Saturday, December 24, 2011

Valid Prenuptial Agreements Require Full Asset Disclosure

Prenuptial agreements, contracts executed in the anticipation of a marriage, have long been validated in Michigan courts.  Generally, there are two contingencies covered in a typical prenuptial agreement: a) the divorce of the contracting parties; and b) the death of one of the parties.

A primary requirement to enforcing a prenuptial agreement is the "special duty" of full disclosure of all assets by both contracting parties.  This requirement was recently examined in a key (but unpublished) decision of the Michigan Court of Appeals.

The case, In the Matter of Kenneth Waller, originated right here in the Oakland County Probate Court.  The case illustrates the risk of executing a "do-it-yourself" prenuptial agreement.

The contract at issue in the Waller case waived the Wife's interest in a statutory share of her husband's estate in favor of the Husband's adult children.  The Wife challenged her Husband's estate at his death, despite her execution of the antenuptial agreement.

The contract was upheld by the probate court judge.  In reversing the probate court, the Court of Appeals focused on the asset disclosure and lack of evidence that any proper disclosure had been made by either party:

Accordingly, fair disclosure is required  under statute and caselaw in the context of
determining whether a prenuptial agreement can be deemed valid and enforceable.  The record
indicates that there was no formal disclosure of assets by either decedent or Waller at the time of
or before the execution of the  prenuptial agreement, such as through the presentation or
exchange of written asset lists or through a verbal communication or declaration electronically
recorded so as to preserve proof of disclosure.  The prenuptial agreement itself did not contain an itemization of assets and values,  nor did it indicate that disclosure of assets had taken place.
Indeed, there is no evidence of even an informal, off-the-cuff discussion between Waller and
decedent regarding the nature, extent, and value of each other’s assets prior to the execution of
the agreement.  The probate court essentially found that Waller was sufficiently familiar with the
assets held by decedent, making it unnecessary for decedent to redundantly disclose his assets to Waller before the agreement was signed, where  the assets had already been effectively
“disclosed” to her simply through the evolution of their relationship in which familiarity with
each other’s property naturally occurred.  We agree with the principle that if a party challenging
a prenuptial agreement was fully aware of the other party’s assets and their value at the time of
execution, an argument that there was a failure to fairly and formally disclose assets should fail;
the purpose of a disclosure is to make a party  aware of what he or she may be giving up in
signing a prenuptial agreement.
The Court of Appeals held that under such a record, the (rebuttable) presumption of non-disclosure should have been applied to invalidate the prenuptial agreement in that case.

Also, the Court of Appeals placed significance on the lack of a financial statement or schedule of assets.  These are typically attached to the antenuptial agreement.  This way, there can be no claim, as in the Waller case, of a failure to disclose, or a triggering of the presumption of nondisclosure.

Friday, December 23, 2011

Six Holiday Tips for Divorced Parents

Often, tensions escalate over the holidays as divorced parents struggle with the demands of scheduling the children to accommodate two households.  Holiday schedules are already difficult without the complications of a divorce judgment or divorce proceeding.

Here are some practical tips in dealing with holiday parenting time gleaned from divorce lawyers around the state.

  1. Reduce an alternating holiday schedule to a court order.  It is always best for the children when the parents can agree on a schedule.  Alternating holidays is most common when drafting the parenting schedule.  When both parents live close to one another, many families utilize a shared holiday model where the children spend time with one parent until noon, and the other  parent for the balance of the day; then the next year, they switch.  This works for Thanksgiving, Christmas, New Year's Day and other holidays.  
  2. Discuss the schedule with the children.  One solid co-parenting tactic is for both parents, once an agreement is reached, to communicate the schedule to the children.  This way, the children know in advance what to expect.  This can best be accomplished when both parents commit to rational communication and reasonable compromise for the children's sake.
  3. Keep the activities simple.  This tip is particularly essential when the children are relatively young and if the divorce is still fresh.  The wounds of the once-whole family have yet to heal; holidays are particularly painful for both children and parents.  Therefore, it makes sense to tone down the activities and avoid rushing hither and yon during your now-scheduled parenting time.
  4. Let your child express her feelings to you.  It is important to allow your children the opportunity to express their feelings of loss and disappointment and for you, as the parent, to validate those feelings.  What the child once experienced as an intact family unit has been fractured by divorce.  Therefore, pretending that everything is fine, or over-scheduling a whirlwind of activities to the point of distraction, will only add to the stress of your holiday parenting time.
  5. Involve your extended family.  The more love the child feels during the years immediately following a divorce, the better.  Therefore, schedule some quality family time with members of your extended family.  Certainly, this would be a great opportunity for your children to spend time with their grandparents, aunts, uncles and cousins.  If your extended family is highly dysfunctional then, er, not-so-much.  
  6. Avoid including a new "significant other".  This is the last thing you want to do at the holidays; not the time or the place.  Including your "significant other" too soon is a selfish thing to do to your children.  Upon reflection, you would probably agree that you would be doing that for yourself, certainly not for your children.  Children of divorce already struggle with guilt, a sense of loss, and insecurity.  They often perceive the introduction of a stranger, especially one that is close and intimate with their parent, as a threat, not a benefit from their parents' divorce.
Of course, the above holiday parenting tips must be adjusted to be age-appropriate.  There is no one-size-fits-all approach to this touchy subject.

Finally, a positive parental attitude over the holidays does wonders for a child's comfort and confidence.  Be the adult, not the child.

Sunday, December 11, 2011

Preparing for a Second Marriage

Many factors affect whether a second marriage will last: the relative age and incomes of the partners, whether either party has children, cohabitation prior to the second nuptials, and the education level of the parties.

And, of course, how could we forget the personality of the ex-spouse; perhaps the most important factor of all.

According to statistics published by the National Institute of Health, approximately 15% of second marriages end within 3-years; and 23% end within 5-years.  Overall, however, the divorce rate for second marriages has drawn even with that of first marriages; about 40%.  Also, in its 2009 report Marital Events of Americans, the Census Bureau claims first marriages last, on average, about as long as second marriages: about 8-years.

Here are some things to think about, and some steps to consider, before tying the knot for the second time.

Prenuptial Agreement.
For those with assets, this document is a must.  To be enforceable, the prenuptial agreement largely depends on two things: a) full disclosure by both parties of all their respective assets; and b) legal representation of each party by separate lawyers.  If your partner does not want to sign such an agreement, then you should seriously consider cohabitation rather than marriage.  This is a harbinger of trouble in the event of a split.

Couples with only modest estates going into second marriages generally do not need the complication of a prenuptial agreement.  If a marital estate grows during the second marriage, that estate will be subject to an equitable property division in the event of divorce.

Solid Estate Planning.
Prior to a second marriage, assets may be transferred into a trust for the benefit of the owner's children.  Also, retirement asset rollovers (from a 401(k) plan into an IRA, for example) can operate to protect the new spouse with survivor benefits, or not, as the case may be.

A Qualified Terminable Interest Property trust (QTIP) typically provides for interest income going to a surviving (second) spouse, with the principle going to the settlor's children from her first marriage upon the death of the second spouse.

Children from a prior marriage can also be provided for using an Irrevocable Life Insurance Trust.  This way, the new spouse can be designated as the beneficiary on the person's retirement assets and the children are designated beneficiaries of the death benefit from the life insurance policy.

Another common practice is to create a separate trust to provide for the distribution of separate property to the children from the first marriages and to create a joint trust to provide for the distribution of the marital estate of the second marriage. 
Good Premarital Counseling.
One of the best things a couple can do prior to tying the second knot is to participate in joint counseling.  This should include religious counseling or premarital couples therapy, financial advice, and (separate) legal consultation.  Once separate legal counsel is received, the couple can certainly compare notes in order to get on the same page.

Going into a second marriage with your eyes open improves the chances of a successful nuptials.  When selecting an attorney to assist you with the necessary planning, find one that truly listens to your expressed wishes and pays close attention to the characteristics of your estate.