Challenges to Advising Clients in Late-Life Marriages

prenuptial agreementLate-life marriages are complicated for a variety of reasons. Here’s what planners need to know.

Thanks in part to longer life spans, more elderly Americans are marrying and remarrying today than in the past. Marriages later in life bear unique burdens, and all parties need to understand how to protect themselves, their assets, and their families. To help, CPAs offering personal financial planning services (estate, retirement, investment, risk management/insurance, and tax planning) need to familiarize themselves with the issues involved.

Late-life marriages are complicated for a number of reasons. They can directly impact the inheritance of potential heirs. Remarriages also can affect a spouse’s right to alimony payments from a prior spouse, retirement benefits, Social Security benefits, health insurance, and the obligation to support a spouse’s medical care (even to the point of depleting assets and income).

A personal financial planner must first address whether he or she can provide advice to both spouses—or future spouses—in instances where their interests may conflict. This is especially true when one individual has more assets and/or income than the other. Next, planning questions need to be answered regarding whom the assets are intended to benefit. Is it the new spouse? Children from a prior marriage? Or does the client want them to be devoted to maintaining the couple’s current lifestyle?

More questions to ask
These questions lead to others that the CPA should address with the client. For example:

  • Should the budget be revised to include long-term care insurance? Medical costs? Costs of care at home?
  • Should income be blended or separate? Are assets combined or separate?
  • What about the primary residence? Whose name is it in? How is it to be disposed of at death? What if the couple divorce? What if one of them becomes ill? What if they purchase a new home together? What if one sells a home and moves into the other spouse’s home? If one spouse dies, what rights does the surviving spouse have?

When clients marry at later stages in life, it may be prudent for the client to consider a prenuptial agreement that addresses what will happen should the marriage terminate by death or by divorce. Because of the agreements’ potential impact on planning, CPAs should have at least a basic understanding of how the agreements work in order to help clients work with attorneys to ensure legal documents align with financial goals.

In a traditional prenuptial agreement, the parties should (1) each disclose their assets, liabilities, and income, (2) be represented by separate attorneys who apprise them of their rights, and (3) understand that the agreement should be fair and reasonable when entered into and fair and reasonable when the marriage terminates. However, there may be other special factors when at least one spouse is elderly.

Addressing medical care

For instance, it is extremely important for the prenuptial agreement to address the medical care of the spouse.

The “affirmative statement” clause can be helpful when drafting a prenuptial agreement for a spouse who is getting married later in life. The clause states that the parties agree that the income and assets of the spouse who needs the medical care must be used first before touching the other spouse’s assets and income. This clause in the prenuptial agreement can be helpful down the road when the family asks the healthy spouse why the assets and income are being depleted in that manner.

Clients also should consider the conflicts that could arise between the person who is making the health care decisions (who will very likely be the spouse) and the person or persons making the financial decisions (who could be one or several children). Problems ensue if the goals and objectives of these decision-makers are not aligned. For instance, planners may find themselves in a situation where the person making the health care decisions for the client decides at-home care is best. But the person making the financial decisions may not agree. The best way to avoid this is to think those conflicts through in the planning phase and coordinate the choice of fiduciaries (health care agent and attorney in fact under durable power of attorney) in the documents.

Remember: All estate planning is based on two components—the organizational component (what the documents say) and the operational components (how the plans are implemented). Each of these components is critical and either of them, if not thought through and updated, can thwart the best plans.

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released her new book, “It’s More Than Money, Protect Your Legacy” available at Amazon.com. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

Ken Griffin says prenup is ‘valid, binding, enforceable’

Anne and Ken Griffin Photo, premarital agreementCitadel LLC CEO Ken Griffin and his wife, Anne Dias Griffin, who have been separated more than a year, signed a prenuptial agreement a day before their 2003 wedding that Mr. Griffin’s attorneys say is “valid, binding and enforceable” as their client proceeds with divorce.

The Chicago businessman also seeks joint custody of the couple’s three children.

The prenup “governs all issues resulting from the parties’ marriage, including, but not limited to, maintenance and the division of marital and non-marital property,” the four-page filing states. “Prior to the premarital agreement being executed, both parties were represented by counsel, entered into the premarital agreement freely and voluntarily, and each party made a full disclosure of their assets and liabilities. The premarital agreement is valid, binding and enforceable upon the parties in every respect.”

Spokeswomen for Ms. Griffin and Mr. Griffin declined to comment.

The billionaire businessman filed for divorce yesterday in Cook County Circuit Court. The filing stated that “irreconcilable differences have caused the irretrievable breakdown of their marriage. Any attempt at reconciliation would be impracticable and not in the best interests of the family.”

The Griffins — he’s 45 and she’s 43 — own two condominiums in the Park Tower on Michigan Avenue.

Ms. Griffin lives in the penthouse on the 67th floor, and Mr. Griffin recently purchased the 66th-floor condo.

The couple have three children ages 6, 3 and 2, the court documents say.

“As such, Kenneth believes that it is in the minor children’s best interests that the parties be awarded their joint custody,” state the papers filed by the Chicago law firm Berger Schatz. “Anne has acknowledged Kenneth’s compliance with the premarital agreement and has accepted the benefits of Kenneth’s compliance with the premarital agreement.”

Though Ms. Griffin has been primary caregiver of their children, she also is a businesswoman. She is the founding partner of Aragon Global Management LLC, which she founded in 2001 with seed capital from legendary investor Julian Robertson.

The couple signed a premarital agreement July 18, 2003, a day before their wedding, according to Mr. Griffin’s filings. He filed for divorce four days after their 11th anniversary.

Source: www.ChicagoBusiness.com by Shia Kapos. Follow Shia on Twitter at @ShiaKapos. http://www.chicagobusiness.com/article/20140724/BLOGS03/140729871#comments

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released her new book, “It’s More Than Money, Protect Your Legacy” available at Amazon.com. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

Patricia Annino Receives “Best in Wealth Management” Award

The Euromoney Legal Media Group chose Patricia Annino, Chair of Prince Lobel’s Estate Planning and Probate Practice Group, to receive the prestigious “Best in Wealth Management” award at the second annual Americas Women in Business Law Award ceremony held May 24, 2012, in New York City.

Selected from a short-list of eight well-known, highly-qualified nominees, Patricia’s award was based on extensive peer review research conducted by Euromoney’s research team, her professional accomplishments during the past 12 months, and her advocacy and influence in the field of wealth management.

Following the success of similar award ceremonies in Europe and Asia, the Americas Women in Business Law Awards was launched by Euromoney Legal Media Group to give law firms and professional services firms the recognition they deserve for their efforts in helping women advance in the legal profession.

Patricia Annino is a nationally recognized expert on estate planning and taxation, with more than 25 years of experience serving the estate planning needs of families, individuals, and owners of closely held and family businesses. She speaks regularly on many issues of concern to family owned businesses, including succession planning, risk management, managing a business with multiple stakeholders, the risk of divorce, and more. Annino is a graduate of Smith College and Suffolk University School of Law.

Patricia is the author of two widely utilized professional texts: Estate Planning in Massachusetts, and Taxwise Planning for Aging, Ill, or Incapacitated Clients. Patricia’s recent books for consumers include, Cracking the $$ Code: What Successful Men Know and You Don’t (Yet), Women in Family Business: What Keeps You up at Night, and Women & Money, A Practical Guide to Estate Planning.

About Prince Lobel

Prince Lobel Tye LLP is a full-service law firm providing a wide range of services for Fortune 1000 companies, closely held businesses, and individuals. Prince Lobel’s attorneys are guided by the highest standards of legal excellence, professionalism, and service – whether they are addressing complex business issues or providing advice on personal legal matters. Practice areas and industries served encompass corporate law, data privacy and security, domestic relations, employment law, estate planning and probate, insurance and reinsurance, intellectual property and Internet law, litigation, media law, nanotechnology, real estate, telecommunications law, construction law, environmental law, renewable energy, health care, and education. For more information, visit Prince Lobel at PrinceLobel.com.

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

PERSONAL FINANCE: When Valentines and prenups go together

I participated in this article and wanted to share it because it has some great information about the prenup process.  Enjoy!

By Kathleen Kingsbury (a Reuters contributor. The opinions expressed are her own.)

NEW YORK, Feb 15 (Reuters) – With a flurry of Valentine’s Day marriage proposals over, it could be time for new fiancees to take a financial reality check.

Four million Americans got engaged on Tuesday, as estimated by an American Express survey released in January. Unromantic as it may seem, everyone needs a frank conversation about finances before they walk down the aisle, including one that touches on
whether or not to sign a prenuptial agreement.

“All marriages terminate, whether it is in divorce or death,” says Patricia Annino, a Boston-based attorney and estate planner.  “Signing a prenuptial agreement is assurance your assets go where you want them to.”

Money issues are one of the most commonly cited reasons for marital strife. So, adding a candid financial assessment to one’s wedding to-do list might go a long way toward minimizing disagreements down the road.

 

WHO SHOULD SIGN A PRENUP

A common misconception about prenups is that they only apply if one partner brings in significantly more assets to a marriage, or in the case of May-December romances, where there’s a wide age gap. But they should also be considered by those marrying in
mid-career, or those remarrying.

“Statistics tell us that couples are marrying later in life, after they’ve had careers and separately built their own wealth. Or people are marrying for the second or third time,” says Steve Hartnett, associate director of education at the American Academy of Estate
Planning Attorneys. “These are the exact situations where prenups are critical.”

Equally important are situations where there are children from a previous marriage. “Parents will often want to be sure their children are provided for in case of their death, ” says Elaine Morgillo, a certified financial planner in North Andover, Massachusetts.

For younger couples, prenups are often sought when one partner stands to receive a large inheritance or holds a stake in a family business. Morgillo recalls one couple who had never been married and had similar incomes, but the bride-to-be expected an inheritance and the groom owned several rental properties.

“Inheritances aren’t always sacred, but she wanted hers protected and it helps to show intent,” Morgillo says. “She knew he felt the same way about his properties.”

 

GROWING IN POPULARITY

When her boyfriend of six years sat her down on their living room couch last Valentine’s Day, Christen Petitt Hailey thought she was about to get a vacuum cleaner. Instead, he proposed and the Tampa, Florida, couple were married last November.

“Before we were married, we came up with an arrangement where I always covered the mortgage and utilities, and she paid for groceries or entertainment,” says Shaun Hailey, 36, a mortgage underwriter. “She had slightly less income, so this division seemed to work out to be the fairest.”

Indeed, this kind of ad hoc divvying up is how most modern couples handle their finances. Many are realizing this might not be the smartest route, however.

“We like to say marriage vows today have become ‘love, honor, merge your finances,'” says Anthony Fittizzi, a wealth advisor for U.S. Trust, which recently launched a financial empowerment program to counsel clients ages 20 to 35. “Couples don’t necessarily take into account issues like the start-up costs of marriage, insurance, cash management or dividing property.”

Fittizzi’s motto: Sign on the bottom line before you say “I do.” Nearly a third of single Americans said they would ask their significant other for a prenup, according to a February 2010 poll by Harris Interactive. A second poll, by the American Academy of Matrimonial
Lawyers, found that 73 percent of divorce attorneys had seen an increase in prenups signed from 2005 to 2010, with more women initiating the process than ever before.

No doubt the high divorce rate has made prenups more acceptable, but the economy may be playing a role, too.

“With this uncertain economy, there is more insecurity about assets,” says Arlene Dubin, a New York City attorney and author of the book “Prenups for Lovers: A Romantic Guide to Prenuptial Agreements.” “Clients see prenups as vital to protecting what they’ve
built.”

 

MAKING A PRENUP STICK

Prenups generally cover real estate, estate planning, division of bank accounts, and alimony, in case the marriage should end. Child custody or support can’t be included, and protecting retirement or pension benefits may require extra steps. There are also steps that
should be taken to ensure that the prenup holds up in court. These include:

 

POPPING THE (PRENUP) QUESTION EARLY

Many lovebirds might find asking their betrothed to sign a prenup awkward, but waiting until the last minute can backfire. “You shouldn’t be bringing it up in the limo on the way to the church,” says Evan Sussman, a Beverly Hills-based divorce attorney. “From a
legal standpoint, you don’t want the other person to be able to claim duress later.” Sussman recommends the subject be broached before wedding invitations go out, or at least several weeks before the event.

 

AVOIDING FINANCIAL INFIDELITY

Prenups aren’t for every couple, but considering one often brings forth key financial questions that bring more honesty into a marriage. A 2010 poll by the non-profit CESI Debt Solutions found 80 percent of spouses spent money their partner didn’t know about.

Some attorneys recommend asking for a credit report. At the very least, Dubin says, “You need a line-by-line statement of assets and liabilities so you can deal with the ramifications.” Student loans, credit card balances, and IRS liens are some of the debts a spouse can later be held responsible for.

Still, Dubin says, “Before you start this process, prepare yourself for whatever may come. And know at what point you’d have to walk away.” The same, of course, goes for asking for a prenup and having your partner turn you down.

 

RETAINING SEPARATE LAWYERS

A second means to challenge a prenup in court is if the couple are not represented by separate attorneys. This is to guarantee that one spouse, usually the less-wealthy partner, is not taken advantage of.

“Imagine if Mark Zuckerberg wanted to marry his housekeeper who didn’t speak English and he insisted she sign a prenup,” Hartnett says. “Having a competent lawyer on both sides of the table means each party gets a fair agreement.”

That said, when choosing legal representation, be sure the attorney you choose understands this is the start of a marriage, not the end.

“When a lawyer is overly adversarial, it can lead to a lot of distrust and ‘do you love me’ questions,” says Cicily Maton, partner at the Chicago firm Aequus Wealth Management. “You should choose an advocate, but do your due diligence about their style.”

Of course, prenuptial agreements can always be renegotiated as a marriage evolves. “The first draft can always be torn up,” says Ginita Wall, a San Diego-based certified financial planner. “I had one set of clients on the sixth iteration of their prenup when they decided to divorce.”

For the Haileys, being engaged meant much financial discussion. They chose in marriage to keep all their finances separate, including their tax filings. They didn’t opt for a prenup, but “getting it all out on the table upfront means no surprises,” Shaun Hailey says.

Instead, he says, “We can concentrate on saving for the important things, like a honeymoon.” (Editing by Jilian Mincer, Bernadette Baum and Andrew Hay)

Source: © Thomson Reuters 2011. Business & Financial News, Breaking US & International News | Reuters.com http://www.reuters.com/assets/print?aid=USL2E8DFF4Y20120215

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

New Risks to Business Ownership

Whether the traditional family business ownership or assets such as real estate ventures owned jointly by family members in limited partnerships, corporate or LLC forms:

Traditional risks to business ownership and the economic sustainability of the family enterprise include the death or the divorce of a shareholder when proper planning is not put in place. The new risk to business ownership is the increasing attack by the courts on the family business when allocating assets in a divorce. In some states in this country, known as equitable division states, gifted and inherited assets are divisible in a divorce. This does not just include what the about-to-be divorcing family member owns when married; it also includes the expectancy of what that divorcing family member will receive in the future. Those expectancies are taken into account when determining the allocation of assets between the couple about to be divorced. As an example of the division of gifted/inherited assets in an equitable division case consider the 1981 Massachusetts court case, Vaughan v. Vaughan. In that case the parents of the son gave the son (who were both in their 30s without children) the annual exclusion gift of  $10,000 a year for a period of years. The daughter in law sued the son for divorce and her attorney subpoenaed his parents asking that as part of the divorce the parents turn over copies of their estate planning documents, the date they were last amended and an approximation of their net worth (plus or minus $500,000). The rationale for doing so was that the pattern of gift giving was inextricably interwoven into the lives of the son and daughter in law and it was “was what allowed the daughter in law not to work”. The expectancy of what the son will receive when his parents die is a factor that is taken into account in determining how the assets of the couple are to be divided in the divorce. The parents refused to do so, the Judge ordered them to do so and the parents appealed that order all the way up to the Supreme Judicial Court in Massachusetts (the highest Court in Massachusetts). In a Single Justice decision the Court agreed with the daughter in law and ordered the parents to comply with the court order or face jail for contempt. The gifting of cash in annual exclusion amounts is easy to value – what if instead that gift had not been of cash but had been of an interest in a family owned business or an LLC or investment family limited partnership? Then not only would the asset be considered an expectancy but the valuation of that asset would be part of the son’s divorce proceeding. That adversary valuation may do serious damage to the estate plan of the older generation. Placing the assets in trust does not necessarily take them off the table – it may only affect the valuation of those assets in a divorce.

In addition to the allocation of assets, there is an increased risk for the allocation of alimony. Many family businesses or co-owned assets  have phantom income or Subchapter S income—income that is earned during the course of the marriage which shows up on the tax return and is plowed back into the family business. At issue is how that phantom income should be treated for alimony purposes. If it was earned during the marriage, is it marital income taken into account for alimony and child support purposes even though not actually received?  When thinking about these risks, it is important to remember that it is not the law or the court in the jurisdiction of the parent or grandparent that will control these decisions; it is the law and the court in the jurisdiction of the divorcing spouse that will control these decisions. These risks can be mitigated by a well negotiated pre-nuptial agreement or post-nuptial agreement.

Prenuptial agreements are not new.   The court records show that a James Young and a Susan Huffman entered into a premarital agreement in Page County, Virginia in 1844.  Prenuptials are also not just for celebrity couples like Jackie Kennedy and Aristotle Onassis, Michael Douglas and Catherine Zeta- Jones, Madonna and Guy Ritchie and Paul McCartney and Heather Mills.  Increasing numbers of women today remarrying in their 30s, 40s, 50s, 60s, 70s and 80s consider these agreements an important part of secure financial planning.

That’s because a prenuptial agreement can safeguard assets, protect family members, keep a business in the family, and in certain circumstances even cover such specific details as how the mortgage and daily expenses are to be are to be paid if and when a marriage ends. They can be as broad or as limited as the parties decide.

Perhaps there is  concern about being saddled with a fiancée’s business debts.  Or with the demands of an ex-spouse? Or concern about how much you will have to contribute to the support of a spouse’s children?   A well-drafted prenuptial agreement can handle all of these issues.  If  the person is giving up a career or a lucrative job to get married, a prenuptial agreement can also set forth compensation for  sacrifice if the marriage fails. A main reason to ask your children and grandchildren to enter into a pre-nuptial agreement (or a post nuptial agreement) is to protect what you chose to give them during your lifetime or at death.

A pre-nuptial agreement can address the division of assets at various stages in the marriage.  Many prenuptial agreements specify that if the marriage lasts less than two years, the division may be minimal or nonexistent, but that the payout portion will increase as the length of the marriage increases.

A prenuptial can address the issue of alimony in the case of divorce, assuring the wealthier spouse that the financial impact of a divorce will be controlled, and at the same time assuring the less wealthy spouse that she or he will be provided for adequately.

Without a prenuptial agreement in place it is up to the laws of the state in which the divorcing person is domiciled (and, in certain cases, the states in which the divorcing person owns real estate) to determine what assets or income the spouse is entitled to keep in a divorce and which assets will pass to the spouse at death. In most states, without a prenuptial agreement, a surviving spouse has the right to inherit one-third to one-half of the decedent’s probate assets. It is important to remember if you are the parent or the grandparent that it is not the law in which you are domiciled that controls the division of the gifts/inheritances that the child/grandchild receives or is expects to receive – it is the law of the domicile of the child/grandchild when divorcing that controls.

A prenuptial agreement can override that and make sure that the property you owned prior to the marriage is given to your children from your prior marriage at your death. It can also specify that assets you do decide to leave to your spouse will not be left outright, but will remain in trust for the duration of the spouse’s lifetime, and then pass to the children when both of you die.

It is important to remember when having that vital conversation with the next generation that a pre-nuptial agreement is a shield – in a good marriage it can be overruled by transferring assets to the other party or into joint names or by an estate plan which leaves them to the spouse. The goal of a pre-nuptial agreement is to protect the assets if the spouse wants them and you don’t want to give them.

If you live in one of the nine community property states – Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin – without a prenuptial agreement the law says that property accumulated during the marriage will be equally divided. In all other “equitable distribution states,” assets are divided according to what a judge determines to be fair or equitable (which does not necessarily mean equal). In making that decision the judge takes into consideration factors such as the length of the marriage, whether or not there are children, and the couple’s age, health, and job skills. Alaska is different.  It is an equitable distribution state but allows the parties to enter into a community property agreement.

Typically a prenuptial agreement will address several categories of assets: those assets acquired and owned prior to the date of marriage, all income and appreciation on property owned and acquired prior to the marriage, all property earned and acquired by either spouse during the marriage, all appreciation in the value of assets acquired during the marriage, and all assets received by gift or inheritance during the marriage.

If each party has assets of comparable value, it may make sense to establish the what is mine is mine and what is your is yours type of agreement, specifying that the assets I bring to this marriage (and any appreciation during the course of the marriage on those assets) is mine, the assets you bring to the marriage (and any appreciation during the course of the marriage on those assets) is yours.  Any assets we acquire together during the marriage will be put in joint names and will pass to the surviving spouse at death – or be split equally between us if we divorce.

A mine is mine and yours is yours agreement may not be fair if one party entering in the marriage has very little net worth.   In that type of case a smart move may be to guarantee the less wealthy a specific amount of money, either when the contract is entered into or when the marriage ends. That helps make the agreement enforceable.

After re-marrying, you may decide to live together in your home, or in his home. You may both sell your homes and purchase a new one together. In second marriage situations the home is an asset with strong emotions… and who has the title is an important issue to address in a prenuptial agreement. In many states, ownership of a primary residence is based on survivorship:  If one spouse dies, the ownership passes by law to the surviving spouse. In a second marriage, that could mean that the children of the first spouse to die lose inheritance rights to the house they grew up in.

An alternative is for the re-marrying couple to hold the property as tenants in common, a form of joint ownership without a survivorship right. Each person’s percentage in the home would pass through his or her will (or trust if probate had been avoided) to those persons that the spouse has selected. In such situations it’s common to have the deceased spouse’s interest in the home held in trust for the duration of the surviving spouse’s life, then at the death of both of them the home would pass to the deceased spouse’s children. The surviving spouse could even be the sole trustee during his or her lifetime, which gives him or her flexibility to sell the home and reinvest the proceeds in a smaller condominium or a home in another state. It also guarantees that although the surviving spouse has that flexibility, at the death of both spouses whatever the assets have been invested in – the current home, proceeds of the sale of the home or a new home – will pass under the terms of the deceased spouse’s estate plan to his or her children.

There are certain issues that can not be legally agreed to in a prenuptial agreement. For example, parties cannot contract what child support would be if the marriage ends in divorce. Under the current law they also can’t contract for child related issues such as custody or visitation. Many parties will, however, include language which states their intent on those issues when the agreement is entered into. Parties also cannot stipulate that they will not be responsible for their new spouse’s medical care.  That is against public policy.

Prenuptial agreements can be challenged –at the time of divorce and at death. One of the key issues the court considers in reviewing the agreement’s validity is how honest the parties were in disclosing their finances.  After all, a party to an agreement can only knowingly waive rights to an asset if she has sufficient information about what the asset’s true value is. “Assets” include tangibles like heirlooms, houses, and finances and intangibles like intellectual properties, copyrights, royalties, medical licenses, and law degrees.

The court also considers whether both parties had competent legal counsel.  Director Steven Spielberg’s wife, Amy Irving, walked away with half their net worth because their prenuptial agreement was scribbled on a napkin, and she was not represented by an attorney.

The court will also consider whether or not the party was under duress when the agreement was signed, and “duress” can be something as simple as the fact that the prenuptial agreement was signed so close to the wedding date that a signing party did not have time to consider the consequences of the agreement. When Donald Trump filed for divorce from Marla Maples in 1997, three months after they separated, Maples fought the prenuptial agreement that allotted her $2,000,000 in the event of a divorce on the grounds that she had not read the prenuptial agreement before she signed it. They settled the case without a trial and her lawyer reported in the news that Trump promised to pay her more than what was stated in the contract.

The court may also determine if there was fraud involved during the negotiation and/or signing of the agreement.

Even though it is not required in many states the court may also usually consider whether or not each party had separate and independent counsel. If you choose to waive the right to counsel in signing a prenuptial, you might want to state that in the document – that the right to retain independent counsel was explained and understood but the party chose to proceed anyway.

Finally, in many states an agreement can be challenged on the grounds of its not being “fair and reasonable.” This can be a two pronged test: 1) whether the agreement was fair and reasonable when the marriage was entered into and 2) whether the agreement is fair and reasonable when the marriage terminates. In such cases the judge is asked to determine whether one spouse took advantage of the other.

Even though prenuptial agreements can be challenged, the trend in case law is to uphold the agreement. In California, for example, the Supreme Court unanimously upheld the premarital contract between San Francisco baseball star Barry Bonds and his wife, Sun. The couple met in Montreal in 1987 when Bonds was a fledgling baseball player for the Pittsburgh Pirates and his wife was studying to be a beautician. They were both 23 years old. They courted for three months and became engaged.  The baseball player had the counsel of two attorneys and a financial advisor.  His wife, a Swedish immigrant, who had been told about the agreement a week before the wedding, had a friend from Sweden advising her.  She was told that day before the wedding that the wedding would be canceled if she did not sign the agreement. On the way to the Phoenix airport, where they were catching a plane for their wedding in Las Vegas, they stopped at Bonds’ lawyer’s office and signed an agreement she had seen for the first time only hours before. This agreement dramatically limited the amount of money she would receive upon divorce.

Why did the court declare this prenuptial agreement valid?  Because, the Judges said, Sun seemed happy, healthy and confident. The week before Bonds’ lawyer had suggested that she retain her own attorney and she chose not to do so. What is more, the wedding was so small and impromptu that Sun could have easily postponed it if she had decided to retain counsel to review the agreement. Other cases in various states have achieved similar results.

The lesson to be learned is that voluntarily entering into a prenuptial agreement as a consenting adult is entering into a contract you cannot easily walk away from later.

Today it is also common for the prenuptial agreement to be reviewed after you have been married for several years. Prenuptial agreements can be amended.  If, for example, you have children in the course of the marriage, or if one of you becomes seriously ill, or if a significant amount of time has passed, or if there is a change in the tax, estate, or marital laws — all of these are good reasons to amend your prenuptial agreement.

If you do choose to amend it, then all of the same formalities – separate lawyers, full financial disclosure – apply as much to the amendment as they do to the original agreement. Sometimes the agreement has a built in “sunset clause” which specifies that the contract expires if the parties have been married for a certain length of time, which is frequently 10 years.

It is important to remember that a prenuptial agreement is the base on which future planning can be built. In other words, it sets the stage for what each party agrees he or she is entitled to receive.

Sometimes a prenuptial agreement does not work in the family structure. There may be emotional reasons that make the topic difficult to discuss. The parties may not wish to reveal their financial information. Another technique to consider is the use of self-settled trusts to protect the family assets. Some jurisdictions such as Delaware (even if you are not domiciled there) allow an individual to establish a self-settled trust to protect assets from creditors (which include a spouse or a future spouse). A self-settled trust allows the person transferring the assets to remain a beneficiary of the trust.  To be valid a Delaware self settled trust must:

1)      be irrevocable;

2)      appoint a trustee with the discretion to administer the trust;

3)      must appoint a trustee, whether corporate or individual, that is a resident of the jurisdiction in which the trust is formed (so if a Delaware trust then there must be a Delaware trustee);

4)      Contain a spendthrift clause which restricts the beneficiary’s ability to transfer the trust property (whether voluntary or involuntary).

 Strategies to Protect the Ownership of Business or Joint Assets:

  • Make clear before anyone dates anyone that a pre-nuptial agreement that protects the ancestral assets and their valuation is mandatory.
  • Make clear before any gifting that a pre-nuptial or post-nuptial agreement that protects gifted/inherited assets is mandatory.
  • Be rational and consider compromise. A personal break-up does not have to signal the end of financial security. First and foremost, both involved parties need to separate discussions concerning the business from any private and personal property squabbles. Protecting the business- or the combined family investments — their worth and integrity — should be a top priority. What this means is removing emotional involvement from the situation (as much as possible) and trying to think and act objectively as possible. Don’t make the lawyers unnecessarily rich and reign in emotions.

 

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

 

Patricia Annino Needs Your Help With Her Next Estate Planning Book!

I am writing a new book on the traditional and new risks that the family and the family owned business face.

Traditional risks have included the unexpected death or disability of key stakeholders; incomplete or out of date estate planning documents; incomplete or out of date corporate documents;  the lack of liquidity; the lack of a disaster plan; the lack of effective communication among key stakeholders; major changes in the competitive environment; the divorce or remarriage of a key stakeholder; out of date business valuations; the absence of an effective family governance policy; and the lack of an awareness of the boundaries between family and business.

In addition to these traditional risks, families and family owned businesses now face new risks, including the lack of privacy in the Google world; cyber attacks; the social media risk to family reputation; global dispersion of family members and its impact on effective communication; new attacks on  business valuation; pre-nuptial agreements and post-nuptial agreements; complex alimony calculations for the family business owner (taking phantom income into account); the baby boomer transfer of wealth; the speed of innovation; the impact of the increased working lifespan of the senior generation on succeeding generations; and the very turbulent economic times.

Over the next several months I will be asking you to provide me with questions, your stories, or areas of concern that would be most important to you through a polling system on this blog.  I would appreciate hearing any comments or thoughts you may have on these risks as I develop my book, so that I am able to provide the most up-to-date and beneficial areas of risk that would be helpful to you with your current or anticipated estate planning documents.

If you would like to share some of those questions or concerns now, please so do below.

Thank you Patricia Annino

 

Gifting Land and Keeping it in Our Children and Grandchildren’s Hands

Gifting Family Property

Protect Your Assets: Question and Answer with Patricia M. Annino, Esquire

Question: Our family and extended family has always lived close to each other. We own quite a few lots of land that homes could be built on. We would like to give one to each of our children but we would like to make sure that it remains in the hands of our children and grandchildren-not their spouses. What do you suggest?

Answer:

Whose name is on the title to the house is one of the most emotional issues in any marriage.  My home is my castle is part of the American dream. If you give the lot directly to your child and that child maintains title in his or her name alone there is power imbalance in the marriage.

It can have deep consequences. It also has practical problems-who will be on the mortgage? Should both spouses pay the payment? Would it be fair to ask for your daughter to ask her husband to pay part or the entire mortgage from his earning but not give him an equity stake in the house? If the lot is in joint name then without a contrary written agreement should the couple divorce your ex son-in-law would in all likelihood receive one-half of the equity of the lot.

A possible solution is to ask your daughter to enter into a pre-nuptial agreement prior to marriage that mandates that if there is a divorce the value of the lot at the date of the marriage comes back to her first and any appreciation is split 50/50. An alternative is to lend, not gift the lot to both your daughter and son-in-law and have them sign a promissory note and recorded mortgage. Should they divorce both of them owe you the money and only the net equity in the property would be split.

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently announced the release of an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  Annino’s book is an exhortation, resource and trusted companion for women in all facets of life.  To purchase the book visit:  http://amzn.to/hOHuEV or for more about Annino, visit: www.patriciaannino.com

Women And Money: 5 Strategies For The Re-Marrying Woman

Like me, I’m sure many of you watched the recent Royal Wedding. In some of the pre-wedding information a question of whether or not there would be a prenuptial agreement was raised.  The UK is relatively new to the option of a prenuptial agreement, unlike the U.S.  A prenuptial agreement is an especially important document to consider when re-marrying. 

When a woman enters into a second marriage, she usually has assets that are hers, assets she has either earned or inherited. She also may have new vulnerabilities as she gives up one lifestyle for another and mergers property.

  1.  Discuss the general “terms of the deal” with your fiancée in depth in advance of the drafting of any prenuptial agreement. Let your fiancée know that the agreement is important to you. Be honest in the discussions.
  2. Enter into the discussion and negotiation process well in advance of the wedding date and well in advance of the date any invitations to the wedding will be mailed.
  3. Hire your own lawyer and suggest that your fiancée do the same. Both parties should have a full understanding of what rights they have and what they are giving up. Make sure that the lawyer you retain has knowledge of this type of agreement.
  4. Prepare a detailed financial disclosure: A complete listing of all assets and liabilities, annual earned and unearned income over the past few years, tax returns, financial statements, interests in trusts, family businesses, and potential inheritances.
  5. Sign four originals of the prenuptial agreement. Each party should initial the margins of each page, including the financial disclosure pages. Each party should retain one original copy and each attorney should retain an original copy.

Prenuptial agreements are not new. The court records show that a James Young and a Susan Hoffman entered into a prenuptial agreement in Page County, Virginia in 1844. Prenuptials are also not just for celebrity couples like Jackie Kennedy and Aristotle Onassis, Michael Douglas and Catherine Zeta-Jones, Madonna and Guy Ritchie and Paul McCartney and Heather Mills. Increasing numbers of women today remarrying in their 30s, 40, 50s, 60s, 70s, and 80s consider these agreements an important part of secure financial planning.

It is important to remember that a prenuptial agreement is the base on which future planning can be built. In other words, it sets the stage for what each party agrees he or she is entitled to receive.

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently announced the release of an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  Annino’s book is an exhortation, resource and trusted companion for women in all facets of life.  To purchase the book visit:  http://amzn.to/hOHuEV or for more about Annino, visit: www.patriciaannino.com

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