Until Death Do Us Part
Prenuptial agreements are becoming more common in this age of second and third marriages, even though some people think they demonstrate a lack of "trust". (I disagree, as I will explain later.) In fact, courts are beginning to favor them, as they teach people what the financial consequences of marriage are, and reduce conflict and expense in divorce. However recent changes in the laws in California have made the validity of prenuptial agreements dependent on their following specified guidelines.
In addition, some federal law preempts provisions which are often contained in many prenuptial agreements, which are based on state marital law. The result can be nasty surprises for a partner on death or divorce.
One reason for this confusion is that marital agreements (pre or post marriage) address legal issues that arise by law in two distinct situations-- death or divorce--and it seems the marrying spouses often fail to take both into account.
Prenuptial (or postnuptial) agreements direct how property will be allocated between spouses on one of two triggering events 1) the possibility of divorce, as everyone knows, or 2) death without a valid will or trust spelling out how various assets are to be divided among legal heirs or intended beneficiaries. Many areas of law, including the laws of intestate succession (probate), insurance and annuity contracts and retirement plans have their own rules. Especially in the case of pensions-- often a couple's first or second largest asset -- a massive federal law called ERISA is involved. As a result, the drafting of these agreements so they do what they are intended to do is complex and best undertaken by an attorney, no matter how simple the spouses may think they are-- or want them to be.
"Make It Really Simple"
By way of illustration--during late 1998 and early 1999, I had three contacts from potential clients who told me that they had Prenuptial Agreements. This seemed odd, as this has never happened in the 15 years I had been practicing marital law. Shortly afterwards, I realized that people were doing their own-and that in each case, all they had accomplished by writing up an unassisted Prenuptial Agreement was establishing an inventory of assets owned at the time of marriage.
This is ironic, as I am a firm believer in consumer self-help, but this self help didn't work for them. it seems clear that these people only availed themselves of this precaution because the "price was right." Alas, they got what they paid for essentially nothing!
Now, several states have held that waivers of retirement rights of a spouse, signed before the marriage are NOT VALID, because ERISA spells out how such waivers are to be made, and this cannot happen until there is a spouse who has the rights -- and who then waives them in accordance with ERISA's complex and specific terms.
But I Did All The Work!
The sad statistics on divorce indicate to me that very few couples look to the economic realties of marriage (much less the economic realities of divorce) when they decide to marry. (See Why Does Divorce Cost So Much? ) So it is good news that some people, having found out the hard way by means of a costly divorce, are doing just that when they decide to marry again. The bad news is that some consumers do not have access to (or take advantage of) expert input--or perhaps they believe that the reason lawyers charge what they do is from greed, not because of the value of their expertise.
Sadly, whatever the reason, the true ramifications of community property law (and probate law) were not brought to the attention of these consumers, and the full potential value of a Prenuptial Agreement to these couples remained untapped. Alas, the costs of their eventual divorces was also accordingly greater. So here's the straight scoop on "Marital Contracts.":
Love is not Enough
In California, as of the date of marriage, unless the parties agree otherwise in a valid Prenuptial Agreement, anything earned by the efforts of either party is owned 50-50 between them. Often forgotten is the fact that if one of them dies without a valid will or living trust--a very common occurrence--the law will decide what goes to a spouse. It may not be what the parties wanted to happen-- but that will not matter.
Listing assets brought in to the marriage does nothing to change this in a death situation-- absent a proper writing, the surviving spouse will take the share the law provides.
In divorce situations, the fact that one party may do all the work, or be paid much more than the other does nothing to change this. This is the law-- and the high earner may feel it is unfair. But if there is no agreement this will happen no matter how either party feels about it.
Spell it Out, or Fight it Out
What is legal is for the parties to agree that each one's earnings remain their separate property. Thus can be done in a pre or post marital agreement-- although recent (2001) law has made this somewhat more expensive and harder to enforce. The low earner may not like this idea-- but it's an mighty good idea for both parties to know what their expectations are before they marry and set all this law into motion without awareness of it.
For example: if the parties purchase a residence-as they so often do-the community property share of each will be calculated according to very complex formulas based on the part of any down payment that came from each one's separate property, as well as the value of the community contribution to any increase in value. Thus the law does not provide for an automatic 50-50 split of net proceeds just because the parties took title together, unless the entire purchase was made with community funds which usually does not happen.
I wish I'd Known
Access to an astute legal adviser could give these couples the education which would enable them to make these life decisions-purchases of real property costing hundreds of thousands of dollars-based on all the facts.
The "bottom line" is that the rules of property division in the State of California are quite complex, but the parities may agree as long as neither takes advantage of or defrauds the other. The only way to avoid unpleasant surprises when matters have reached the point of conflict and difficulty (this can happen due to death, disability or divorce) is to seek legal advice before the marriage.
Post-Nuptial Agreements
Sometimes parties want to make the same sort of agreement after marriage, even though they do not expect to divorce.
Lawyers call these "Marital Agreements" and they are specifically authorized by California law in Family Code §§850-853. A couple can manage their finances according to their preferences, rather than by the automatic operation of law-IF they become educated about the way the law works.
The Family Code does not require that each party have an attorney look over and sign off to prevent fraud by either party--but it was always better practice to have this done, as it always made the likelihood of the agreement being upheld in the case of future disputes much greater. In fact, in the recent Bonds case recent (April, 1999) the Prenuptial Agreement of well known baseball player Barry Bonds was upheld out by the California Supreme (after being held invalid by a lower court because his Swedish wife was at such a disadvantage.)
Now, the California legislature has also weighed in on this, in reaction to the final ruling in the Bonds case-- where the prenup was ultimately upheld (on appeal) even though wife had no attorney, and Barry went on to become quite wealthy, Because the agreement, made when he was a rookie making a small 6 figure income, was upheld, his wife was unable to share in that wealth when they divorced. And you can imagine the costs involved in the trial, and two appeals!
In Bonds, there were several problems found by the lower court: the husband was wealthy and had several lawyers present when the agreement was signed, the unemployed soon-to-be-wife was not told (or told strongly enough) that she could and should have her own lawyer look at it, she was Swedish and therefor, presumably unfamiliar with American law and language, and alas, and most ungentlemanly (and the essence of duress) he made her sign just before the wedding! Clearly the legislature thought something was unfair about this and made new law to clarify when such agreements are valid.
The moral of that story is-use a competent legal advisor, educate yourself-- and don't treat your spouse or soon-to-be spouse badly. "Smarter" is better than "Sadder but Wiser"-and Sooner is better than Later!
