The effects of COVID-19 have been felt across the globe in
almost all aspects of life. From the transition to remote work and virtual
learning for students, to the shuttering of businesses and recreational
activities, to increased concerns regarding the health and safety of one’s self
and family, the pandemic has forced everyone to adapt to a new way of life. For
some people, the shift has helped bring families closer together; for others,
it has been a catalyst to make much-needed changes.
One positive aspect of the widespread shutdowns and social
distancing orders is that many people now have additional time at home with
their families. Many couples have found their relationships progressing faster
due to the long hours spent together. According to the Washington Post,
engagements during 2020 surged compared to previous years. Inquiries into
proposal packages at the Grand Canyon have doubled since 2019. And during the
third quarter of 2020, major jewelry retailers Kay, Zales and Peoples reported
a double-digit percentage growth in the sale of engagement rings compared to
the same time frame in 2019. While many more couples are engaged, the
difficulty in planning a COVID-19-era wedding may prompt some to have an
extended engagement. This additional time can be beneficial to some couples,
giving them a longer runway to discuss their financial future, including
prenuptial agreements.
Prenuptial Agreements as Financial Planning
Failure to discuss finances prior to a marriage can create
an enormous amount of discord, particularly when the parties are not on the
same page regarding their financial expectations. A prenuptial agreement
provides an excellent opportunity for couples to discuss their financial
expectations and how those items will be handled during the course of, and
following, a marriage. It allows parties to agree in advance to a customized
framework addressing each party’s rights and obligations that arise as a result
of their marriage instead of relying on the statutory framework that has
already been put in place by a state’s legislature, which may not meet the
specific needs of a couple in the event their marriage is terminated by a
dissolution or the death of either party.
Couples can tailor an agreement to meet their specific and unique
needs while:
- Protecting generational family wealth.
- Recognizing each party’s contributions to the
accumulation of their individual assets prior to the marriage.
- Preserving business ownership interests and
control of business management during the marriage.
- Addressing those issues in the event that the
marriage terminates by dissolution or the death of either party.
Determining Treatment of Assets
As part of a prenuptial agreement, the parties can decide on
the classification of their assets, including what assets will be considered
nonmarital versus marital and how any increases in value will be treated. Also,
of importance, the parties will be able to agree in advance on the treatment of
their various income streams earned during the marriage and how any income
earned from nonmarital sources will be classified. Without a prenuptial
agreement, courts have significant discretion to equitably allocate the
property of the parties, which can often lead to unpredictable results in a
divorce proceeding and can lead to property that a party assumed would be
classified as nonmarital being treated as marital and subject to distribution
between the parties.
Additionally, a prenuptial agreement can address the
parties’ expectations and formulate a customized agreement regarding spousal
support should the parties’ marriage terminate by dissolution. Spousal support
is often the most hotly contested issue in a dissolution of marriage action and
can significantly prolong the litigation, increase the animosity in the
proceeding, and greatly increase the attorneys’ fees and costs. Having
discussions prior to the marriage and including contractual provisions
regarding spousal support will allow the couple to determine whether spousal
support is appropriate. It can also protect a party’s nonmarital assets, which
are often considered by a court in spousal support awards.
Advantages on the Estate Planning Front
While most people focus on the dissolution aspects of a
prenuptial agreement, an equally important reason to consider entering into such
an agreement is the control it can give both parties regarding the disposition
of their assets in the event that the marriage ends by death. Without a
prenuptial agreement, the parties will be limited in their estate planning because
any planning will be subject to statutory rights that a spouse has acquired by
virtue of the parties’ marriage. While there are many death rights that can be
addressed in a prenuptial agreement, the most significant right that generally
impacts a party’s estate planning is the statutory elective share right (if
elective share rights are applicable in the state of domicile). Without an
agreement, a surviving spouse will be entitled to elect against the deceased
party’s will and is entitled to a statutorily prescribed percentage of the
deceased party’s estate, which is paid outright to the surviving spouse. This
could provide significant problems for a couple with inherited family assets,
children from previous relationships and a need to protect succession of
business interests. By tailoring the terms of an agreement to address the
unique circumstances that are present in every party’s relationship, the
parties may provide that the surviving spouse is entitled to receive a lump sum
payment or a percentage of the deceased spouse’s estate in lieu of any elective
share rights. In doing so, the prenuptial agreement may also permit the
deceased spouse to satisfy any share due the surviving spouse by directing
assets to a trust for the benefit of the surviving spouse during his or her lifetime,
rather than to the surviving spouse outright, which may:
- Provide creditor protection to the surviving
spouse.
- Reduce estate taxes owed.
- Protect and preserve assets for descendants or
other intended beneficiaries, thereby protecting generational wealth.
These are sensitive subjects. But the reality is that
marriage calls on parties to address difficult matters directly, with empathy,
grace and practicality. Prenuptial agreements can serve as a proactive step in
that exercise. And with COVID-19 complicating, and in some cases protracting,
wedding planning efforts, couples have the benefit of added time to work
through and reach consensus on financial issues, including the finer points of
such an agreement.
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