Pasternak & Fidis Reporter

November 12, 2020

Premarital Agreements and the Gray Divorce

With boomers living longer and marrying multiple times, the argument for premarital agreements for these couples is compelling. A premarital agreement defines the property rights of the parties when the marriage ends at death or divorce. Not all marriages between mature people will last until death.

Property Rights at Dissolution. A premarital agreement will typically provide for each party to retain exclusive rights to existing assets and assets acquired during the marriage by gift or inheritance. Parties must decide whether they want a title-controls type of agreement, so that each retains exclusive rights to all property he or she owns, or whether they want to share the fruits of their labor. When both parties have substantial assets and both are still working, with the ability to continue to build their nest eggs, a title-controls type of agreement is often appealing. A title-controls agreement can allow for a clean break with a minimum of legal fees.

When there is a substantial asset disparity, and the stronger party is employed, a property-sharing type of agreement may suit parties better, as it would allow a weaker party to benefit from the accumulation of assets resulting from the high-earner’s work. Nevertheless, there are pitfalls. For example, a spouse nearing retirement age who can afford to retire may do so, cutting off the accumulation of shared assets. A third option, when there is a big wealth disparity, is for the wealthier party to agree to make property transfers from his or her separate property in the event of divorce to provide for the other spouse’s financial security.

Terms for Payment of Living Expenses During Marriage. Many couples prefer to deal with payment of living expenses informally during the marriage as they would if they had no agreement. When parties want to address living expenses in the agreement, they will need to agree on the allocation of responsibility for their common expenses and whether a stronger party will pay some or all of the personal living expenses of the other spouse.

When one party will be solely or primarily responsible, the agreement should give him or her some discretion about the level of expenditure he or she must fund. It should acknowledge that changes in circumstances, such as a payor’s retirement, will permit a reduction in the level of expenditure. The agreement should address responsibility for extraordinary healthcare expenses, such as nursing home care. For some situations it may be appropriate to require that a party spend down his or her own assets for nursing home expenses before the other spouse is required to contribute.

The current health crisis points up the need to ensure that both parties have adequate health insurance; parties will need to decide whether the agreement should mandate it. When there is a significant wealth disparity, the wealthy party may agree to pay the premiums for the other spouse. In some jurisdictions a spouse may be obligated by law to pay for necessaries, such as healthcare, which can include nursing home care, for a spouse who is unable to pay his or her own. Long-term care insurance can mitigate the risk for both parties. Therefore, parties should consider whether to mandate such coverage and who should pay for it.

Provisions Regarding Spousal Support after Divorce. Parties entering into a late-life marriage with a premarital agreement have several options regarding spousal support:

  • A blanket waiver of all post-divorce support;
  • A reservation of support so that one party, or either, can seek an award;
  • A provision for a predetermined amount and duration of support;
  • A predetermined amount of support payable indefinitely;
  • A lump sum in lieu of periodic payments.

Spousal support can be appropriate where there is a significant wealth disparity, an economically weaker spouse will be moving from another geographic area or giving up his or her employment, or where he or she will lose spousal support from a prior spouse as a result of remarriage. If the provisions for property will provide adequate financial security for a weaker party, he or she may be able to forego spousal support. A wealthy party may consider a predetermined amount and duration of support acceptable because it provides certainty without the necessity for litigation and affords a weaker party a period of support during transition. A reservation of support is rarely appealing to a stronger party as it means the potential for an open-ended obligation and potentially high litigation costs. As appealing as a reservation may be to a weaker party, the benefits may be illusory. Alimony typically terminates on the payor’s death. Moreover, it is generally modifiable upon a change of circumstances; a payee could face another round of expensive litigation when the payor retires.

Provisions for the Marital Home. In drafting provisions relating to a shared residence, there are several issues to consider:

  • Will the agreement apply only to an existing residence, or also to a later-acquired residence?
  • Will special provisions for a residence apply only to the principal residence or to additional homes that the parties may use together?
  • Will one spouse be able to evict the other spouse from a solely owned home in the event of separation? What provisions should the agreement make to protect the interests of the non-owner spouse? What if the non-owner spouse is elderly and moving would threaten his or her health or would otherwise be very burdensome?
  • Will the sole owner be able to sell the home over the objections of the other spouse?

Options for treatment of ownership of a primary home include:

  • One spouse retains sole title and sole interest in an existing home and the other party never acquires any rights to the property (unless the owner elects to transfer title).
  • One spouse retains sole title to an existing home, but the other spouse acquires an equitable interest that could be based on monetary contributions or the passage of time.
  • A spouse who owns a home agrees to transfer title into a survivorship form after the marriage. The agreement could provide that the original owner is entitled to a transfer back upon dissolution but would enable the survivor to retain the home if the marriage ended at death.
  • The parties agree to purchase a home together, and to titling the property in a survivorship form, and on the allocation of their interest in the equity in the event of dissolution, which could be based on each party’s monetary contributions.

The agreement should include provisions for a buyout if both parties will have a monetary interest. When one party will own sole title, the agreement should provide for an orderly transition if the marriage fails, giving the other spouse adequate notice to move out and, in some cases, money for moving expenses. When the spouse who must move is to receive a cash property settlement, some thought should be given to the timing of payments in relation to when that person must move.

Privacy Concerns. A premarital agreement can include a confidentiality clause prohibiting dissemination of information about the other party’s financial affairs, or it could be broader and include information of a personal nature. A confidentiality clause should permit a party to disclose confidential information to his or her attorney, financial advisor, and possibly a mental health professional. The confidentiality clause can include a provision that, in the event of a divorce filing, the parties will consent to entry of a protective order that prohibits them from disseminating protected information to the press or third parties. Whether or not a court will enter a protective order depends on the law and rules of that jurisdiction.

Dispute Resolution. Parties to a premarital agreement may wish to provide for binding arbitration in the event of a dispute about interpretation of the agreement, about the protocols for implementation of the terms, or about a claim of breach. Binding arbitration can have benefits for both parties. Parties may be able to get a quicker resolution. Arbitration proceedings are generally not open to the public; thus, parties may be able to better preserve their privacy. The parties’ lawyers can hand-pick their arbitrator and can therefore choose an experienced domestic relations lawyer to resolve the dispute. It will generally not be in the best interest of the proponent of the agreement to agree in advance to binding arbitration of a dispute about validity; as arbitration decisions are generally not appealable, he or she should retain the right to require a court trial on such a claim along with the right to appeal an adverse ruling.

Contract for Implementation. The premarital agreement should acknowledge that the parties will need to enter into a marital settlement agreement in the event of separation or divorce to state the specific terms for dividing any marital property, for the sale or spousal buyout of real estate, for allocation of tangible personal property, to confirm or determine spousal support, and other necessary terms. Depending upon the terms of the agreement, the parties may need a marital settlement agreement to avoid gift tax consequences for transfers that will be made after a divorce. In those cases, the premarital agreement can condition payments to be made after divorce on the parties signing a settlement agreement.