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Marital Agreements - Prenuptial Agreements and Postnuptial Agreements

Posted by attorney John Schrot

"I love you, now sign here." Most of us were taught the art of self-preservation at a young age, and that advice should not be abandoned once we reach adulthood and begin to make life-changing economic, social and psychological decisions. Both premarital (prenuptial) and postmarital (postnuptial) agreements, which are firmly rooted in contract law, simply afford one some security in this age of increasing multiple marriages. Marital agreements are an effective financial planning tool. Both family law and estate planning attorneys engage in the preparation of such agreements. A greater number of these agreements are being drafted as a greater number of average people have assets and/or income they desire to protect. Financial advisors are encouraging engaged couples, as well as married couples, to protect their current and future assets, but also to protect themselves in the event one of them gets into substantial debt. A recent Harris Interactive poll confirmed an increase in the number of couples who are engaging in prenuptial marital agreements before they marry. While only 3% of couples sign marital agreements, that figure has tripled since the similar Harris study conducted in 2002. The poll also found that nearly one-third of single adults stated they would ask a significant other to sign a prenuptial agreement. Postnuptial agreements are not as common. Prenuptial agreements are valid under Michigan law, and have been since 1991 (Rinvelt v Rinvelt). Persons who enter into such agreements are bound by their terms. Couples who enter into a prenuptial agreement that both sides negotiated have a greater chance of a successful marriage because they actually communicated and reached agreement on important issues (e.g. goals and money) that would otherwise have caused problems in the marriage. Drafters should be careful not to create unintended gift and estate tax consequences to overly restrict the potential for an estate planner to avoid such taxes, or not consider the Federal Employee Retirement Income Security Act (ERISA) for retirement plans. No lawyer can guarantee that a prenuptial (or postnuptial) agreement will be enforced, no matter what. Consider withdrawing if your client is under duress or you are uncomfortable with what is transpiring. Admittedly, it would be emotionally conflicting to prepare for divorce when you are planning for marriage, or during marriage entering into a formal financial agreement pertaining to dissolution while you still desire to remain married. Nevertheless, such marital agreements provide protection but, at the same time, they can impose limitations. If one intends on being practical and equitable, there should not be hesitation about broaching the subject of a marital agreement with one's significant other. One should consider the risk as the divorce rate is approximately 50%, and recessionary times have caused people to want to protect themselves from their partner's financial problems if the marriage is unsuccessful. As there are more women in the workplace, they too wish to protect their economic situation. The time for financial planning is not at the time of crisis, but rather before. Almost 40% of divorced Americans say they would ask their significant other to sign a prenuptial agreement if they remarried, according to the Harris poll. These agreements are most important to people who are getting married for the second or subsequent time, have children, own a business, or have significant wealth. A prenuptial agreement does not encouarge your client's partner to dissolve the marriage or necessarily prevent the seeking of spousal support in the event of a divorce. Child custody and child support are also not addressed therein, however education and religion may be. Agreements also cannot provide for violation of public policy or a criminal law. If your client failed to implement a formal exit strategy prior to marriage, all is not lost in that postnuptial agreements are also generally enforceable in Michigan. The postnuptial agreement is one that is signed after the marriage takes place, and has far different consideration requirements. Neither agreement means that a couple is anticipating a divorce in the future. They are simply ways to preserve and protect. The validity of a marital agreement is a determination of the court, wherein it considers numerous factors, including the totality of the circumstances surrounding the execution of the agreement, whether the parties made full disclosure, whether the parties knew the value of the property to which they waived their rights, and whether both parties were advised by competent counsel and intelligently waived their rights. Marriage alone is sufficient consideration for a prenuptial agreement, but not a postnuptial agreement. Marriage may not be the consideration for a postnuptial agreement. For any marital agreement, it is void unless the agreement, contract or promise is in writing and signed by the parties to be charged with the agreement, contract or promise. Prenuptial agreements are fair only if they meet the following criteria: The agreement was not obtained through fraud, duress, mistake or misrepresentation, or nondisclosure of material facts; The agreement was not unconscionable when it was executed; and The facts and circumstances have not changed since the agreement was executed in such a way that makes its enforcement unfair and unreasonable. A court need not review the construction of a marital agreement if it is unambigous. The principles utilized to interpret contracts in general are used to interpret marital agreements. As public policy favors marital agreements, the courts have generally intrepreted them liberally. Postnuptial agreements have the same general objectives as prenuptial agreements, but they are made after the parties have entered into marriage. Similar to a prenuptial agreement, a postnuptial agreement is a contract that the parties enter into so as to define their rights to their spouse's property, at death or divorce and to supersede many of the rights imposed by law. Similar to prenuptial agreement, postnuptial agreements must satisfy various requirements to be valid including: They must be fair and equitble, and supported by sufficient consideration; and They must not be made in contemplation of divorce or separation. As postnuptial agreements are contracts, they must conform to all relevant contract laws, as well as employ the same methodology used for interpreting prenuptial agreements. Since marriage alone is not sufficient consideration, one must insure that there is other, legally sufficient consideration in the postnuptial agreement. Postnuptial agreements have been entered into especially where older persons are involved, or in lieu of a proceeding for separate maintenance where loss of health insurance coverage by a non-employee spouse is a concern. Therefore, if the health insurance provider or his employer desires to treat an action for separate maintenance as an event causing the non-employee spouse to become ineligible for health insurance coverage, one may consider utilizing a postnuptial agreement instead of an action for separate maintenance. In this way, health insurance coverage for a non-employee spouse may be maintained, and the parties can still determine their own property rights. In addition, parties may employ a postnuptial agreement in a situation where a spouse wishes to protect the property he or she brought to the marriage from disposition during a divorce proceeding, or to protect the inheritance rights of the children the spouse may have from a prior marriage. There are additional motivations of the spouse to enter into a postnuptial agreement. As a postnuptial agreement supersedes already existing rights, the motivation to enter into one may be at times questionable. Nevertheless, they do have a valid purpose. As postnuptial agreements at least have to meet the same threshold requirements of prenuptial agreements, a spouse cannot sign same as a result of that person's implied fraudulent promise that he/she would attempt to preserve the marriage. Otherwise, it is invalid. Therefore, if one enters into such an agreement with an interest solely in financial security and financial gain for oneself, then such intentions would be contrary to those set forth in the agreement and/or intent of the parties. If one signs the agreement as a result of the other spouse's fraudulent and/or deceptive promise to attempt to maintain the marriage, while one is truly only concerned with a favorable settlement of marital assets, the agreement would be unenforceable. If all else fails and your client has missed his or her opportunity for a marital agreement, be aware that persons can now "protect" themselves against a marriage gone wrong by purchasing divorce insurance. The benefits of such insurance do not compare with those of a well drafted marital agreement as being part of a good financial plan. Marital agreements can be useful tools as they promote understanding, can increase the chances of a successful and harmonious marriage, and they present an opportunity for a couple to engage in planning for their future in an honest and open manner.

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