CALIFORNIA PRENUPTIAL AGREEMENTS

Aren't Prenups unromantic and indicate a lack of trust?

Even though one in ten couples now enter into some kind of prenuptial or premarital agreement ("prenups") many couples are reluctant to enter sign a prenup because it seems unromantic and indicates a lack of trust.

There are several reasons why this reluctance is misplaced.

First, if you do not sign a prenup, your marriage will be governed by a complex set of laws. In California they are the California Family Code and Probate Code. Either way your marriage will be governed by a complex set of rules. The choice is between a set of rules negotiated by you or imposed by the State.

Second, from a historical perspective, premarital contracts lie at the root of the institution of marriage. For two thousand years, Jewish marriages have been preceded by a prenuptial agreement called the "Ketubah."

Third, far from undermining trust, the process of drafting and negotiating a prenuptial agreement may, in fact, strengthen your relationship. The process requires a full disclosure of your financial situation and involves an open and honest discussion of about how you will handle your money and plan your future. One psychiatrist states: "openly agreed upon rules are likely to be a better foundation for growth than are those latent rules that surface and prove to be either disagreeable or downright outrageous (‘What do you mean, you don't do dishes?')"

Fifth, prenups prepare you for marriage. Sooner or later you are going to have to talk about money issues. Why not do it now and save heartache and trouble later on? After your honeymoon is over you will soon find out how earning and spending money is an integral part of your marriage. The Catholic Church recognized this fact and incorporates a prenuptial dialogue in a marital preparation process called "Pre-Cana."

Sixth, prenups can be drafted to protect both spouses not just a wealthy spouse.

Seventh, it just makes sense. No-one plans on their house burning down, ending up in a nursing home or suffering a disability but they still take out insurance. As Dr. Ruth says: "We live in such a litigious society. Nobody knows what life brings. Hopefully we will never need it. What's the big deal? Let's do it and give it to the attorneys…for the new millennium, a prenup is part of a mature relationship, based on love, mutual trust and optimism."

Do I need a California Prenup even if I don't plan to live here?

Even if you do not live here when you divorce, California can still assert jurisdiction over you for support, attorneys' fees, and the division of property. California also applies the doctrine of divisible divorce which means that each aspect of a divorce is treated differently for jurisdictional purposes. For example, a California court could assert jurisdiction over custody and visitation matters but relinquish property matters to the Court of another state. Consider the billion dollar divorce of David and Susanne Sapperstein. Vanity Fair reported that David Sapperstein left was his wife of 23 years for their Swedish nanny. Suzanne lived in Los Angeles with their youngest child in what is reported to be the most expensive mansion in Los Angeles. During a trip to France on the couple's gulf stream jet, David said they had to stop over in Houston, Texas where he had business. Once they hit the ground, his attorneys served Suzanne with divorce papers. A few days later she filed divorce papers in California. Why? California has more liberal rules on alimony (spousal support) than Texas which ends after three years.

Even though a California prenup is designed to apply only if you are divorced in California, it may apply if you are divorced in another state. That result is not guaranteed but there is a good chance that it will be. If you want to make sure that your California prenup is enforced in other states you need to retain counsel in that state to review the prenup.

There is an even greater risk that a California prenup will not be enforced in a foreign country. Many countries such as Denmark, France and Germany recognize prenups but have different marital laws and specific procedures for the execution and registration of prenups. England and Australia do not recognize prenups but some courts have taken them into account when dividing property. If you plan on living in another country you should consult with a family law attorney in that jurisdiction.

Sex and Prenups

California prenups cannot regulate child custody or child support. They cannot regulate your behavior and they cannot punish a spouse for being unfaithful. In one highly publicized prenup, a New Mexico couple agreed that they should have sex at least five times a week, pay for everything in cash and not leave clothes strewn on the floor. Those provisions wouldn't be enforceable in California. It should be noted that the couple are reportedly still happily married.

Religion and Prenups

Prenups cannot regulate the practice of religion. However, in one important area prenups can provide a spouse with an important religious protection. Under traditional Jewish law, if a husband does not grant his wife a religious divorce or "get," the woman is considered an "agunah" and cannot get re-married. California does not have a "get" law like New York so in order to protect a Jewish woman's right to a "get" it is suggested that a prenup contains a penalty clause that the husband pays a fine for every day he does not grant a "get."

Prenups and Community Property

In the absence of a prenup, California community property law provides that all community property (any property acquired during the marriage that is not a gift or an inheritance) is divided equally upon divorce. It usually does not matter if the property is in one party's name – if it is acquired during marriage, with some exceptions, it is community property. Property owned before marriage is separate property and cannot be divided by a court and belongs to that party. However, efforts to improve, enhance or contribute to separate property can create a community property interest in that separate property. That is where a prenup comes into play. A prenup can provide that your spouse never acquires a community interest in your separate property.

If you do not have a prenup, the determination of what is separate and what is community property often requires the use of forensic accountants. In high-asset cases, the accounting and legal fees can run into the hundreds of thousands, or even millions, of dollars. Furthermore, in determining whether a business owned before marriage has any community interest, the property must be valued both at the time of marriage and at the time of separation, and sometimes again at the time of the divorce trial which can be years after filing for divorce. Similar calculations are made for real estate and intellectual property. Furthermore, earnings are community property. If you married without a prenup and earned $50,000,000 during your marriage, that entire sum would be community property. That means your spouse would own one-half of that property and anything purchased with that property.

Furthermore, if you lost any of that money in a bad investment or mismanaged your assets, your spouse may have an action against you for a breach of fiduciary duty. And if you reinvested those earnings in a separate property business or any other property, your spouse could request that you reimburse the community for the money spent. In a long term marriage that tracing may be impossible to do and sometimes the person claiming a separate property interest forfeits their claim.

Under California law, the proceeds of loans are community property under certain circumstances. If an individual owns companies and uses financing or factoring to finance a business, the loan proceeds can be so commingled in the business that the owner can end up losing his separate property interest. Also if you refinance your real estate, you may be contributing community property to your separate property asset.

A prenup can regulate all aspects of how separate and community property assets and liabilities are treated. In the case of a financially independent couple with their own resources a prenup can provide that all income, assets and debts acquired or incurred remain separate property. Alternatively, in lieu of a community property distribution, a wealthier spouse might agree to pay the other spouse a lump sum based on the length of the marriage. On the other hand, a couple might agree that all property accumulated during the marriage remain community property but that certain property brought into the marriage such as family businesses or funds always remains separate property.

Since each situation is different a prenup should be carefully tailored to meet the circumstances of each couple.

Spousal Support

California law allows you to waive or limit spousal support as long as the provision is not deemed unconscionable.

Unfortunately, as yet there is no case law defining the word "unconscionable." If there is a significant disparity in the amount of wealth between the parties, instead of waiving spousal support, the prenup may place limits on the amount and duration of support. The amount and duration can be based on a formula which takes account of the income of the parties and the duration of the marriage.

Do it right

When Steven Spielberg and actress Amy Irving divorced after four years, she argued that their prenup which was written on the back of a napkin was not enforceable because she was not represented by an attorney. The Judge agreed and she received a $100 million settlement. When Spielberg married Kate Capshaw, both were represented by attorneys.