Prenuptial Agreements

Prenuptial Agreements

Prenuptial agreements (also called antenuptial agreements) permit either party to a marriage to retain ownership of property that predates the marriage in the event of divorce or death of one of the parties. They are recognized by statute ( Massachusetts General Laws Chapter 209, Section 25) and have been interpreted by a number of decisions of both the Massachusetts Appeals Court and the Supreme Judicial Court. If you and your partner decide that you want to execute a prenuptial agreement you should speak with an experienced Salem prenuptial agreement attorney.

Prenuptial agreements are not just for the Donald Trumps of the world. There are many situations where parties of more modest net worth would also be well served by a prenuptial agreement and it could be for a variety of reasons. For example, if one of the parties owns something unique, such as a vacation cottage that has been in the family for generations or if one party has a fractional ownership interest in a family business. In either of those instances, the owner might want the right to pass those assets to his or her children, siblings or other family members. Designating those property interests appropriately in a premarital agreement would allow him or her to dispose of those assets by will in the event of death or retain them in the event of a divorce.

A prenuptial agreement may be appropriate in any of the following situations;

• You have children from a prior marriage or relationship
• You are expecting an inheritance
• You work in a family business that you expect to own in the future
• You own assets such as a home, retirement plan or stock investments
• You have significantly more assets than your partner
• You are involved in a startup business that you expect is going to be very successful
• You have an ownership interest in a business
• You are the beneficiary of a trust

Sometimes people are hesitant to ask for a prenuptial agreement because they feel it might represent a lack of trust or faith in the relationship. On the contrary, it should be viewed as an opportunity for you and your partner to work out financial and other issues that could become problems later on in the marriage. The Massachusetts prenuptial agreement law provides protection to both parties in that the agreement must be fair and reasonable both at the time of its execution and the time of its enforcement (divorce/death). Thus, a lopsided agreement where one spouse retains everything and the other ends up with nothing is not permitted. However, a prenuptial agreement can be customized to protect certain assets whereas in a divorce all of the marital assets would be subject to division by the court. A prenuptial agreement provides both parties with the peace of mind that there will be a fair and reasonable division of their assets in the event of divorce or death. And where you have the opportunity to negotiate the terms and conditions of the agreement with the benefit of counsel, it is important to consult with a Salem prenuptial agreement attorney who has experience drafting prenuptial agreements. You need to consider not just what you own today, but what you may acquire in the future. A prenuptial agreement might address some of the following matters:

• Division of property that predates the marriage
• Division of property acquired by the parties during the marriage
• Division of property acquired during the marriage by gift or inheritance
• Purchase of a marital residence
• Alimony or spousal support
• Termination of marriage by divorce or death
• Payment of joint and separate expenses
• Treatment of earnings

What I like about prenuptial agreements is that the parties can be creative when deciding what is fair and reasonable. Although not easily defined, fair and reasonable has been discussed at length by the courts and what it is not is, “yours, mine and never ours.” In other words, the agreement has to make some provision for the spouse with the lesser assets and failure to do so will result in a court finding the agreement invalid. Therefore, it is critical that you consult with a Massachusetts prenuptial agreement attorney who is knowledgeable of prenuptial agreements and the fair and reasonable requirement established by the Supreme Judicial Court. A case in point is a May 2011 decision of the Essex County Probate and Family Court (Lambrou v. Lambrou) wherein the judge found a prenuptial agreement for a ten year marriage invalid. The court’s decision stated, “… the document strips both parties of any rights they may have acquired in the income, assets or estate of the other. The document makes no provision, either in whole or in part, for any income or assets acquired by the parties during the marriage, either individually or jointly, indirectly or equitably.”

In addition to the fair and reasonable standard, the court requires that the parties make a substantially full disclosure of their assets and that the agreement contain a waiver of marital rights. As to the latter, both parties should have the benefit of independent counsel of his or her choice.

There are many ways to divide assets and comply with the fair and reasonable requirement. Be imaginative and decide what works best for you. We have used some of the following formulas:

• Use a payout schedule for the length of the marriage. It can be broken in to increments of one to five years with an outside limit of twenty years
• The incremental payout amount can be a sum certain or based on a percentage of assets or earnings
• The incremental payout amount can remain level or graduate with the length of the marriage
• The incremental payout amount can be adjusted for a marriage with and without children. We typically increase the incremental payout amount where there are children born of the marriage
• Provide that the total payout not exceed a fixed percent of the payor’s net worth.
• Include some division of the equity in the marital home that accumulates after the date of the marriage regardless of who purchased the property
• If the parties purchase a home together, provide on a sale that the equity will be divided pro rata after each party has been restored his or her down payment
• Provide that any assets (with the exception of real estate) held or acquired in joint names be divided equally in the event of divorce regardless of contribution.

One of the leading cases in Massachusetts is DeMatteo v. DeMatteo which was decided in 2002 by the Supreme Judicial Court. The husband was a wealthy man who had never been married and the wife worked as a secretary, had few assets and one child from a prior marriage. Each party retained independent counsel, negotiations ensued and they eventually agreed on terms, but not before the husband rejected the wife’s request for an assignment of the lesser of 20% of his estate or $5,000,000.00 in the event the marriage was terminated by divorce. The final terms provided that the wife would receive the marital home free of any mortgage, the motor vehicle she customarily drove, $35,000.00 per year in support with cost of living increases based on the Consumer Price Index and health insurance. Support payments and health insurance were subject to termination on the wife’s death. When the parties executed a prenuptial agreement on March 21, 1990 the husband’s financial statement showed a net worth of between 83 and 108 million dollars.

The marriage lasted roughly ten years and produced two children. When the husband filed for divorce the wife challenged the validity of the prenuptial agreement. His financial statement at the time of trial showed assets of approximately 112 million dollars. Amongst other things, the trial judge concluded that the agreement was invalid because it did not make a fair and reasonable provision for the wife. The husband appealed and the S.J.C. reversed the trial court’s decision. In its findings, the Court noted that the agreement met the requirements that had been set forth in one of its earlier decisions, Osborne v. Osborne. They were:

• That there was a full and fair disclosure of the assets of each party;
• That the agreement included a waiver of specified marital rights by the contesting party;
• That the contesting party was represented by independent counsel of her own choice; and
• That despite the significant disparity in assets each party took from the marriage, the agreement made a fair and reasonable provision for the contesting party.

The court also commented that while the wife’s standard of living would be less than it was during the marriage, she was left in a better position than prior to the marriage. Additionally, the court stated that if the agreement was unacceptable to the wife she was free not to sign it.

In discussing the so called “second look test” (whether the agreement is valid at the time of the divorce) the Court stated, “It is only where the contesting party is essentially stripped of substantially all marital interests that a judge may determine that an antenuptial agreement is not fair and reasonable and therefore not valid.” The second look is “to ensure that the agreement has the same vitality at the time of the divorce that the parties intended at the time of its execution.” The Court concluded its decision by saying “conscionability” is the term to describe the fair and reasonable standard at time of enforceability. That said, there are circumstances wherein the Court would relieve the parties from the obligations of a valid prenuptial agreement. For example, the “unanticipated mental or physical deterioration of the contesting party” or “the erosion by inflation of agreed-on support payments of such a degree as to nullify the obvious intention of the parties at the time of the agreement.”

In summary, a valid agreement can make an unequal distribution of assets, but it cannot strip one party of all marital rights and it must provide some reasonable share of marital property even if that share is less than modest given the assets of the other party.

Prenuptial Lawyers in Salem, Massachusetts

Our lawyers handle prenuptial agreements and are extremely knowledgeable in prenuptial law as well as the other aspects of law that you might have to deal with when creating a prenup. In a common prenuptial agreement, you and your future spouse will provide for such things as property division and alimony. If the unfortunate case arises that a divorce becomes necessary, you will already have an agreed-upon document that lays out the pertinent areas of your divorce agreement. It will save you and your spouse future trouble if you do end up separating.

You can always have a consultation with one of our prenuptial agreement lawyers to determine if it is right for you and your fiancé(e). We can answer all of your questions and give you an honest, unbiased view on your future marriage and the agreements that you might want to make.

If you have questions or concerns regarding a prenuptial agreement in Massachusetts, do not hesitate to contact us with questions. We have the experience and legal knowledge you need to get the results you desire.