Prenuptial Agreements – Considerations for Traditional and Non-Traditional Couples and Business Owners

Increasingly, the happy couple planning their ultimate union has added an item to the checklist of matters to address prior to The Big Day.  Alongside arranging the wedding site, reception hall, flowers, gowns and the like, is more often listed “sign prenuptial agreement”.

In a more complex, dual income, fast-paced world, and in a world where no-fault divorce means that either party may choose to terminate “until death do us part” by simply swearing that the parties have not gotten along for at least six months, persons planning to marry, or their parents, or business partners have more frequently begun to delicately approach the subject of preparing a prenuptial agreement.

New York Law provides a weighty framework to determine the division of spoils at the time of marital breakup, together with maintenance (alimony) and address other vital matters such as custody and access to children and providing for their support, college education, and other needs.  Just as one who fails to write a Will must rely upon New York State’s imagination as to what would have been provided in that Will by way of property distribution, the divorcing couple will have imposed upon it a dissolution plan crafted by the State of New York, unless they do something to control their own destiny in the event of divorce.

Domestic Relations Law Section 236 (C) invites and encourages persons to make their own deal except in the area of child custody or the support of yet unborn children. Plans may be made with respect to future maintenance, unless one of the parties were to be at risk for becoming a “public charge”, and the couple can address how to treat assets both owned before the marriage and accumulated during the marriage.

Even couples who have no prenuptial agreement are entitled to protect those assets that they held prior to saying “I do”.  Increases in value (called appreciation) however, become marital property.  But often, in the course of living a married life, people make routine choices that will be deemed to have evidenced an intent to share the separate property, by placing a spouse’s name on a deed or joint bank account for example, (called transmutation) or by mixing marital property (post marriage paychecks for example) in an account that had previously been deemed pre-marital (called commingling).

In the absence of a prenuptial agreement, inheritance monies, gifts from third parties to one of the partners, as well as the fruits of negligence case settlements, all remain the separate property of the individual and are not considered marital property.  But the same rules set forth above apply here as well.  Therefore an inheritance check placed in the joint account, a negligence settlement invested in a jointly held marital residence, or a gift similarly commingled, would become marital property for purposes of distribution on divorce.

Virtually everything else accrued during the marriage will be “on the table” in the event of a divorce, and will in most instances be split 50% to each party without regard to who “earned” the money or asset and certainly without regard to who was “at fault” in triggering the divorce.

At the same time that equitable distribution is determined, a court will decide whether or not maintenance is payable from one spouse to the other.  That decision will be driven by determining if there exists a disparity between the two parties’ incomes at the time the divorce action is commenced, coupled with the length of the marriage.  The first factor will determine the amount of maintenance to be paid, if any, and the second will be to determine for how long that maintenance should be paid.

In 2010, the New York State Legislature provided some guidance through the creation of a Temporary Maintenance Statute, the object of which was to advise the court as to maintenance obligations during the divorcing process only. But they then failed to ever provide more direction to the courts or litigants as to what maintenance should be paid after the divorce has been finalized.  Local courts have sought to fill the void through a rule of thumb that applies a “1/4 to 1/3″ rule, in combination with the calculations yielded through using the calculations set out in the Temporary Maintenance Statute as if it were anticipated to be the calculator for a post-divorce maintenance award.

Recent proposed legislation would have expanded both the amount of maintenance paid and would also have greatly increased the term for which maintenance was payable.  That legislation died in committee, but certainly, over time, some rules regarding amount and term will make its way to the Governor’s desk, and once law, its terms may thrill some and shock many.