Q&A Topic: A Pre-Nuptial Agreement — Why Do I Need One?
Steven J. Mandel, Founder
Q: Why should anyone have a pre-nuptial agreement? Why are they especially important for ultra high net worth families to consider?
A: While 100% of every happy couple that gets married believes they will never get divorced, 50% of them will turn out to be wrong. Simply stated, a marriage is a legal contract, a partnership controlled by statute, and divorce is the dissolution of this partnership.
In New York State, practically everything acquired during marriage is a marital asset, including retirement plans; deferred compensation; stock options; restricted stocks; bonuses; commissions; brokerage accounts, businesses interests, professional practices and licenses; real estate; interest in limited partnerships; tax refunds and even your baseball card collection or Manolo Blahnik shoes. It doesn’t matter whose name the asset is in; who earned the money to purchase it; or even who has possession of it. If it comes into being during the marriage, it is a “marital asset” and thereby subject to distribution between the parties. People come to us for a pre-nuptial agreement when they wish to maintain control of their lives in the event of a divorce, as opposed to having a judge decide how to divide their marital assets pursuant to the laws of the State.
Pre-nups are extremely important when one member of the couple is in a high-risk business; has children from a prior relationship or marriage; expects to receive a monetary gift or inheritance; owns a business; is marrying someone with substantial debt; earns significantly more than their future spouse; owns real estate or other assets prior to marriage; or simply wants to protect what they have.
Our ultra-high net worth clients (such as hedge fund managers or others in the financial sector) often own houses in different states, are involved in transnational business interests, or have residences in more than one country. This means distribution of marital assets during divorce proceedings is often multi-jurisdictional. Our goal is to make sure our clients are protected by selecting the jurisdiction (state or even country) that would provide them with the most terms that would be most favorable to them in the event of a divorce.
In New York, a party cannot disinherit their spouse. Spouses with children from a previous marriage, or relationship, may want certain assets to pass to those children and not to their spouse. A properly drafted pre-nup can help protect your desired inheritance rights for these children.
At The Mandel Law Firm, everything we do is creative and responsive. We’ve built our firm upon the quote of J.P. Morgan who said, “I don’t want a lawyer to tell me what I can’t do; I hire one to do what I want to do.”
Q: Have you ever represented the less moneyed spouse where you thought it would be in their best interest to have a pre-nup?
A: As a matter of fact, we have. Most clients think a pre-nup is designed to protect only the party with more money, but I had a client who gave up her career and left the workforce to marry someone with significantly greater assets than she had. Since her husband-to-be was retired, with no active income, everything he had was acquired prior to the marriage. If they were to get divorced — since no meaningful assets would likely be acquired during the marriage — our client would receive a rather modest spousal support, even though she was married to someone extremely wealthy. To protect this client, we carefully crafted a prenuptial agreement to provide for her long-term financial security, notwithstanding her wealthy husband’s “lack of income.”
To give another example, sometimes a successful hedge fund manager may retire in his 50s, and marry someone who has no income. If they were to divorce without a pre-nup, the courts may award spousal maintenance based on a percentage of income (which in this case would be nominal), leaving the non-moneyed spouse with comparatively very little.
This happens more often than you think. These examples show that knowing what to put in, or leave out, of a prenuptial agreement is an art, rather than a science. This is also why it is imperative for anyone considering having a pre-nup drafted to go to an attorney who knows how to make the law work – for them.
Q: Can a pre-nup help a business owner, or hedge fund manager, protect their business interests in the event of a divorce?
A: A pre-nup is one of the best and least expensive ways to protect your business against a future divorce. In a business partnership, shareholder and/or operating agreements should include provisions to protect the interests of the other owners if one owner gets divorced, including a requirement that unmarried shareholders provide the company with a pre-nuptial agreement prior to marriage, along with a waiver by the owner’s spouse-to-be of his or her future interest in the business.
Q: Besides protecting assets, what else can a pre-nup do for someone?
A: We also prepare pre-nups with what we call “lifestyle clauses” This may include who would get custody of the family dog, penalties for infidelity, “good will” clauses that prevent sharing unflattering or intimate information with friends or family, and non-interference with business relationships. Lately, we have been negotiating clauses to prevent posting of disparaging remarks and photos on social media sites.
Q: Are pre-nups enforceable?
A: New York courts generally uphold pre-nuptial agreements if specific “rules” are followed. The first thing we advise our client is to be fair and reasonable with their beloved. Besides being the best way to start a marriage, a court will not enforce an agreement that is deemed unconscionable, manifestly unfair or the result of over-reaching. A court also may also not uphold a pre-nup that was signed under duress, or predicated upon fraud.
There are several basic tenets for a pre-nup to be enforceable. This agreement must be entered into knowingly, freely, voluntarily and without coercion, after full, mutual disclosure of all assets and liabilities. It also must be signed by both parties before a notary public. It is important to realize that a pre-nup is different from most other contracts in that, to be enforceable, it cannot be “unconscionable” at the time of signing or at the time of its enforcement, namely the divorce.
Every lawyer presumably knows the law. However, you want a lawyer who knows how to make this extremely nuanced area of law work — for you. That’s why clients have been coming to us for almost 40 years: They choose Mandel Law Firm because losing what they worked long and hard for is not an option.
About The Mandel Law Firm
The Mandel Law Firm was founded in 1980 and offers a full range of family law solutions, including aggressive, highly effective legal representation for divorce and custody disputes to clients in New York City, Westchester County and the surrounding areas. Steven J. Mandel, the founder, served as the most recent co-chair of the Matrimonial Section of the New York County Lawyers’ Association. Alongside such honors as his selection as one of the Top 100 Lawyers in the United States; Top Attorney of the Year (New York Times Magazine section); his Super Lawyer designation; receiving Martindale-Hubbell’s “AV Preeminent” award which is the "highest possible rating for legal ability and ethical standards” and AVVO’s perfect "10.0" rating for "legal experience, peer recognition and client satisfaction,” the award Steve Mandel is most proud of is his selection as “One of New York’s Bad-Ass Divorce Lawyers You Wouldn’t Want To See Representing Your Spouse.”
Please call 646.770.3868 today, to schedule an evaluation of your individual situation.