedding date should not be set until the pre-nuptial agreement is fully executed.

The wedding date should not drive the negotiations. Enormous, but artificial, pressure can be brought to bear on the bride-to-be in these situations, which often results in her capitulation and agreement to highly disadvantageous terms. Furthermore, when the timing of the pre-nuptial agreement negotiations, conferences with lawyers, and race to execution coincides with dress fittings, meetings with florists and caterers, and the invasion of out-of-town guests, the couple becomes overwhelmed. These events cannot be enjoyed, and are spoiled by stress and tension.

Participation in the Process

Negotiating a pre-nuptial agreement is not like surgery, and there is no “wake me when it's over” option. The LMS must be an active participant in the process from the outset. She must advise her soon-to-be husband that if he is insisting on entering into a pre-nuptial agreement, then she is insisting that the two of them discuss their understanding, wishes and expectations of the agreement before attorneys are retained to draft and negotiate. In this candid discussion, the LMS must be firm and resolute that she will not partake in a process wherein her fianc's lawyer drafts a pre-nup based on terms set unilaterally by him without prior discussion, which is then presented to her to take to a lawyer. That dynamic ' where the groom is unwilling to face his bride with the terms he is seeking to impose in a pre-nup, but rather hides behind the attorneys, making the bride's attorney the bearer of bad news ' is inherently fraught with tension and ill will and bodes very poorly for open communications in the marriage.

The LMS must be advised of the basic rights and claims that arise in a marriage, which become the terms of a pre-nuptial agreement. In this way she will acquire knowledge-based power ' essential to her enduring and succeeding in the negotiation of a pre-nuptial agreement.

A brief overview of the issues to address in a pre-nuptial agreement follows.

Marriage

Arrangement for Finances: The prenuptial agreement may provide for “financial separateness,” i.e., each party individually maintains a separate bank account, or the parties jointly maintain a “household account” into which each deposits a pre-determined fixed dollar amount or percentage of their respective incomes for use in the payment of household expenses. Also, there may be a provision that each party is solely responsible for any debts incurred solely in that party's name.

Acquisition of Property: Plans to acquire a marital residence are often discussed before the marriage. The pre-nuptial agreement can memorialize the parties' intended contributions to the purchase price in terms of either a fixed dollar amount or percentage of the total cost. It also can set forth the parties' respective ownership interests in the residence, either in relation to their respective financial contributions or otherwise.

Divorce

Property Distribution/Settlement: The most common reason for entering into a pre-nuptial agreement is to ensure, in the event of divorce, the retention of the property with which the monied spouse enters the marriage. The pre-nuptial agreement can provide a mechanism for determining what property is separate and statutorily exempt from division, and what is included in the marital estate. In setting up such a “yours, mine, or ours” allocation procedure, one might, for example, define as separate property the property each party has at the time of marriage (including any increase in its value or income generated by such property) and any gifts, inheritances or bequests received by each party during the marriage. Customarily, the agreement includes a mechanism to assure that where property is acquired during a marriage by a spouse, that spouse will keep that property as separate. Often, that is accomplished by agreeing that there is a presumption that any property acquired after marriage by a spouse is separate property (or property immune from the non-titled spouse's claims in the event of divorce) unless that property is characterized as marital in writing, is bought with joint funds, or is held in joint name.

Once a method is agreed-upon for determining how marital property is created, the next step is deciding how to distribute it in the event of divorce. For example, marital property may be divided equally, on a fixed percentage basis, in proportion to respective annual incomes during the marriage, or in accordance with the original investment/acquisition percentages of the parties, or otherwise. The agreement also may provide that to the extent separate property becomes a component of marital property, the contributor of the separate property should be given an “origination credit” for the value of the contributed separate property before any distribution is made of the affected marital property.

In situations where the pre-nuptial agreement effectively forecloses the possibility of creating a marital estate of any real substance in which the non-titled spouse might have the opportunity to share, the titled spouse may agree to give the non-titled spouse a set dollar amount for each year of the marriage or number of years ' a “distributive payment”' in exchange for a waiver of whatever claims the non-titled spouse may have to the marital estate.

Spousal Support/Maintenance/Alimony: Another common motivation for entering into a pre-nuptial agreement is to eliminate or limit demands for ongoing financial support in the event of divorce. That is why pre-nuptial agreements commonly contain blanket waivers of maintenance and alimony. However, as there is frequently a disparity in the spouses' incomes, and the marital standard of living may be driven by the higher earner's income, post-divorce spousal support is often warranted and appropriate. In those cases, the pre-nuptial agreement may provide for a fixed dollar amount to be paid on a monthly or other schedule over a period of time based upon the length of the marriage (e.g., one month payment for each month of marriage or one month payment for each two months of marriage). The pre-nuptial agreement also may provide for termination events (e.g., remarriage, cohabitation, death) and a varying of the amount of spousal support depending on the presence, number, and age of any children that may be born to the marriage.

Marital Residence: Because the marital residence is typically one of the most valuable assets of the marriage, pre-nuptial agreements usually contain provisions dealing with issues of ownership and occupancy in the event of divorce. The agreement may provide a mechanism for selling the residence (e.g., notice, appraisal, and terms of sale), and dividing the proceeds of sale (e.g., each party receives back its separate property contribution and the balance is then shared equally). Given the likelihood that one spouse may wish to remain in the residence, the agreement would then provide for a buy-out of the other's interest. If a buy-out is not economically feasible, terms should be agreed upon that will provide for the termination of occupancy and/or the sale of the property based on events such as remarriage or the graduation of children from high school.

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