The unfortunate truth in the United States today is that divorce is a 50% probability on average and if you or your spouse are in a stressful job such as a doctor, lawyer, or business owner, the number is more like 70%. Nobody likes to go into a marriage thinking about divorce, but with those statistics, it is difficult not to. The idea of pre-planning a divorce is typically difficult and distasteful using a prenup because of the sheer discussion. History shows that an irrevocable trust is stronger while at the same time emotionally easier to implement a protection strategy. Here are highlights followed by 25 actual cases throughout the country of divorces involving a prenup and an irrevocable trust.
So let’s compare and summarize the highlights:
- The single most appealing advantage of an irrevocable trust over a prenup: YOUR FIANCEE DOESN’T HAVE TO KNOW AND DOESN’T HAVE TO SIGN ANYTHING!
- When there is an irrevocable trust involved, the court will only look to see if the assets in the trust are part of the marital assets and if not, the judge will exclude them.
- A prenuptial agreement can be challenged using many different strategies. A prenuptial agreement doesn’t protect against excessive child support. With an irrevocable trust, in most cases, you can pre-determine what assets go to your children, when they are given and under what circumstances.
- You can settle a challenge to a prenuptial agreement to avoid a long expensive divorce. With an irrevocable trust you hold the power to give whatever you want or nothing at all. Keeping the power in your hands can encourage the other spouse to settle for whatever they can get, thereby speeding up the divorce.
- A prenuptial agreement does not survive death. With an irrevocable trust, your assets will be used how you want them to be used with NO RESTRICTIONS. In other words, your spouse can’t acquire and spend your money on their new “friend” unless you allow it. Your children won’t be able to spend it away or lose it in a lawsuit. Your trust will continue to support whomever you want it to support and cut out those that you do not wish to support.
Divorce Case Summaries – With Links to the Actual Cases
Prenuptial Agreement Challenges:
A judge writes that “litigation over the validity and interpretation of prenuptial agreements is the bread and butter of divorce lawyers” in a case in which he refused to modify an agreement at the request of a wealthy husband. The agreement was signed two days before the wedding to protect the husband’s assets, but she successfully challenged it in the divorce as unfair. It is estimated that the wife was awarded an additional $4.2M in this case.
Prenuptial agreement executed 24 hours before the marriage successfully challenged by unrepresented wife. Court found that the failure of the husband’s signature to be properly acknowledged by a notary public for over seven years after he signed it was fatal to the validity of the agreement. It is estimated that the wife was awarded an additional $1.2M in this case.
A spousal support waiver in a prenuptial agreement was invalid because state law at the time the agreement was signed did not allow such waivers. Subsequent changes in the law did not affect the waiver because prenuptial agreements are interpreted according to the law when signed instead of the law at the time of attempted enforcement. It is estimated that the wife was awarded an additional $2.35M in this case.
Couple married after their first marriage to each other ended in a divorce. Husband subsequently died. Widow tries to enforce a prenuptial agreement from their first marriage to protect husband’s children from another marriage from claiming part of his estate. Court rules that divorce judgment discharged and terminated the prenuptial agreement.
Entire prenuptial agreement declared void where spouse seeking to maintain its validity failed to perform a section directing the payment of moving expenses.
6. Rogers v. Gordon
, 2012 N.J. Super. LEXIS 1385, 2012 WL 2196673 (New Jersey App. Div. 6/18/12)
Although a provision in a prenuptial agreement waiving counsel fees enforceable as far as legal fees pertaining to equitable distribution, the court awarded fees to the wife’s attorney for work done on her behalf on the issue of alimony. The court ruled that the prenuptial agreement’s language was not clear enough as to waiving fees related to alimony. The wife was awarded an additional $35K to pay her divorce legal fees.
Appeals court affirmed judgment of the trial court ordering mother and father to share equally the cost of their son’s college education. Mother argued that trial court erred by taking into consideration the assets and income of her current husband because of language in their prenuptial agreement absolving the second husband from responsibility for support of the child of her first marriage. The agreement did not preclude the court from looking at assets and income available to the mother.
8. In re Marriage of Barry Bonds
, 71 California. App. 4th 290, 83 Cal. Rptr. 2d 783, 1999 Cal. App. LEXIS 318, 99 Cal. Daily Op. Service 2661, 99 Daily Journal DAR 3459 (Cal. App. 1st Dist. 1999)
Appeals court, in 1996, overturned the prenuptial agreement that wife signed before marrying baseball great, Barry Bonds. The appeals court ruling relied upon the fact that the wife first saw the agreement on the way to the wedding and did not have an adequate opportunity to seek counsel. It is estimated that the couple spent more than $1M in legal fees contesting/defending the prenup and wife was awarded additional community property valued at millions of dollars in this case. We can only assume Mr. Bonds had the best attorneys, but he still could not get the prenup to stick.
9. C.S. v L.S.
, 41 Misc. 3d 1209(A), 2013 N.Y. Misc. LEXIS 4438, 2013 NY Slip Op 51624(U), 2013 WL 5526048 (New York Sup. Ct. 2013)
Prenuptial agreements are held to a higher standard than ordinary contracts because of the relationship of trust (fiduciary duty) existing between the spouses to a prenup. Courts take this trust (fiduciary duty) into consideration in determining whether one of the parties was taken advantage of because of it. This court felt the prenup was unfair because the husband had a net income of $1 million compared to the wife’s $5,000. The Court threw out the Prenuptial agreement and sent case back to trial court for determination of how much more she would get in equitable distribution and support.
10. Galetta v. Galetta
, 21 N.Y. 3rd 189 (2013) A notable law firm in NY created a prenup with defective wording of key portions of the document that held fatal to its validity. The New York Court of Appeals earlier in 2013 upheld a challenge to a prenuptial agreement on the grounds that the acknowledgement section did not contain language confirming that the notary properly identified the parties signing the document. In its decision in Galetta v. Galetta
, the court found the document to be invalid even though the parties did not challenge the authenticity of the signatures.
11. Happold v. Happold
, 2011 N.J. Super. Unpub. LEXIS 2866, 2011 WL 5828597 (App.Div. Nov. 21, 2011) Attorney representing both parties invalidates prenuptial agreement 20 years later. During their divorce proceeding, the wife challenged the prenuptial agreement on the ground that she was not properly represented by an attorney when she signed it. In Happold v. Happold
, a New Jersey court ruled in favor of the wife where the husband admitted retaining the attorney that represented both of the parties.
12. Weymouth v. Weymouth
, 87 So. 3d 30 (Fla. Dist. Ct. App. 4th Dist. 2012) Appreciation in value of separate property was deemed to be marital property because it was not mentioned in the prenuptial agreement. A Florida court in Weymouth v. Weymouth
, ruled in favor of a spouse claiming equitable distribution of the appreciation in value of a home listed in a prenuptial agreement as separate property.
13. Jurek v. Couch-Jurek
, 296 S.W.3d 864, (Tex. App. El Paso 2009) Rental properties were determined to be community property contrary to couple’s prenuptial agreement. A Texas court ignored the terms of a prenuptial agreement that declared rental properties the separate property of the wife, and, instead, declared them to be community property in Jurek v. Couch-Jurek
14. Estate of Frank P. Dito
, 2008 Cal. App. Unpub. LEXIS 2683, 2008 WL 821694 (Cal. App. 1st Dist. Mar. 28, 2008) was unusual because the challenge to the prenuptial agreement happened during an estate proceeding following the husband’s death. Strong evidence that the marriage was a sham to allow the foreign-born wife to remain in the United States did not even deter the court!
Irrevocable Trust Challenges in Divorce
15. Sharma v. Routh
, 302 S.W.3d 355, 2009 Texas App. LEXIS 7945 (Tex. App. Houston 14th Dist. 2009)
Property husband received as gift of $2M which was protected when placed in an irrevocable trust from award to wife in divorce action. Court in this case ruled that neither the principle nor the income from the trust was community property and thus the wife was not entitled to any of it.
16. In re Marriage of Romano
, 968 N.E.2d 115, 2012 Illinois App. LEXIS 202, 2012 IL App (2d) 091339, 360 Ill. Dec. 36 (Ill. App. Ct. 2d Dist. 2012)
Irrevocable trust used by husband to protect non-marital assets protected the assets from claims by the wife during divorce proceedings. The court went further in holding that income from the trusts were not part of the marital estate for purposes of distribution in the divorce. Husband funded the trusts valued in excess of $16 mil from sale of his business interests he held prior to marriage. He continued to run the business during the marriage. The wife got nothing.
17. In re Marriage of Holman
, 122 Ill. App. 3d 1001, 462 N.E.2d 30, 1984 Illinois App. LEXIS 1639, 78 Ill. Dec. 314 (Ill. App. Ct. 2d Dist. 1984)
Non-marital assets placed in a trust by the wife were out of the reach of the husband in divorce proceeding. Interesting ruling in the case was the awarding of maintenance for the home to the wife because her access to the trust income was limited.
18. Villi v. O’Caining-Villi
, 10 Misc. 3d 1060(A), 809 N.Y.S.2d 484, 2005 New York Slip Op 52049(U), 2005 N.Y. Misc. LEXIS 2811, 234 N.Y.L.J. 125 (N.Y. Sup. Ct. 2005)
Court rejected wife’s claim that home acquired during the marriage and later transferred to an irrevocable trust with husband and wife as trustees and not as beneficiaries remained marital property in a divorce. Court noted that only beneficial interest in the trust was held by the son.
Appellate court affirmed judgment of the trial court declaring marital home in an irrevocable trust to be the separate property of the wife. The court said there was no evidence to establish that the wife’s father intended to gift the land to anyone other than his daughter.
20. Mitani v. Mitani
, 2010 Cal. App. LEXIS 7833, 2010 WL 3800590 (California App. 4th Dist. Sept. 30, 2010)
Husband lost claim to community property when the assets were placed in an irrevocable trust. The trust language removed all rights the husband had in the assets from him and his control. Court concluded that the assets, valued at $3.5M, were no longer community property.
21. Loomis v. Loomis
, 158 S. W.3d 787 (2005). Mrs. Loomis, at the beginning of her marriage, set up an irrevocable trust and funded it with a life insurance policy, worth $0.09 at the time. Over the years, the value of the life insurance policy grew. The Loomis’s were married for about 10 years and filed for divorce. Mr. Loomis attempted to have the current value of the life insurance ($55,567.04) included in the marital assets. The court disagreed, because the life insurance policy was owned by an irrevocable trust that was NOT set up in anticipation of a divorce. The entire value of the trust was left out of the marital assets even though this trust was set up after the marriage!
22. Avent v. Avent
, 849 N.E.2d 98 (2006). Mr. and Mrs. Avent decided to get married in 1978 and signed a prenuptial agreement saying that during the marriage their assets would remain separate. During their many years of marriage, they continued to keep their assets separate. After 25 years of marriage, they filed for divorce. Now in their 80s, their children managed their finances. Mrs. Avent, despite being a minimally paid school cafeteria worker, managed to save and invest a rather large amount of assets. Mrs. Avent, under direction of her daughter, put a large amount of Mrs. Avent’s assets in an irrevocable trust. Mr. Avent originally had the trust included in the marital assets, but the appeals court reversed and determined that since the assets were in an irrevocable trust, they were not marital assets.
24. Sharma v. Routh
, 302 S.W.3d 355 (2009) Mr. Sharma was married to Mrs. Sharma who passed away, but left two irrevocable trusts to benefit her husband and children. A few years later, Mr. Sharma and Mrs. Routh were married but only for a few months. In the divorce proceedings between Mr. Sharma and Mrs. Routh, Mrs. Routh tried to have the trusts included in the marital assets. The appeals court excluded the trusts thereby keeping Mrs. Sharma’s assets safely away from Mr. Sharma’s new temporary wife.
How does an irrevocable trust work so well? Well, basically it works so well because you don’t own the assets anymore. So, when spouse X (you) gets married, X owns nothing. When X gets a divorce, X only shares the marital assets outside the trust. The trust owns everything else. In fact, X may be the one getting assets from the marriage because X doesn’t own anything on his own. All of X’s assets prior to the marriage are safe in the trust and probably grew substantially within the trust. Spouse Y can try to challenge the trust, but chances are that the case won’t go too far, because Spouse X transferred his assets before getting married. The judge will most likely take one look at the trust, determine the assets in the trust are not marital assets and remove them from the divorce proceedings.
25. Cooley v. Cooley
, Appellate Court of Connecticut 32 Conn. App. 152; 628 A.2d 608; 1993 Conn. App. LEXIS 338 Timothy’s mother set up an irrevocable trust with a spendthrift clause for her son that was managed by an independent trustee. Timothy was in his second marriage to a woman named Mary. Timothy had a drinking problem and sought out help. He was at AA meetings from 3-5 nights a week. Mary was not happy that he was gone so much and filed for divorce. During the divorce, she attempted to get part of the irrevocable trust. The court ruled that because Timothy had no control over the trust, there was a spendthrift clause specifically mentioning divorce and because Mary was not a beneficiary, the trust would not be counted in the marital assets. The trust was safe for Timothy’s children.
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