Recently in Prenuptial Agreements Category
Historically, it has been notoriously difficult to get a prenuptial agreement thrown out in New York. This is because there is strong public policy in favor of allowing individuals the freedom to enter into their own contracts. Often, when prenuptial agreements are overturned by the court, it is due to a defect on the face of the document, not on the terms of the contract itself. It is for this reason that we highly advise our clients to completely understand what they are signing when entering into these agreements.
A Nassau County woman, Elizabeth Petrakis, has recently succeeded in convincing a unanimous panel of the Appellate Division, Second Department that her prenuptial agreement should be set aside on the basis of fraudulent inducement. (Read the opinion here.) She claimed that her husband purposefully lied to her so that she would sign an agreement that he knew she wouldn't have signed if he told her the truth. Ms. Petrakis claimed that just 4 days before their wedding, her husband convinced her to sign a prenuptial agreement that would provide him with all of the assets in the event of divorce by promising her that he would "tear it up" when they had children. Her husband, Peter Petrakis, claimed that he never made that promise. After a trial that lasted 13 days over the course of 9 months, the trial judge determined that he believed the wife's testimony over the husband's and he set aside the prenuptial agreement. The Appellate Division has now upheld that decision.
I agree with other attorneys who are concerned that this case could lead to dangerous precedent.
Our clients enter into prenuptial agreements because they want to secure their rights and obligations in the event of a divorce. If other courts follow this court's precedent and allow allegations of verbal promises to set these agreements aside, we can see many other prenuptial agreements being challenged in court.
This case is a reminder to our clients who want a prenuptial agreement to be signed that transparency is of the utmost importance and that they should give their fiancé plenty of time to review the agreement before the wedding date. For our clients who are being asked to sign a prenuptial agreement, this case is a reminder that these are serious contracts and that while they may be thrown out in rare circumstances, it can take years and hundreds of thousands of dollars in legal fees to have your case heard in court.
The summer months have traditionally been the most popular for weddings, which could be why calls to my office from couples seeking prenuptial agreements tend to increase each spring. Following is an "encore presentation" of an article regarding such agreements that was published on this site last July.
A prenuptial agreement is a written agreement that both members of a couple enter into before their marriage. This agreement spells out how assets are distributed in the event of divorce or death. Though they are commonly associated with wealthy couples, in reality, couples from any socio economic background can seek a prenuptial agreement. In order for the agreement to be valid, both parties must enter into it knowingly and voluntarily. If any coercion is involved, the agreement is invalid.
Many couples avoid prenuptial agreements because they don't want to believe that their marriage could end in divorce. Yet a "prenup" does not have to mean that you are hostile toward your future spouse. In fact, it can actually be a way to make sure you and your spouse are on the same page during the marriage and avoid hostility during a divorce. Here are some of the top reasons for getting a prenuptial agreement:
1. You don't want your spouse to own a piece of your business. In New York, if a business appreciates in value during the marriage, that appreciation can be considered a marital asset. That means without a prenuptial agreement, your spouse could receive a piece of your business, which could cause further tensions between the two of you and with your business partners.
2. You don't want your spouse to have an interest in your professional practice. Likewise, without a prenuptial agreement, the increased value of a professional practice that you started before the marriage can end up being partially distributed to your spouse.
3. You expect to be a stay-at-home parent. A spouse who chooses to stay home with the child is not building retirement assets in their own name and could be seen as not actively contributing to the acquisition of other marital assets. With a prenuptial agreement, the stay-at-home spouse can be guaranteed an equitable share of the assets and a certain level and duration of spousal support.
4. You are wealthier. While prenuptial agreements are not strictly for the wealthy, many wealthy people find them worthwhile to guarantee that their partner is not marrying them for their money.
5. You own assets that you want to protect from being used to pay off your spouse's debts. Many people own homes, businesses, and have savings prior to their marriages. In the event of a divorce, one spouse can file for bankruptcy, and without a prenuptial agreement in place, creditors might go after the other spouse's premarital assets to help pay off that debt.
6. You have children by a previous marriage whom you want to make sure receive a proper inheritance. Without a prenuptial agreement, property that was yours can end up partially in the hands of the other spouse, who could then pass it on to his or her children instead of yours.
7. You want to keep certain heirlooms in the family. Similarly, if you have valued possessions that you wish to pass down to your children, you can specify it in a prenuptial agreement.
8. You want to avoid an expensive divorce. One of the biggest benefits of a prenuptial agreement is that it prevents drawn out, expensive legal battles over custody and property. You save money that might otherwise have been spent on attorney fees.
9. You want to protect your children from a nasty divorce. Since a prenuptial agreement can prevent a court battle, it also prevents relations between the spouses from deteriorating even further. Spouses are able to maintain a civil tone, which is better for all involved, especially the children.
10. You want peace of mind. You know that if your marriage fails, you have a "back-up plan" that provides you and your spouse with more control, so that neither of you will suffer unnecessarily.
It is important to note that if circumstances change, it is never too late to amend an existing prenuptial agreement - even after the wedding - or to craft a postnuptial agreement.
New York is now the seventh (and largest) jurisdiction to recognize same-sex marriage. This is an important and wonderful right for many couples and their families, which was evident in the media as we saw the first of these smiling and ecstatic couples marrying on July 24, 2011 and the days that followed.
While it may not seem romantic to think about these happy couples facing divorce and separation after they have waited so long for the right to marry, same-sex couples need to be extra vigilant to protect themselves and their families in the event that they decide to end their marriage. Some of the issues about which they need to be concerned include:
Lack of Federal Rights
The Defense of Marriage Act (DOMA), defines marriage as a legal union between persons of the opposite sex and permits states to refuse to legally acknowledge same-sex marriages performed in other states. The result is that a multitude of federal rights and obligations given to heterosexual spouses are unavailable to same-sex spouses. The Obama administration has refused to defend DOMA, claiming it is unconstitutional, but its existence makes divorces for same-sex couples even more complicated. For example, same-sex couples are not entitled to tax-free distribution of their spouse's pension and retirement funds, they cannot deduct spousal support payments from their income, they do not have the option of collecting social security based upon their spouse's income if they've been married for at least 10 years, and they are not entitled to COBRA benefits which would allow them keep their medical insurance offered through their spouse's employer for 36 months following divorce. Same-sex couples who divorce must consider this lack of federal rights when dividing their property and determining issues of spousal support.
If a same-sex couple marries in New York, moves to one of the 44 states that do not recognize same-sex marriage, and then decides to divorce after being away from New York for one year, they will neither be able to divorce in that new state nor in New York. This is because the new state does not recognize their marriage and New York no longer has jurisdiction over it. It is therefore imperative that same-sex spouses think very carefully before moving to a state that does not recognize their marriage and that they draft a postnuptial agreement to define and protect their rights and obligations.
In New York, there is a presumption that a child born during a marriage is the child of both spouses. The complication for same-sex divorcing couples in determining custody and child support arises when the non-biological parent has not adopted the child and they are living in a state that does not recognize their marriage. To protect both parents' rights and avoid the complications that may arise if the parents move away from New York, it is imperative that the non-biological parent adopt the child as soon as it is born.
The Importance of Prenuptial and Postnuptial Agreements
While prenuptial and postnuptial agreements cannot change the fact that a state may not have jurisdiction over the marriage of same-sex partners, it can make it clear that New York law will govern the issues of a marital dissolution. Additionally, these agreements offer many other protections that same-sex spouses and their children need in the event of divorce. For example, prenuptial and postnuptial agreements can outline:
- How child custody and child support will be handled (as long as children are already born at the time the agreement is written).
- How to handle the division of property between spouses given the fact that while these transfers are not taxed by states recognizing same-sex marriage, they are still taxed by the IRS.
- How to handle spousal support, which is also given preferential tax treatment by New York, but not by the IRS.
Same-sex couples need to make sure they have all the legal and tax information they need before they marry. By having honest conversations with their future spouses (and themselves) and speaking with lawyers and accountants who can advise them on divorce, trusts and estates and tax issues, they will be able to deal with many issues that if left unaddressed, could have long lasting negative repercussions for them and their children.
Jeffrey Landers has an informative blog post on Forbes.com about divorce-proofing your business in the event of divorce. Landers covers the basics of the importance of prenuptial agreements, postnuptial agreements and placing the business in a trust. And it smartly points out that these are options to consider not only if contemplating divorce in the future but also if you're happily married or even single.