For the PressCreating a Financial Plan for Your Marriage
Peter M. Walzer, Esq.
Love and Law Do Not Mix
"For to be wise, and in love, was not given to the gods themselves."
Aphra Behn, The Confession of the New Married Couple
The Financial Risks of Marriage
Even if you have an agreement, marriage is a financial risk - albeit a lesser risk
There is the risk an agreement will be set aside - although it is unlikely
There are certain problems that a premarital agreement cannot protect you from
The Limitations of an Agreement
California agreements are designed to apply to a divorce in California - although they may be enforced in other states
Our courts have the power to divide property in our state and can only have an effect on out-of-state property by dividing in-state property
The Limits of Premarital Agreements
They do not cover
-
Custody
Religion
Personal habits
Liquidated damages for being unfaithful
Waive community property rights, including businesses, real estate, retirement plans, and intellectual property
Waive spousal support/spousal maintenance/alimony in certain circumstances
Eliminate community property
Proceeds of loans will not be community property
Make sure that specific properties are kept separate
Specify who will own a residence and who will live in it on divorce or death
Waive probate rights
Premarital agreement will act as a contract to make a will - people can be compelled to provide for their spouse, their children, and/or their parents
Spousal Support/Alimony Waivers
New to California, but many other states permit, and case law may control
Unconscionability determined at time of enforcement (divorce)
Weigh limitations of spousal support vs. outright waiver
Risks of unenforceability
Create wealth in spouse as protection
You may need support one day - waivers are generally mutual
Parties must be represented by counsel
Build a "Fair" Agreement
Although no consideration is required, it is preferable not to give an incentive to attack the agreement
If you want to enforce the agreement you must comply with the terms of the agreement
The agreement cannot promote divorce (this is a technical term to be discussed with your attorney)
The California Rules -- Seven Calendar Days
For the purposes of subdivision (a), it shall be deemed that a premarital agreement was not executed voluntarily unless the court finds in writing or on the record . . . (2)The party against whom enforcement is sought had not less than seven calendar days between the time that party was first presented with the agreement and advised to seek independent legal counsel and the time the agreement was signed.
Recommendations
Prepare Proof of Service of Agreement and Notice of Advice to Obtain Independent Counsel and attach to the Agreement showing that Agreement was served 7 days before it was signed.
To be safe, sign the agreement no earlier than 7 days after the last amendment to the agreement
No Legal Representation
There are a set of rules if one party is not represented by counsel
We do not provide them here because spousal support limitations cannot be enforced without counsel
Tax Issues
Transfers prior to marriage are taxable, transfers between spouses are not taxable
No marital deduction for non-U.S. citizens; must have a qualified domestic trust - see IRC §2056, except as provided in §2056A (qualified domestic trust)
Non-U.S. citizens: IRC §2523 (gifts to spouse limited to $110,000 outright each year - indexed for inflation)
Tax-free exchanges between U.S. citizens, but IRC §1041 does not apply if not U.S. citizen
Advise client to seek tax advice
Amending the Agreement
If you change your residence
If there is a change in your financial circumstances
If there is a change in the law
See an attorney before you amend the agreement - there are different rules for married people entering into agreements
Disclosure of Assets in the Agreement
Provide full, fair, and reasonable disclosure
Waive disclosure beyond that provided
Reasons the Agreement May Not Be Enforceable
May not be enforceable outside California
Spousal support clause may not be enforceable in CA if court determines unconscionable
The law changes
If separate property is not kept separate
If there are conflicting agreements
More Reasons for Not Enforcing Agreement
Nobody has a copy of the agreement
If there is duress, fraud, or undue influence
There was no representation by an independent attorney - particularly if spousal support is an issue
Disclosure requirements not fulfilled
For some reason that we cannot anticipate
Most Agreements Are Enforced
Despite the risks that the agreement will be set aside, most agreements are enforceable if written correctly and both parties are represented by legal counsel
Seek the Advice of Counsel
Make sure both you and your fiancée are represented by independent counsel
Make sure the agreement has been translated for a non-English-speaking person