Prenups: Protection or Peril?
Posted in Divorce on March 16, 2016
Prenuptial agreements are on the rise (see, e.g., WSJ article). But do you really need one? Is having one a good idea or a bad one? Does it offer you protection or will it hurt you and your family-to-be by creating a self-fulfilling prophecy?
Most people don’t realize that negotiating and signing (“executing,” in legal parlance,) a prenuptial agreement raises dangers of its own. Negotiating a prenuptial agreement requires raising issues and concerns that run counter to the “I love you” declarations typical of engagements. Moreover, there are some things that, once said, can never be taken back. Similarly, issues raised in the prenuptial agreement, questions asked, and the concerns addressed, leave lasting insecurities. Like the contents of Pandora’s box, the demons unleashed can never be returned to the sealed, subconscious, treasure chest. “I love you, I love you . . . but what do I get if it doesn’t work out,” invariably raises the specter of someone eyeing the exit doors as the party’s about to begin. And, because I so love ironies, I find it ironic that the very document people use to prevent divorce, makes divorce more likely.
So are the risks worth the protections a pre-nup offers? Does “everyone need one,” as is so often claimed?
The starting point for this analysis is to consider what the law provides if you don’t have a prenuptial agreement. If you’re happy with what the law would anyway do, then you need do nothing more. If you want a result different from what the law provides, then a prenuptial agreement may be in order.
Download Chaim’s New York Law Journal article, The Perils of Prenups here!
As an example, people often say that “Everyone needs a will.” People are left with the mistaken impression that if they die without a will, all of their property escheats to the State. That’s not true, however. New York’s Estates, Powers and Trusts Law (the “EPTL”) determines what happens to the property of someone who dies “intestate” (without a will). Specifically, it provides that if one dies intestate leaving behind a spouse and no children, the entire estate goes to the spouse; if there are children but no spouse, all the property goes to the children; with a spouse and children, $50,000 + one-half of the remainder of the estate to the spouse, and the rest to the children; no spouse and no children, then to the parents; if no parents, then to siblings; and so on. So, you see, the EPTL has a scheme which the law presumes reflects the wishes of the decedent. If, in fact, it reflects your own wishes, if this is the way you’d like your property distributed at your death, then you don’t need a will to determine your property’s distribution. (There may be secondary reasons, like estate planning and tax minimization reasons, to draft one in your particular situation, but I won’t get into that here). If, however, you want your property distributed in some other scheme or proportions, then you need a will.
The same reasoning applies to prenups. If you will want to do what the law automatically provides, you won’t need a prenup. If you want something different, then you might. (Remember too that while the law is constantly evolving and changing, reflecting the mores of the times, a prenup once executed, is generally immutable, and remains fixed. Thus, parties to a prenup, won’t get the benefit of later amendments and changes to the law.)
So in order to know whether you need a prenup, you need to know the outlines of New York divorce law. While the area is broad and deep, I will try to dispel some of the common misapprehensions about it. (Of course, as with all internet information, consult with your very own trusted legal professional to advise you about the circumstances of your individual situation.)
Generally speaking, the property you owned before you marry, remains your own “separate” property. Separate property does not get divided in a divorce. Separate property remains the sole property of its owner. The non-titled spouse (the non-owner) is not entitled to a share of the titled-spouse’s separate property. So if you own a penthouse apartment on Central Park West before you marry, your spouse cannot claim a portion of the apartment simply by virtue of having married you.
Now for the requisite legal disclaimers, the exceptions to the general rule above, or the nuances that makes practicing law so much fun: If you retitle your apartment in your and your spouse’s name, the law presumes that you intended to make a gift of one half of the apartment, and now your spouse has a claim to it. If you pay the mortgage on the apartment with money you earn during the marriage, you’ve now used marital funds (money you earned during the marital economic partnership) to pay the separate property mortgage. And if your spouse makes improvements that raises the value of the apartment (for example, by hiring or supervising contractors or hiring or supervising the apartment renovation or redecorating), or helps you as you make improvements to the property, your spouse can claim some portion of the apartment’s increase in value.
So, the bottom line is, if you’re young and without children or significant assets, and you’re marrying someone who’s also young and without children, there may be no need to raise the inevitable insecurities that will inevitably be raised in negotiating a prenup.
If, however, you own or are the heir to a fortune, if you have assets that you anticipate increasing in value, if you’re a partner in a business that can’t be divided in the event you divorce, or if you need to protect your already-born children, then a prenuptial agreement may be in order.
There are, however, ways of negotiating prenuptial agreements with dignity and respect, so that they do only minimal damage to your relationship. Stay tuned for the upcoming post, How to Negotiate a Prenup with dignity and integrity, so you don’t Doom the Marriage.
(Page Last Rev.:3/16/16)
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