Prenup vs. an Irrevocable Trust to Protect Assets in a Divorce
Posted on: December 7, 2019 at 7:26 am, in
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.
If you have additional questions, please call us directly. If you feel that you are ready, go to our partner’s site and begin the process of personalizing your irrevocable trust now at www.myultratrust.com
Asset Protection in Divorce: How to Protect Assets From Divorce
Posted on: September 7, 2019 at 11:42 pm, in
Will learning about asset protection in divorce be a waste of time if you live in a community property state? How does one protect assets before or during a divorce? Common steps to divorce asset protection for gifts, family heirlooms, and real estate. You will need to consult with a divorce lawyer, professional appraiser, and estate planner. Definition of Equitable Distribution and fair market value of assets in divorce.
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How to protect your assets during a divorce? Protecting assets through a divorce can be a complex financial process further complicated by the emotional devastation. If you are going through a divorce it may be important to you to determine ahead of time what your assets are and how you will protect them from your spouse.
The first step will be to hire a lawyer familiar with the laws for dividing property in your state. Good legal council will prove invaluable in defending your claims to property and can give you names of appraisers and accountants to help your case. Your divorce lawyer will also assist you on how to remove any Powers of Attorney granted to your spouse for control of your property and finances.
There are several steps you should consider when trying to protect your assets during Divorce:
- Identify everything that was given to you as a gift or family heirloom.
- Identify community property.
- Hire a professional appraiser.
- Figure out how you will split retirement and physical assets.
Identify Gifts and Family Heirloom to Protect Assets During Divorce
A camera will prove to be your best friend during a divorce. You should make a list of all items which were given to you before and after the wedding and take pictures of these items prior to removing them from the residence. Once you have compiled your list you should remove all your personal items to a location not easily accessible to your spouse.
Your spouse will be within their rights to claim any items you leave behind in the residence and do not immediately claim. If you or your spouse left the residence voluntarily, either of you is entitled to return at any time and retrieve belongings. If locks have been changed, except in the case of a court order, you are within your rights to have a locksmith open the doors. Your next step will be obtaining, if possible, written proof of who gave you the items and when they were received.
Community Property Assets
Community property of assets refers to the belongings shared by you and your spouse, such as the furniture, pots and pans, etc. It is important to take pictures of these belongings as well before you remove the items you wish to claim as your own. Photographs are especially valuable if there are expensive items you would like to have but did not have the ability to move and you feel your spouse may try to take them. All photographs should be kept in a secure location not readily accessible by your spouse.
Hire a Professional, Independent Appraiser for Divorce Asset Protection
Division of property during a divorce is determined by the fair market value of the disputed items to ensure one party is not being favored over the other during settlement. An appraiser will be necessary to determine accurate estimates, although you should consult your lawyer on finding a qualified individual.
Using the same accountant who handled your assets in the past may seem suspicious and a court may order another appraisal or rule in favor of your spouse’s accountant. It is critical that an appraisal be straightforward and unbiased for the protection of assets during Divorce.
Estate Planner Consultation to Divide and Protect Assets During Divorce
When considering how to divide assets prior to divorce settlement, it is wise to consult a professional estate planner or financial analyst. For example, if you are thinking about selling your home it may be wise to do so prior to settlement since you are entitled to deduct up to $500,000 of the sale from capital gain taxes.
Selling the home after the divorce is final and reduces your benefit to only half of the sale price. Retirement assets and stocks should also be discussed. If you and your spouse choose to split the retirement benefits you must sign a Qualified Domestic-Relations Order (QDRO) which notifies the pension sponsors how to pay the benefits. Although you cannot take stocks in your spouse’s name you may be entitled to the proceeds once they are sold.
Exceptions to the Rule on Divorce Asset Protection
Some states, such as New York, are known as “equitable distribution” states. “Equitable” mean “fair” and assets will not be divided right down the middle based on their fair market value. Division of assets according to New York Divorce law states that all property obtained prior to the marriage still belongs to the individual and all property obtained afterwards will be distributed by the court based on established guidelines.
The factors a court considers in equitable distribution states for divorce assets are:
- The difference in income and property from when the marriage began to the date divorce was filed.
- The age of both individuals and how long they were married.
- The needs of a parent who has won full custody of children involved (i.e. will they need the house to properly care for the child?)
- Any loss of pension or inheritance.
- What contributions the parties made to acquire the property.
- Future earning potential of both parties.
- Tax consequences.
If you are considering divorce it is wise to consult a lawyer as soon as possible to ensure the protection of your assets and help you understand your rights as they pertain to individual state law.
Estate Street Partners is available for consultation on how to protect your assets during and before a divorce. Please call our toll-free line at 888-93ULTRA (888-938-5872).
Read more articles on hiding your assets, how the rich hide their assets, offshore asset protection, getting sued and hiding assets, frivolous lawsuits, grantor trusts, and estate planning and trust:
5 Estate Planning Horrors to Avoid In Your Divorce
Posted on: May 5, 2019 at 4:46 am, in
“A person who never made a mistake
never tried anything new”
– Albert Einstein.
You do not want to make these mistakes.
Estate planning frequently takes a backseat to emotion in a divorce. Even when both parties agree that ending their relationship is the best solution for their marital woes, divorce can be an emotionally and financially excruciating experience. Regardless of how much you might think you have prepared for the roller coaster ride that your life becomes during, and immediately after a divorce, nothing can fully prepare you for it. Avoid the 5 estate planning mistakes:
1. Making it difficult to identify separate property.
Some states have established two classifications of property in a divorce: separate and marital. Marital property
is real or personal property acquired during the marriage or property acquired together by the parties prior to the marriage. Marital property is subject to distribution by the court in a divorce action.
Separate property is usually defined as property acquired prior to the marriage by one of the parties that retains its identity as belonging to one of the parties. Separate property is not subject to distribution by a court as part of a divorce. Problems occur when courts cannot identify property as being separate. For example, a home purchased and owned by a person prior to a marriage could lose its status as separate property if marital funds are used to pay the mortgage or do renovations on the home.//insurance.ultratrust.com/life-insurance-retirement-planning.html
Placing separate property in an irrevocable trust established prior to a marriage can eliminate or minimize questions concerning the legitimacy of a claim that property is separate rather than marital. Homes and businesses are properties that can be transferred to an irrevocable trust to retain their separate status because ownership is in the name of the trust and not the individual.
Irrevocable trusts that were created before the marriage or even jointly during the marriage most likely will NOT count as marital assets. Often a wealthy person, prior to marriage, may place a bulk of their assets in an irrevocable trust
to avoid having the awkward prenuptial conversation and still protect the assets in the event of divorce.
2. Failing to change your life insurance beneficiary.
A life insurance policy
is a contract between you and the insurance company. You agree to pay your premiums in return for which the insurance company agrees to pay a specified sum of money on your death to the beneficiary you name in the policy. The insurance company is obligated to pay the person whose name you list as the beneficiary even if that person is your ex-spouse.
A recent case Maretta v. Hillman, 722 S.E.2d 32 (Va. 2012)
, proves just how big this problem can be. A federal employee designated his wife as a beneficiary, divorced and remarried. He then died leaving everything to his current wife. His ex-wife however claimed the over $100,000 in life insurance and his current wife took him to court. Virginia has a law stating that, upon divorce, the ex-wife is no longer considered a beneficiary on life insurance policies. This was a federal policy, however the Supreme Court ruled in favor of the ex-wife.
This could also be a good time to evaluate your life insurance needs. If you do not have children, you might not need as much insurance as when you were married.
3. Forgetting to revoke a power of attorney.
Remember those forms you filled out at the attorneys office when you created your will? Most likely, one of them was a power of attorney
. This form gave your now ex-wife power to take care of your finances probably at any time, but at the very least when you become incapacitated.
The laws in a handful of states (but not most) terminate a power of attorney upon divorce, which names a spouse as the attorney in fact. This is not, however, the case in all states. The best course of action is to review your power of attorney with your legal advisor to determine the effect your divorce will have on it.
4. Thinking a divorce cancels provisions in your “Will” pertaining to your spouse.
Many married couples name each other in their last will and testament
as the executor and leave all or the bulk of their estates to each other. A divorce does not cancel or invalidate portions of your will pertaining to your spouse. It is up to you to change your will with a codicil that amends an existing will but does not terminate it, or you can prepare a new will and destroy the old one.
Some people become confused when they hear that the law in their state automatically terminates a person’s rights to inherit property from a divorced spouse. Such laws pertain to situations in which a person dies intestate without leaving a valid last will and testament. If you have a last will and testament, you must change it on your own to avoid having your former spouse share in your estate.
If you have an irrevocable trust, however, that does not name your ex-wife as beneficiary, you don’t have to do anything. A revocable trust
, however, was most likely divided during the divorce already!
5. Not contacting financial institutions.
Most people remember to close joint checking and savings accounts or at least arrange to remove their former spouse from the accounts. It is surprising how many divorced individuals forget to notify financial institutions about making changes to the places that hold typically the big money such as their IRA, 401(k) or other retirement plans
Retirement accounts or annuities usually have a beneficiary named to receive the money in the event the holder of the account dies. Contacting the financial institution or the human resources department at your place of employment will get you the information needed to update the information on your accounts including designating a new beneficiary.
Why Do Marriages Fail? Can Prenuptials Agreements Prevent Divorce?
Posted on: March 8, 2017 at 12:53 am, in
Can a premarital agreement help in your marriage? Is there some better way to protect your assets and marriage at the same time?
Why do so many marriages fail in the United States? Let us count the reasons: A 2012 survey among relationship counselors conducted by online relationships and advice site YourTango.com revealed that infidelity and lack of interest in married life are often cited as the most significant motives couples mention when they get divorced; however, 74 percent of experts believe that disagreements about money are strong predictors of marital separation.
All civil unions have certain monetary expectations. Spouses must be prepared to provide financial support to one another, and they are expected to share the property and assets they acquire throughout the marriage. A spouse refusing to provide financial support despite having the means to do so can be construed as grounds for divorce in some states.
Many couples who feel that eliminating monetary constraints from their marriage will help them stave off divorce are likely to sign a prenuptial agreement before tying the knot. They are certainly onto something here, but they are not choosing the correct legal instrument.
The best way to keep premarital assets separate does not even require the signature or knowledge of both parties. Irrevocable trusts are the most divorce-proof legal instruments for keeping absolute control and ownership of separate assets. These trusts are commonly used for formidable asset protection and estate planning purposes, and they are even better in divorce situations.
Secure Assets Make Stronger Marriages
Relationship counselors and legal analysts say that the laws regulating the distribution of assets in divorce can actually encourage it. Ideally, couples should be able to formulate and agree to the financial terms of their marriages without state laws interfering. For this reason, many engaged couples seek prenuptial agreements as a way to improve upon the laws.
Although prenuptial agreements can be used for a variety of purposes, the most common reason to get one is to clearly establish separate property. Not all jurisdictions share the same views about separate property and marital assets when it comes to divorce; for this reason, skilled divorce attorneys routinely advise their clients on strategies they can use to get non-marital assets from their spouses. With irrevocable trusts, however, these strategies will not work due to their unique legal structure and superb asset protection that these instruments provide across all jurisdictions when completely prior to the marriage.
How Prenuptial Agreements Particularly Fail Hugely
Summoning a fiance or fiancee to sign a prenuptial agreement can essentially create a preamble for divorce, particularly in “rich spouse, poor spouse” situations when a monetary settlement is determined ahead of divorce. For example, a wealthy business woman may agree to give her future husband 3 million dollars in case of a divorce as long as he waives all his rights to marital property, particularly the profits realized by his wife’s successful business. There are two problems with this flawed prenuptial approach.
The first problem is that prenuptial agreements do not have a good track record in the American legal arena. Case in point: Cioffi-Petrakis v. Petrakis, 103 A.D.3d 766 (2nd Dept. 2013), in which the wife of a millionaire in Long Island prevailed in appellate court by throwing out a 1998 prenuptial agreement; she may now be entitled to a considerable chunk of her husband’s fortune. There’s also Eyster v. Pechnik, 71 Mass. App. Ct. 773 (2008), in which an appellate court determined that a prenuptial agreement was not clear on its intent to waive marital rights.
The second problem in our example above is that the husband may feel as if it would be too easy to walk away from a divorce with a million dollars. He may no longer care about marital assets or even about the marriage itself: He just wants that cool settlement of $3 million dictated by the premarital contract. So he is not likely incentivized to “make his marriage work at all costs,” some might even say that he is more likely to cheat, misbehave, and become a difficult spouse anyway.
A disillusioned wife who was guaranteed a certain monetary disbursement on a premarital agreement may not feel like it would be worth her time to try to salvage the marriage. She may be married to a multimillionaire who only agreed to part with a few hundred thousand in case of divorce, but a realistic wife may want to move out of the marital abode with the children and simply let the court determine child support.
The two problems mentioned above serve as proof of the uncertainty prenuptial agreements bring to marriages. For these reasons, irrevocable trusts are far better premarital instruments with regard to keeping separate property separate.
How Irrevocable Trusts Make Stronger Marriages
Spouses who understand and accept that they will not get anything other than the marital assets outside of the trust if they get divorced are less likely to stray from their marriages. In fact, they are more likely to understand that marital bliss cannot be achieved by thinking about how much they can get after a marriage dissolution.
In other words, irrevocable trusts can actually compel spouses to work harder on their marriage. To find out more about how irrevocable trusts can improve your life, please contact UltraTrust.com today.
Extramarital Affairs, Cheating and Prenup Lifestyle Clauses as Unenforceable
Posted on: March 7, 2017 at 7:31 am, in
Celeb Justin Timberlake agrees to prenuptial clause with wife Jessica Biel
Renowned actress Gwyneth Paltrow recently used the term “conscious uncoupling” to explain that she is on the verge of a breakup and headed to divorce court. Across social media circles, speculation about potentially adulterous behavior ran high. Katherine Woodward Thomas, the psychotherapist who actually coined the term, explained that conscious uncoupling is a process of dissolving a relationship in a way that reduces harm to families.
Can conscious uncoupling be made part of a prenuptial agreement? Yes, it can be incorporated as a lifestyle clause along with other activities and provisions that are not typically considered when thinking about prenuptial agreements. Can cheating and extramarital affairs be included in prenuptial agreements? What effect can such clauses have on money, investments, real estate and other assets?
What is the Purpose of a Prenuptial Agreement?
Premarital agreements are treated differently across various jurisdictions. Certain states will have limits on what couples can include and leave out of marital and separate property. Prenuptial agreements are essentially legal instruments that seek to establish a division of property, and they are not even the most effective instruments in this regard.
Irrevocable trusts are increasingly being used as an effective alternative to prenuptial agreements. These trusts do not present the premarital awkwardness of having the future groom and bride sit down and have an unromantic conversation about what’s mine and what’s not yours. Irrevocable trusts serve many purposes; they are primarily instruments of asset protection that do not involve the signature or even knowledge of a fiancÃ© or fiancÃ©e. These legal structures are ideal for making sure that personal assets are not at the mercy of a future spouse.
Prenuptial agreements frequent purposes and uses are as are often used as tools for bargaining and negotiation before the marriage is consummated; some couples see them as a test of character and moral standing, and herein lies the problem. Prenups should focus on defining personal and marital assets and other financial matters; incorporating lifestyle clauses does not help to keep this focus.
Unusual Prenup Lifestyle Clauses
The existence of a prenuptial agreement whereby a couple agrees to cheat on each other has been alleged among celebrity gossip circles, but such premarital lifestyle clauses have not actually been substantiated.
Lifestyle clauses are essentially non-financial provisions in prenuptial agreements. The nature of these lifestyle clauses centers on behavior, and they may range from taking out the garbage to how often the couple should go on vacations together and from staying under a certain weight to infidelity.
Cheating clauses on prenups fuel the collective mind of popular culture and gossip journalism. It is alleged that actor Michael Douglas risks losing millions of dollars should he stray from the lovely Catherine Zeta-Jones. Pop singer and actor Justin Timberlake reportedly agreed to a similar prenuptial clause with his wife Jessica Biel.
Family law attorneys who have worked with couples seeking to add lifestyle clauses to their prenuptial agreements remind them that may be considered unenforceable in some states, and that they may be rendered invalid in some cases. Infidelity, even when provisioned by a prenuptial agreement, may turn into adultery and become grounds for divorce. There are no monetary penalties associated with adultery; nonetheless, if the wandering spouse spent money on a lover, he or she might have to reimburse the cheated wife or husband.
Unusual lifestyle clauses such as the ones described above are not commonly found in irrevocable trusts. The focus is on asset protection and estate planning. Should infidelity lead to the dissolution of a marriage, the assets protected by an irrevocable trust structure remain safe. In a divorce proceeding, a judge will only take a look at the assets outside of the trust to check for marital assets because assets placed inside the trust are by definition – not martial; the integrity of the instrument is never challenged.
Moral Deterrent to Infidelity of Prenuptial Agreements Lifestyle Clauses
When talking about infidelity, whether it is part of a prenuptial agreement by means of a lifestyle clause or not, there are issues of burden of proof and reasonable doubt to consider. In a way, these lifestyle clauses are not very common because most people will question the moral certainty and legal enforceability of marital infidelity, even when it is ironed out on a legal instrument such as a prenuptial agreement.
The problem with borderline sordid prenuptial agreements is that they can end up being challenged in court and thus become part of the public record. Even when they are unenforceable, some couples may think of lifestyle clauses as moral deterrents to infidelity. To this end, the last thing a married couple would like to see during divorce proceedings is their personal life choices being discussed in family court.
Many legal experts think that mixing lifestyle clauses with financial provisions in prenuptial affairs is not a good idea. For this reason, a premarital agreement may include what is known as a severability clause that allows lifestyle clauses to be separated from the contract for the purpose of keeping the financial provisions enforceable.
In the end, couples who wish to make certain financial arrangements before tying the knot are advised to take a good look at irrevocable trusts instead of prenuptial agreements. Depending on the specific financial situation of the bride or groom, only one of them may need a trust, but each can choose to protect their assets with an individual trust. To find out more about how an irrevocable trust can help you retain control of future outcomes better than a prenup, please call us now at (888) 938-5872.