Prenuptial Agreements

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We previously blogged on the Appellate Division’s notable decision in Rogers v. Gordon, which addressed the legal standard applicable to prenuptial agreements signed prior to New Jersey’s enactment of the Uniform Premarital Agreement statute.  There, the Appellate Division reversed a trial court Order to the extent that it set aside the entire prenup, since, as to equitable distribution, the husband knew that the wife would likely be wealthier than him at the time of a divorce given her family wealth.  As to the issue of alimony, however, the Appellate Division modified the trial court’s Order by holding that the husband could seek alimony at a later date if he could establish "changed circumstances" pursuant to  Lepis v. Lepis, 83 N.J. 139 (1980).

Considering the level of acrimony involved in the divorce proceeding, which could be easily discerned from the first Appellate Division decision, it was no surprise that a second appeal was filed, this time as to the issue of counsel fees.  On this appeal, the wife argued that the trial court erred by allowing the husband to seek and obtain counsel fees as to his claim for alimony, since he was denied such a claim in relation to equitable distribution issues previously raised. 

The Appellate Division affirmed the trial court’s finding that the husband had expressly waived in the prenup his right to counsel fees in relation to equitable distribution, but that he had not done so as to alimony since the prenup provision regarding alimony did not contain a similar provision waiving counsel fees on that issue.  Ultimately, the Appellate Division remanded for a proper calculation of fees incurred as to alimony, but what struck me as interesting in reviewing the Opinion was the Appellate Division’s conclusion that the husband’s attorney had achieved some sort of success as to the alimony issue.  Specifically, while it noted that the attorney had not obtained for the husband an immediate benefit – i.e., he still was not entitled to alimony without establishing changed circumstances – the attorney was deemed successful in that he opened the door for the husband to make such a claim in the future.  This even though the husband could very well fail in making that future claim. 

The primary theme in the case was one of contract interpretation – while one paragraph contained language waiving counsel fees, another did not.  Since the prenup was the product of expert drafting, the Appellate Division found the lack of language waiving counsel fees as to alimony to be significant and, as a result, did not preclude the husband’s claim.

We have blogged frequently regarding prenuptial agreements.  There is also an advice piece on our firm’s web site entitled "Considering a Prenuptial Agreement – Should My Children Have One?"  We have also recently been involved in drafting and/or negotiating a number of prenups lately.  This has reminded me that one-size does not fit all when it comes to prenuptial agreements.

A lot depends on the stages in life that that the parties are in and what they are seeking to protect.  For instance, if there are two young people starting out in life, the agreement should probably be very different then one where the parties are older, and this is a second (or third, fourth or fifth) marriage for them. 

If both parties are young, and there is a desire to preserve premarital assets, family businesses, etc. that seems to be perfectly appropriate.  Whether alimony should be addressed in such a prenup is questionable.  However, I have seen cases where the alimony provisions in such agreements are punitive.  Moreover, for young people, it may not be fair to insulate from distribution earnings during the marriage, but if that if is going to be done, then perhaps there should be a fair fund in lieu of equitable distribution. 

For people who are both older in second marriages, perhaps the desire is to preserve the assets that each has for their children from their prior marriage.  The issue of alimony, or the waiver thereof, may depend on the ages, disparities in assets, etc.

For people where there is a large age difference, consideration must be given to being fair to the less financially advantaged spouse (usually the younger one), while perhaps protecting the estate for prior children, or protecting someone from someone inclined to "marry for the money."

The permutations are endless as are the options.  As I said, one size does not fit all. 

Are prenuptial agreements entered into before the enactment in 1988 of the Uniform Premarital Agreement Act in New Jersey in New Jersey analyzed for enforceability under the standards set forth in the Act? The simple answer is no, since the standard for determining the enforceability was established by earlier cases addresses addressing the issue. 

There is a three (3) prong test to determine the enforceability of these pre-Act agreements.  To be enforceable: (1) there must be “full disclosure by each party as to his or her financial conditions;” (2) the party sought to be bound by the agreement understood and accepted the terms of the agreement; and (3) the agreement is fair and not unconscionable – it will not "leave a spouse a public charge or close to it, or . . . provide a standard of living far below that which was enjoyed both before and during the marriage."

 

The party seeking to enforce the prenuptial agreement bears the burden of proving that there was full financial disclosure to the other party, the simplest way of which is to point to schedules attached to the agreement setting out  – at least in general terms and with approximate values – the assets of the parties as well as their income over the past few years prior to the marriage.  Simply put, a lack of full and complete financial disclosure in the agreement by one party prevents the other party from truly "accepting" its terms.  The underlying rationale is that, with full and complete disclosure, the other party might have found the agreement unfair or might not have even gotten married. 

 

 

Continue Reading PRENUPTIAL AGREEMENTS PRE-DATING THE UNIFORM PREMARITAL AGREEMENT ACT – A DIFFERENT STANDARD FOR ENFORCEMENT

What is it about this time of year? I’ve been told that the holidays are the most popular time of year for couples to get engaged. While this a special time for the engaged couple, it is also a time when some couples should consider a prenuptial agreement or premarital contract. A prenuptial agreement is a contract between the engaged couple that addresses equitable distribution, alimony, and other issues that may arise if the couple were to divorce.

A prenuptial agreement may not be for everyone, but in many instances it makes sense. For individuals with substantial assets, a business, family wealth or children from a prior marriage, a prenuptial agreement is usually a good idea. Sometimes people think a prenuptial agreement is a reflection of how an individual feels about the potential outcome of the marriage. But in reality, this is rarely the case. For instance, a family business or assets an individual would like to leave to children from a prior relationship, are assets that need to be protected.  Often the parents who own the family business insist that their children have prenuptial agreements to prevent the prospective spouse from ever having a claim to the business.

Continue Reading The Season of Engagement – Should It Lead to the Season of Prenups?

As seen in Affluent Magazine.

Divorce for those of substantial wealth relative to those of limited wealth is an oxymoron – aspects of divorce between the two classifications are both similar and yet quite different. In final analysis, it is a question of degree – that is, the number of zeros behind the dollar signs. This summary discussion will deal with certain procedures and aspects of divorce which are similar to both. The distinctions lie in the availability and desirability of various procedural vehicles to the two groups.

Privacy and Confidentiality

Nearest to the hearts of you — the rich and famous (next to, of course, your money) — is privacy and confidentiality. None of you in your right mind wants to spread your dirty laundry in public – least of all those of you blessed with substantial wealth. With divorces of such persons being instant grist for media dissemination, generally, it is better for all concerned (especially their children on a whole host of levels) to have disposition of your matter not a matter of public spectacle. All too often, the perceived lesser-advantaged spouse may play the publicity card (or threaten to do so) in order to opt out a financial advantage – or in simple parlance – vie for “hush” money. Perception by the lesser-advantaged spouse that the financially-advantaged spouse will deal with her or him fairly (whatever that may mean) will usually go a long way toward negotiations where calmer minds prevail. Another method of seeking to assure a divorce far from the public eye is for a pre-marital agreement to address issues of confidentiality and mediation and/or arbitration out of the public limelight.

Continue Reading Divorce for the Well-To-Do

The big news this morning was Madonna and Guy Ritchie’s $92 million divorce settlement.  With such a large payout, it makes you wonder whether there was a prenuptial agreement in place (if you type that question into Google, you get differing responses), and if there was, if it was disregarded throughout the marriage. 

In any event, prenups are not just for celebrities.  A common type of prenuptial agreement is one where there is a family business, trust or generally a lot of money and property on one side that the parents do not want to get into the hands of the new spouse, no matter what.  In fact, I blogged yesterday on a new reported case where that was the issue.  To see that post, click here.  Sometimes those types of prenups are difficult to negotiate because the spouse with the family money may want to be more generous to the new spouse than his/her family is willing to be.   I have seen this cause great distress on the eve of a wedding. 

Another common theme for a prenuptial agreement is when people get remarried later in life (due to divorce or death of a prior spouse) and they have children who they want to pass their assets to.  Sometimes, both prospective spouses are in this situation.  These are typically easier to negotiate.  The bigger issues in these cases are how will bills be paid, whether there will ever be any joint assets created, and sometimes medical issues – does the spouse or the children make decisions. 

I was recently involved in one of these later in life pre-nups where a big issue was whether the children of an incapacitated spouse could bring a suit for divorce on behalf of their parent.  This was an issue because the non-monied spouse received something different at the other spouse’s death vs. divorce.  Depending on where the parties were in their marriage, a maliciously motivated or more like self interested child could seemingly seek to pursue a divorce.  We had to craft language to protect the parties in this event.

Another circumstance where I have occasionally seen a prenuptial agreement, but questioned from the perspective of why the non-monied spouse would ever sign or go through with the marriage.  These are the cases where the parties are reasonably young, where one has more than the other (but not substantially so) or a premarital business which is not particularly successful and the less advantaged spouse is being asked to waive off on virtually all of the assets derived and/or income earned during the marriage, and perhaps also being to waive alimony too despite a clear disparity or soon to be disparity in income.  In fact, the parties plan to have children and the plan was that the non-monied spouse would be a stay at home parent. In one of these cases, the agreement was so unconscionable in my eyes, that I would not continue the representation.  I believe that the client signed anyway.  If there ever is a divorce, I suspect that she will either be very sorry she signed the agreement or will be in for a very expensive legal battle regarding the enforceability of the agreement.

For more information about prenuptial agreements in these or other circumstances, do not hesitate to contact any of the lawyers in Fox Rothschild’s family law group.

 

On December 12, 2008, the Appellate Division released a reported decision in the case of Rogers v. Gordon which addressed the enforceability of a pre-statute prenuptial agreement.  To review the full text of the case, click here.  The case is interesting because it addresses again the standards to be applied to an agreement signed before the enactment of the Uniform Premarital Agreement Act in NJ.

In this case, the parties entered into a prenuptial agreement as a young couple.  The wife was a graduate of the Wharton School of Business and came from a wealthy family.  The husband was a high school graduate working for the Postal Service.

The parties married in 1981, had four children and were married for more than 24 years before the wife sought a divorce.  During the marriage, the wife went to work for her father’s business, which she eventually purchased from him during the marriage.  In 1990, the husband left the Postal Service to work as a machine operator for the business.  In 2002, he was promoted to plant supervisor.  Not surprisingly, when the divorce commenced, he was demoted to a machine operator again.  The trial court made a finding that at the end of the divorce, there was not a "snowball’s chance" that he was going to keep the job given the wife’s intense animosity for him evidence during the trial.  In fact, the judge found her to be totally incredible regarding this topic.

At the time of the divorce, the husband’s income was $63,000 – the wife’s was more the $600,000.

The Uniform Premarital Agreement Act was enacted in NJ in 1998 and applies to all agreements entered into after its enactment.  As such, because the agreement in this case was entered into prior to the Act, the Court had to apply the case law from prior to the act.

In citing the Marschall case, the court noted that there was a three prong test for enforceability, as follows:  1) there was full financial disclosure; 2) that the party sought to be bound knew and understood the terms and conditions and 3) that the agreement, be fair and not unconscionable, ie. that it not leave a spouse a public charge or close to it, or with a lifestyle far below what was enjoyed before or during the marriage.

The court also cited the D’Onofrio case which said that the alimony provisions in the agreement need not cover all contingencies because the Lepis or change of circumstances standard would apply.

Continue Reading The Appellate Division Rules on a Pre-Act Prenuptial Agreement

Previously I blogged about child support in cases where the combined net income exceeds the upper levels of the Child Support Guidelines.  To see that post, click here.

That issue was prominent in the Appellate Division’s decision in the Strahan case which was released on August 26, 2008 as a reported decision (meaning that the case has precedential effect). To see the full text of the case, click here.

This case involved the divorce of Michael Strahan, formerly of the New York Giants and his former wife, Jean.  At issue as to child support was support for their three year old twin daughters.

The trial court found that the basic child support amount under the guidelines was $35,984 a year but then found that the children had a supplemental need of $200,000 a year, for a total
of $235,984 a year.  Mr. Strahan was ordered to pay 91% of this.

The Appellate Division found several errors in the amount and allocation of child support. First, the trial court took as both accurate and reasonable Jean’s budget, which included $27,000 per year in clothes, $30,000 per year in landscaping, gifts of diamonds for grandparents, a vacation for the nanny, etc.  The Appellate Division found that there was duplication between the children’s needs and Jean’s needs, that certain items should have been eliminated and that others were not reasonable. Further, the court held that while Mr. Strahan expressed  at trial his desire not "to spoil" the children and to teach them the value of money, the trial court  failed to address
plaintiff’s "legitimate right . . . to determine the appropriate lifestyle of [his] child[ren]."

The Appellate Division also found that it was error not to impute income to Jean, who had earned $70,000 per year previously.  Interestingly, they commented that "employment opportunities were, in all likelihood, enhanced by her celebrity marriage. There is no question that as a healthy, educated, 41-year-old, (she) is capable of earning her own income."

The Appellate Division also reversed the requirement that Mr. Strahan maintain $7.5 million in disability insurance, in part because he had retired, and in part because it exceeded the life insurance that he was required to maintain.  The Court noted that if he became disabled, he would be entitled to file the same change of circumstances motion as any other litigant. 

However, Mr. Strahan’s request to have the matter remanded to a new judge was denied.  The Appellate Division noted, once again, that an adverse ruling does not equate to bias.