The Premarital and Postmarital Agreement- consider it when tying the knot or thereafter

Legal and tax considerations of pre and postmarital agreements?

Marriage today is more complex than ever given the high rates of divorce, second marriages, blended families, and increasing globalization of couples. Anyone with significant property, an inheritance, a family business, or children from a prior marriage ought to consider a premarital agreement. Those entering a same sex marriage or civil union should also consider one. If the couple is multinational or goes global, there could be unintended changes to property ownership and tax consequences. What additional considerations should a couple take into account in planning for their marriage and the premarital agreement? While different sources present different lists, in 2012 the following were the counties with the highest divorce rates:

  1. Russia
  2. Aruba
  3. USA
  4. Panama
  5. Ukraine
  6. Belarus
  7. Moldova
  8. Cuba
  9. Czech Republic
  10. South Korea

More striking is the fact that in the United States, the rate of divorce for 1st marriages is approximately 50%, for 2nd marriages 60% and for 3rd marriages 70%.[1] A premarital agreement may be one way to address issues not just upon divorce or death, but upon a move to a new jurisdiction.

This paper will examine the premarital agreement (including the international premarital agreement) and postmarital agreement, what they seek to achieve, tax and other considerations including planning for same sex couples, common law marriages, and couples on the move.

I. The Premarital Agreement and the Postmarital Agreement.

1. Definition:

(a) Premarital Agreement

. A premarital agreement (or prenuptial or ante-nuptial agreement) is a contract between a couple prior to marriage or a civil union that typically provides how property owned before or acquired during the marriage will be divided in case of divorce or at death and can provide for alimony or maintenance. The agreement can be as broad or as limited in scope as the couple desires, except certain jurisdictions, including the United States, do not allow a marital agreement to govern child support or child custody rights.

(b) Postmarital Agreement

.A postmarital agreement seeks to achieve the same objectives as a premarital agreement, but it is entered into after the couple is married.

(c) International Premarital Agreement

.There is no such thing as an “international premarital agreement” per se. If more than one jurisdiction is involved, a couple should consider the law of each such jurisdiction. These different jurisdictions may include: where the couple celebrates their marriage, their first marital abode, their nationality, their residence, their domicile, and the location of their assets. In some instances, any one of these factors could connect the couple to a particular jurisdiction thereby requiring the advisor to look to the law of that jurisdiction. Not all countries recognize premarital agreements so one must always consult local counsel. When a couple is married, their advisor should review the nationalities of the couple, their residence, and the location of their assets. The law of the country that will govern the dissolution of the marriage may affect the marital regime or the use of a pre or postmarital agreement. For instance, some countries do not consider pre and post-nuptial agreements to be valid, so some couples will be unable to vary their marital regimes.

2. Validity of Premarital and Postmarital Agreements in the United States

. All fifty states in the United States recognize the validity of premarital agreements and over half of the states have adopted the Uniform Premarital Agreement Act (“UPAA”) adopted in 1983 by the National Conference of Commissioners on Uniform State Laws (“NCCUSL”). The UPAA has been adopted by 30 states.[2] The states of Alabama, Georgia, Kentucky, Louisiana, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Ohio, Oklahoma, Pennsylvania, Tennessee, Vermont, Washington, and Wyoming all have other unique legal requirements. The UPAA encourages the enforceability of premarital agreements and requires that the agreement and any amendment be in writing and signed by both parties. The agreement is effective on the parties’ marriage. In 2012, NCCUSL adopted an updated version entitled the Uniform Premarital and Marital Agreements Act (“UPMAA”) which seeks to address both types of agreements that have led to conflicting laws, judgments, and uncertainty about enforcement as couples move from state to state. The UPMAA has been adopted by Colorado and North Dakota and has been introduced in Nevada and the District of Columbia.

The UPAA provides that parties to a premarital agreement may contract with respect to:

  • The rights and obligations of each of the parties in any of the property of either or both of them whenever and wherever acquired or located.
  • The right to buy, sell, use, transfer, exchange, abandon, lease, consume, expend, assign, create a security interest, mortgage, encumber, dispose of or otherwise manage and control property.
  • The disposition of property on separation, marital dissolution, death or the occurrence or non-occurrence of any other event.
  • The modification or elimination of spouse support.
  • The making of a will, trust or other arrangement to carry out the provisions of the agreement.
  • The ownership rights in and disposition of the death benefit from a life insurance policy.
  • The choice of law governing the construction of the agreement.
  • Finally, any other matter, including the parties’ personal rights and obligations not in violation of public policy or statute imposing a criminal penalty.
  • Premarital agreements may not seek to affect a child’s right to support.

Some jurisdiction provide that post martial agreements are invalid as against public policy unless incident to a separation or divorce. The UPAA is expressly limited to premarital agreements only. However, premarital agreements may be amended or revoked after marriage provided it is in writing. No consideration is required for such amendment or revocation.[3] The UPMMA covers both premarital and marital agreements.

The general approach of the UPMAA is that parties should be free within broad limits to choose the financial terms of their marriage, however a significant minority of states authorizes some form of fairness review based on the parties’ circumstances at the time the agreement is to be enforced. A few states put the burden of proof on the party seeking enforcement of marital and, more rarely, premarital agreements. The UPMAA chooses to treat premarital agreements and martial agreements under the same set of principles and requirements. A number of states currently treat premarital agreements and marital agreements under different legal standards with higher burdens on those who wish to enforce marital agreements. The UPMAA takes a position that the UPMAA and common law principles are sufficient to deal with the likely problems related to both pre and post marital agreements.

Under the UPMAA, a premarital agreement or marital agreement may include terms not in violation of public policy including terms relating to (1) rights of either or both spouses to an interest in a trust, inheritance, devise, gift and expectancy created by a third party; (2) appointment of fiduciary, guardian, conservator, personal representative or agent for person or property; (3) a tax matter; (4) the method for resolving a dispute arising under the agreement; (5) choice of law governing validity, enforceability, interpretation and construction of the agreements; or (6) formalities required to amend the agreement. The UPMAA is meant to exclude separation agreements and marital settlement agreements from the scope of the UPMAA as those tend to have their own established standards for enforcement.

A premarital agreement is effective on marriage. A marital agreement is effective on signing by both parties. In neither event is consideration required. Marriage itself is considered consideration.

[1] http://www.divorcestatistics.info/divorce-statistics-and-divorce-rate-in-the-usa.html.

[2] Arizona, Arkansas, California, Connecticut, Delaware, District of Columbia, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Maine, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Carolina, North Dakota, Oregon, Rhode Island, South Carolina, South Dakota, Texas, Utah, Virginia, West Virginia, and Wisconsin.

[3] UPAA Sections 2 and 5 (1983).