Pre-nuptial agreements are an increasingly popular documented vow for wealthy couples. Written during the optimistic time just before marriage, pre-nups stipulate the division of assets should the couple eventually divorce.
Also becoming more prevalent are post-nuptials, according to Steven Goldfeder, partner of the law firm Blank Rome. Unlike pre-nups, these documents can be executed at any time during the marriage, he told ThinkAdvisor in an interview.
“One of the most common reasons for doing a post-nup is because the marriage is on the fritz,” says Goldfeder, who specializes in matrimonial law. “More often than not, something has changed” in the relationship.
Post-nups, which override a will, can cover such matters as inheritances, a joint business and the renegotiation of what one spouse may deem an unfair pre-nup.
“Financial advisors can be immensely helpful in advising lawyers and clients by crafting a way for complicated cases to be divided in the event of a divorce,” Goldfeder notes.
In the interview, he explains why interacting with clients in post-nup preparation requires delicacy and notes how “each spouse has to be represented by separate counsel.”
Here are highlights from our conversation:
THINKADVISOR: Are post-nuptial agreements more popular among couples?
STEVEN GOLDFEDER: Yes. Over the last five years or so, I’ve done a lot more than in the previous 10. Pre-nups have become much more popular. So when these get changed during the marriage, they become post-nups.
Part of the reason [for post-nups’ growing popularity] is that a pre-nup is [often] done with a second or third marriage. If the spouses have previously given up assets, they don’t want to do it again.
And nowadays pre-nups are done by a lot of children of wealthy families or by young people with start-up companies or interests in startups.
THINKADVISOR: What’s the most common, underlying reason for doing a post-nup?
GOLDFEDER: Often it’s because the marriage is on the fritz. They say, “I need to know that if this doesn’t work out, I’m going to get at least XYZ.”
More often than not, something has changed in the marriage dynamic. It could be that one party has been unfaithful. So a condition the other spouse has is: “If you want me to stay in the marriage, you have to agree to X,Y, and Z.”
Frequently, there may be a pre-nup in place that isn’t particularly generous to one of the spouses. That gives them a reason and opportunity to renegotiate.
I’ve seen people rip up their pre-nup and start over with something that’s much fairer.
THINKADVISOR: Can a financial advisor create a post-nup agreement?
GOLDFEDER: No. A lawyer would have to draft it to ensure that it complies with relevant state and local laws. Each spouse needs to be independently represented by their own lawyer to safeguard the agreement’s enforceability.
THINKADVISOR: Is there a role for a financial advisor in the post-nup scenario?
GOLDFEDER: Financial advisors can be extremely helpful in advising lawyers and clients by crafting a way for complicated cases to be divided in the event of a divorce.
Such assets might consist of restricted stock shares, private equity investments and interests in hedge funds.
THINKADVISOR: How else might advisors get involved?
GOLDFEDER: They can play a critical role in helping a spouse, should there be a divorce, to determine how much money they’ll need in support each year to continue their marital standard of living.
Once this lifestyle analysis is provided, the lawyer drafting the post-nup can ensure that the client is properly protected.
THINKADVISOR: Does a post-nup override a will?
GOLDFEDER: Yes, both a pre-nup and a post-nup do. For example, in New York, the spouse is entitled to at least one-third of the estate upon the [other’s] death.
But in a post-nup, which both spouses sign, you can say that he or she is entitled to less than that. So that would override the law.
THINKADVISOR: What happens if one spouse receives an inheritance and wants to make sure it’s protected?
GOLDFEDER: In most states, in general, an inheritance is considered the separate property of the spouse who received the inheritance.
Where it becomes a gray area is if, say, my mother leaves me $1 million during my marriage, and I keep it in an account in my name and don’t co-mingle it with our marital funds. I invest it in the stock market.
Years later, now that $1 million is worth $2 million. [If ] I get divorced, my [former] wife would have a claim because that $1 million is appreciation that came during the marriage under my watch.
However, a pre-nup or a post-nup can state that any appreciation in value is also separate property. It doesn’t matter whether you invest it or put it in a savings account. That’s your money.
THINKADVISOR: Suppose the inheritance is commingled. What happens if the couple divorces?
GOLDFEDER: Under the law, once you have commingled it, generally, without a post-nup or pre-nup, that would be marital property.
But if, say, the couple puts $500,000 of inherited funds into a joint account but then divorces, they could have included in a post-nup that this is valid as long as we’re married; but if we get divorced, [the heir] gets that $500,000 back.
THINKADVISOR: What happens if one spouse goes into business with someone? Can that situation be covered in a post-nup?
GOLDFEDER: Yes. I see that most often when the spouse wants to make sure that if there’s a divorce, her husband can’t go through all the books and records of the business.
They might sign a post-nup saying that whatever else we may acquire during the marriage will be divided, but the business I share with my sister [for instance] will be considered mine.
Or if a couple is running a business together, you could include in a post-nup how it will be divided if the marriage is dissolved.
THINKADVISOR: Are there any downsides to doing a post-nup?
GOLDFEDER: Yes. No. 1: To be enforceable, you have to disclose and submit a financial statement that lists all your assets and liabilities. Courts want to know if someone is waiving their rights to their spouse in the future, what the assets are in total — including how much income their spouse is making.
Many people have no idea what the couple’s assets are.
The second thing, maybe a pitfall, is that each spouse has to be represented by separate counsel. That makes it, sort of, an adversarial process even though they’re not getting divorced. So you have to handle it with kid gloves.
THINKADVISOR: Can a post-nup stipulate that if the couple divorces and one spouse doesn’t work outside the home, that spouse will receive income?
GOLDFEDER: Absolutely. It would be based on the length of the marriage. That takes out the uncertainty of leaving it to a judge in a court who would be generous or not generous.
THINKADVISOR: Suppose the wife or husband is diagnosed with dementia years after the post-nup is signed. Is the agreement still valid?
GOLDFEDER: Yes. However, if you sign it without competence to do so — for example, having Alzheimer’s — people can challenge it.
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