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 THE PRACTICAL PRE-NUP: Why Clients Should Choose Mediation or Collaborative Law to Create a Premarital (or Postmarital) Agreement
I)
Introduction A premarital agreement should be a "planful" document that addresses three points I call the marriage triangle: (1) What happens if one of us dies? (2) What happens if we divorce? (3) How are we going to organize our day-to-day and long-term finances? If an estate planner prepares the document, that attorney should consult with a family law specialist to be sure the family law matters are handled properly. If a family law attorney prepares the document, that attorney should consult with an estate planner to be sure the "death provisions" of the agreement are consistent with the clients' estate planning goals and take advantage of estate planning techniques designed to minimize estate taxes. To the extent possible, the couple should be treated as an "economic unit" to minimize taxes and otherwise enlarge the "family pie." Be sure to work with tax experts or other financial planners to achieve this goal. B. How not to Negotiate a Premarital Agreement: The Bomb or the Tiffany Box. 1. The Bomb "The Bomb" is the way I describe the premarital agreement that arrives at my office approximately 6-8 weeks prior to the wedding. My client (in this example, the lower-asseted spouse and wife-to-be) sits across my desk with a rosy glow. Often, she is ready to dispense with the obligatory review of the document. My assignment is to explain to her the rules of community property in California - such as the fact that earnings are community property. It is then my task to explain that the agreement prepared by her fiancé's lawyer provides for no community property and no sharing of earnings. And by the way, she will also not have any right to inherit from him. At this point, I am met with either massive upset since they have never discussed the terms, or total acceptance: "We love each other and I am not marrying him to get rich." In response to "Ms. Upset," I must write to the opposing counsel and explain why this one-sided deal is not acceptable to my client and persuade him or her to begin a process of negotiating an agreement that will work for both the parties. Meanwhile, the document has damaged the trust between the couple and cast a serious cloud over the wedding preparation. Now, while selecting flowers and choosing wedding cake, "Ms. Upset" must now also negotiate her future financial well-being. In response to "Ms. Acceptance," I must decide whether to (1) prepare a "CYA" letter documenting my summary of the law and my explanation that the premarital agreement leaves her worse off than if there were no agreement, and ask her to sign that letter before I sign the premarital agreement, or (2) choose not to continue my representation. 2. The Tiffany Box In this example, my client is sent a fully drafted premarital agreement that contains generous provisions for her. The "deal points" might be as follows: there will be a community, Wife will "earn-in" to Husband's separate property estate by a transfer of stock and cash in a generous amount on each anniversary until they each own 50% of the total. (For example, Husband transfers 1% of his estate each year. After a 50-year marriage, they would be equal.) Upon death, Wife will receive 25% of Husband's estate if there are no kids and 50% if there are kids regardless of the length of the marriage. My client's reaction? "What a great gift!" The Tiffany Box process usually leads to a successfully completed Agreement. It fails, however, to create a foundation for the relationship. The process does not empower the non-asseted spouse, who is not involved in planning for the couple's future. C. Thinking Outside "The Box": The Case for Mediation and Collaborative Law in the Negotiating of Premarital Agreements. 1. Process Matters Mediation and collaborative law are voluntary processes appropriate for premarital agreements. They can result only in a negotiated settlement. Mediation is a process where the couple meets alone with the mediator and through a series of three-way meetings, reaches agreement. Collaborative law is a process where each client is actively represented through a series of four-way meetings attended by both clients and both lawyers. In either process, the clients participate in all sessions. No matter how wealthy, how busy, or how important they are, by attending the mediation or collaborative law sessions, the couple are investing in the marriage. The very process of mediation or collaborative law - with everyone present - means that the marriage is being represented. Participation in an active process also shows voluntariness. Voluntariness became an essential component of enforceable premarital agreements following Marriage of Bonds. In 2001, the Legislature codified the voluntariness requirement of premarital agreements in Family Code section 1615(c). A process where the couple meets together with family law and estate planning counsel, and agree together on the cornerstones of their financial future (day-to-day, death, and divorce) demonstrates voluntariness far more than a negotiation that takes place primarily through the filter of counsel. Once an agreement is reached whether through mediation or collaborative law, each party should then take it to an independent attorney for review. The reviewing counsel should assure that all the requirements of Family Code section 1615 are met. 2. Use Questionnaires to Involve Both Parties. Before I meet with a couple about the preparation of a premarital agreement, I ask them to jointly fill out a Premarital Agreement Questionnaire. This simple step causes the couple to reveal their financial situation, and discuss their expectations and goals for the premarital agreement. It starts the process with the couple being actively and meaningfully involved in the preparation of the premarital agreement. 3. Encourage Clients to Select a Process That Supports the Marriage and Empowers Them.
I explain to the clients the obvious advantages of both members
of the couple being in the same room discussing the "deal points":
you hear the same information at the same time; you can understand
what is important to the other; you can explore estate planning
concepts and save time by not having to re-do a premarital agreement
later when you learn that your estate planning goals were not reflected
in the agreement; it is more efficient; it is less expensive. The
couple are empowered as a couple when they engage in the process
of creating their future. After all, they, and not the drafting
attorneys, will be living the marriage! III) Conclusion The next time you have a new premarital case or get a call to just "write up a premarital agreement" for a family friend, take a moment to reflect on the process. When I ask new clients if they prefer to engage in a process where we all sit down together to plan their future, the answer is always, "I do."
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