Review risks of drafting prenups and how to avoid them Tips on - - PDF document

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William J. Howe, III & Amy J . Cross Bill: Vice-chair Oregon Statewide Family Law Advisory Committee and family law practitioner with Gevurtz Menashe, P.C., Portland, OR Amy: Estate planning lawyer with Gevurtz Menashe, P.C. Collaborative Professionals of Washington – 12th Annual Conference & Training March 8, 2019, Vancouver, WA, USA

 Review risks of drafting prenups and how to avoid them  Tips on drafting prenups in a way most likely to be enforced,

regardless of jurisdiction

 Negotiating prenups in a way that recognizes the clients’ fears

and doesn’t kill the romance

 In short: Avoiding embarrassment, getting paid and not sued

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2/25/2019 2  Earliest prenups in ancient Egypt  Marriage contracts common in England until 1753 when

couples required to be married in church

 In U.S. largely void as against public policy until 1960s  Valid since 1957, but Unander v. Unander, 265 Or. 102

(1973) – prenups valid only if fair at time of enforcement

 Uniform Premarital Agreement Act (UPAA) - 1983

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 Clients seek autonomy – as when they make a will  Address client’s fears  Trend in law favoring privatizing relationships: No fault divorce,

domestic partnerships, prenups, same-sex marriage

 Prenups reduce divorce probability  Changing demographics: Only 50% married, more women as

“have” spouse, marrying later, unmarrieds with children

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2/25/2019 3  44% of singles want a prenup before marriage  5% of divorces have a prenuptial agreement in place  63% believe that they would be at a higher risk of divorce if

their partner asked them for a prenuptial agreement

 50% of law students believe that a prenup would increase

their chances of divorce

 Source: https://brandongaille.com/18-interesting-prenuptial-

agreement-statistics/

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 Planning tool – like purchasing fire insurance  Statistically less likely to get divorced if have a

prenup!

 Everyone has a prenup – if you don’t have one it is

what the statute and case law dictate

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2/25/2019 4  Agreement and any amendment must be in writing  Can affect property and support, not children’s issues  Effective upon marriage, no consideration required  Unenforceable if:  Not voluntary  Unconscionable = no reasonable disclosure, or waiver of disclosure, or

adequate knowledge of finances

 Oregon has no “second look” provision

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 No UPAA or other statute  Prenups and postnups can substitute private ordering for

community property presumptions and “just and equitable” rules

 PROVIDED:  Agreement is substantively fair (reasonable from the perspective of the

“have not”), OR

 Procedurally fair (voluntarily entered into, with legal advice and

knowledge of rights waived by the “have not”)

 Burden of proof on party seeking to enforce agreement

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2/25/2019 5  If voluntary = enforceable even if unfair  Favored predictability over fairness (but 14 states have “second look”

rules)

 Commercial contracts unenforceable if unconscionable at execution  Invited legal contortions to avoid unfairness (See Rudder)  No plain language or waiver of lawyer requirement  Not uniform – only 26 states adopted and many amended

(Washington has not adopted UPAA)

 Does not include postnups

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Uniform Premarital and Marital Agreements Act (UPMAA) adopted by Uniform Law Commission in 2012 - Colorado and North Dakota have adopted UPMAA



Some changes from Uniform Premarital Agreement Act (see Linda Ravdin article)

 Separates unconscionability from financial disclosure

 Contract unconscionability at time of execution (grossly unfair terms or process) is now a defense (UPAA made enforceable if voluntary), e.g., lack of financial disclosure, involuntariness, and lack of access to counsel

 If no legal counsel need to include waiver of rights  Includes postnups

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2/25/2019 6  Varying rules on whether prenups are enforceable  Where enforceable, topics that may be covered vary

 Can spousal maintenance be waived?  Will choice of law provisions be enforced?  Many jurisdictions have some “fairness” type escape clause

 Where enforceable – different formalities and waiting

periods apply – also see variations among U.S. states

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• 1. Full disclosure: Assets, income, health issues, tax issues, other

financial risks (e.g., threatened litigation, support promises, anticipated debts like student loans). NEVER WAIVE DISCLOSURE!

• 2. Parties must understand agreement: Have a lawyer (not just

cursory review) and draft in as plain language as possible

 “My rich fiancé's big shot lawyer drafted this agreement and I am supposed to

spend a few minutes with a lawyer to review and sign it”

 FORGET IT – Unless you enjoy testifying in divorce cases for free and facing

a possible malpractice claim

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• 3. No duress or undue influence – recommend 14+ days

before marriage, parties must embrace the agreement

• 4. Not “unconscionable” – no “scud missile” drafts!

 Rudder and Rudder: Unconscionable vs. Involuntary  Involuntary = No lawyer, no access to lawyer, close to wedding,

unsophisticated party, lack of full disclosure or waiver of disclosure, failure to understand rights waived, lack of capacity, fraud or duress

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• 5. Clear choice of law provision for both validity and

interpretation

• 6. Comply with formalities of all likely jurisdictions
• 7. Deal with death, as well as divorce/separation
• 8. Careful about waivers of spousal maintenance or

including children's or lifestyle issues = risks unenforceable

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• 9. NEGOTIATE USING COLLABORATIVE MODEL:



Direct communication - generally communicate with both parties and lawyers, but note partial waiver of attorney client privilege



But review and check in separately with client



May involve a litigation waiver and mental health, financial or tax professional(s)



May take the form of mediation followed by unbundled lawyers drafting agreement



Benefits:

 Vastly heightened client satisfaction  Parties take responsibility for positions they take, minimizes lawyer-driven contentiousness  Usually less expensive  Insulates lawyer from most malpractice risks

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• 10. Closing letter – send one!

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Outline any risks to enforcement (e.g., Oregon Grossman issue)

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Amendments must be in writing, including termination



Urge periodic review, especially if parties change jurisdictions

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Comply with agreement (e.g., no commingling)

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If you represent “have-not” and agreement is onerous, urge client to continue working, get disability insurance, fund an IRA and the like



RESIGN – “I am doing no more work” OR “I am doing only this task”



Keep the file forever (treat like a will)

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2/25/2019 9  Spousal support options:  Waive – not good plan with younger folks  Non-waiver – e.g., prenup does not waive spousal support but “have’s”

income from separate assets not considered but “have not’s” is

 Fixed payments tied to length of marriage  Marital gift – sometimes used to provide safety net in the

event of dissolution and for waiver of spousal support

 Residence – often best if marital, at least over time, define

• wnership upon dissolution

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 Carefully define “separate property” – include

appreciation and debts

 Dissolution property division options:

 Separate property to owner  Marital property divided 50/50 or “just and proper”  May court consider “have’s” wealth in division?  Best to have some “safety net”

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2/25/2019 10  Death provisions:

 Does the agreement apply in the event of death?  Amy will discuss provisions to consider

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 Automatic termination provisions – risky  Lifestyle provisions – likely unenforceable  Younger parties

 Consider reproductive assistance provision  Best not to waive spousal support if planning on children

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2/25/2019 11  Older parties: Social security benefits, Medicare

eligibility, liability for medical bills, income tax issues. Amy will discuss in detail.

 Make prenup consistent with estate plans  Certain medical expense obligations cannot be waived

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 Trump insisted on prenups and aggressively enforced them  Donald and Ivana (1977 to 1990)  Czech Olympic skier and model and mother of three  Amended three times  Ivana claimed entitled to half of net worth because she would not have

affirmed if she had been aware of “his adultery and philandering”

 Prenup largely upheld – Ivana awarded $25 million plus $650,000/year

in support

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2/25/2019 12  Gail Brod’s 1993 “Premarital Agreements and Gender Justice”

argued bias:

 Against women as a socioeconomic class  Women married older men, earned less themselves, where usually the

“have-not,” felt pressure to be married and temperamentally were more willing to compromise

 Socioeconomic conditions of woman have changed since 1993  Extreme view – Catherine MacKinnon’- Culture is so male

dominated that female “consent” = surrendering to social constraints

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 Issue not gender bias but power imbalance between “have”

and “have not” (see history of spousal support when made gender neutral)

 Or issue of consent can be trauma informed  Solutions:  Problem with gender bias is that solutions are paternalistic and restrict

right to contract

 Better UPPMA recommendations  Or “look back” or restrict spousal support waiver

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2/25/2019 13  Since 1990s more woman are “haves” – greater number

• f professional women, inherited and family wealth

 Bias now seems more to prejudice the “have not”

regardless of gender

 Solutions to gender bias tend to limit rights to contract

and be paternalistic – Linda J. Ravdin’s strong view

 See Elizabeth Carter article - strongly disputes gender

bias contention

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 Insisted on prenups and aggressively enforced  Donald and Ivana (1977 to 1990) –  Czech Olympic skier and model and mother of three  Amended three times  Ivana claimed entitled to half of net worth because she would not have

affirmed if she had been aware of “his adultery and philandering”

 Prenup largely upheld – awarded $25 million plus $650,000/year in

support

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2/25/2019 14  Donald and Marla – 1992 to 1997

 Divorce filed just before trigger that would have increased

settlement

 Prenup enforced - Marla received $2 million plus nanny costs,

tuition and expenses for daughter Tiffany

 Ivana and Riccardo - 1995 to 1998

 Ivana $45 million, Riccardo $10 million  Enforced - each awarded their separate assets and no support

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 Donald Trump advice from Trump: The Art of the

Comeback: “Be paranoid. Be lucky. Get even. Have a prenuptial agreement.”

 Ivana Trump advice from dialogue she uttered in The First

Wives Club: “Don’t get mad, get everything.”

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2/25/2019 15  It is a privilege to be asked to draft a Prenup  Risks are manageable – collaborative model is best  Be realistic about the time required and the fee  Allow the clients to drive the process

29 

Prenups for Lovers: A Romantic Guide to Prenuptial Agreements by Arlene Dubin, Random House, 2001 – excellent, accessible to clients

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Premarital Agreements: Drafting and Negotiation by Linda J. Ravdin, ABA, 2011 – Outstanding, national expert on prenups

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“The Collaborative Law Process for Prenuptial Agreements” by Donna Beck Weaver, 4

• Pepp. Disp. Resol. L.J. 337 (2004)

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“Current Trends in a Growth Area: Prenuptial Agreements” by Arlene Dubin & Rebecca Provder, New York Law Journal, NYLJ Special Reports Newsletter, July 30, 2012

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“Mediating Prenuptial Agreements” by Frank Garfield, Family Law News, Vol. 32, No.3, Issue 3, 2010

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“Rethinking Premarital Agreements: A Collaborative Approach”, by Elizabeth R. Carter, 46 N.M.L.Rev. 354 (2016)

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Bill Howe – whowe@gevurtzmenashe.com; 503-227-1515

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2/25/2019 16  1) Capacity is Important in Collaborative Cases  2) Detail “At Death” Provisions in Prenups  3) Negotiate Prenups to Plan for Future Incapacity  4) Malpractice Tips: Closing Letter and Estate Planning  5) Estate Planning Options for Clients With Prenups

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 1) Capacity is Important in Collaborative Prenup Cases  2) Detail “At Death” Provisions in Prenups  3) Negotiate Prenups to Plan for Future Incapacity  4) Malpractice Tips: Closing Letter and Estate Planning  5) Estate Planning Options for Clients With Prenups

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2/25/2019 17  Our population in aging  Aging is accompanied by physical and mental impairments  Examples of impairments:  Active Drug and Alcohol Use/Abuse  Mental Health Disorders or Stress  Memory Impairments (dementia, Alzheimer’s Disease, brain Injury,

brain tumor, or other cognitive & neurological diseases)

 Physical Impairments (hearing loss, sight loss, less mobility)  Make detailed notes to the file

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 When representing an impaired client:

 Lawyer must maintain a normal attorney-client relationship to

extent reasonably possible

 Impairments come in a spectrum of severities:

 Requiring modest accommodation – or in contrast,  Requiring aggressive action – including the lawyer making

disclosures and taking action reasonably necessary to carry out the purposes of representation

 Be cautious about disclosing client’s impairment to others

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2/25/2019 18  Identifying and Evaluating Potential Impairments and

Diminished Capacity in Washington State:

 RCW 7.77.110 – Standards of professional responsibility and

mandatory reporting not affected (Uniform Collaborative Law Act)

 RPC 1.6 – Confidentiality of Information  RPC 1.14 – Client With Diminished Capacity  WSBA Advisory Opinions 2099 and 2190  OSB Formal Opinion No. 2005-41 – Competence and Diligence  ABA Formal Opinion 96-404 – Client Under a Disability

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 1) Capacity is Important – Even in Collaborative Cases  2) Detail “At Death” Provisions in Prenups  3) Negotiate Prenups to Plan for Future Incapacity  4) Malpractice Tips: Closing Letter and Estate Planning  5) Estate Planning Options for Clients With Prenups

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Waiver of Elective Share (OR only) or Minimum Distribution (WA & OR)

 ORS 114.600 & 114.605

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Community Property (WA only)

 divided equally  or all to survivor  RCW 26.16.030, 26.16.020, 26.16.010

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Life Insurance or Marital Gift to Provide Safety Net

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Preserve Survivor’s Rights to Live in the Family Home

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Preserve Survivor’s Rights to Receive Support

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 1) Capacity is Important in Collaborative Cases  2) Detail “At Death” Provisions in Prenups  3) Negotiate Prenups to Plan for Future Incapacity  4) Malpractice Tips: Closing Letter and Estate Planning  5) Estate Planning Options for Clients With Prenups

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2/25/2019 20  Couples are marrying later  Health and finances change over time, impacting:

 Social Security, Medicare and veterans benefits  Long term care needs and benefits planning  Medicaid eligibility – prenups and spousal obligation of support

 42 USC 1396r-5(c)(3)

 Plan for incapacity of one or both spouses

 Family dynamics and ongoing support for healthy spouse

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 1) Capacity is Important in Collaborative Cases  2) Detail “At Death” Provisions in Prenups  3) Negotiate Prenups to Plan for Future Incapacity  4) Malpractice Tips: Closing Letter and Estate Planning  5) Estate Planning Options for Clients With Prenups

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2/25/2019 21  Closing letter to client after prenup finalized:  Include reminder to update estate plan  Estate Planner should review prenup obligations and terms  Include reminder to update death beneficiary designations

 Retirement  Life Insurance

 Provide immediate referral to skilled estate planning attorney  To review prenup obligations and terms  Create plan that meets client goals – this may change over time

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 1) Capacity is Important in Collaborative Cases  2) Detail “At Death” Provisions in Prenups  3) Negotiate Prenups to Plan for Future Incapacity  4) Malpractice Tips: Closing Letters and Estate Planning  5) Estate Planning Options for Clients With Prenups

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 Financial Durable Power of Attorney:

 Effective immediately or only upon incapacity?  Who will be the client’s Agent under the DPOA?  Provisions to support spouse in the DPOA?

 Medical Directive – End-of-Life Instructions:

 Consider how to include new spouse in end-of-life decision-

making while maintaining financial separateness

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 Customize Estate Planning to Match Prenup and Client Goals:  Separate trusts to avoid community property pitfalls

 Choice of trustee  Estate tax planning - Credit Shelter Trusts - may work with prenup

 Irrevocable Life Insurance Trusts to provide for spouse or children  Narrow the terms of the couple’s Community Property Agreement  Planning for future gifts and inheritance  IRA Conduit and Accumulation Trusts (there are some income tax issues)  Real Property Trusts and Irrevocable Education and Gifting Trusts

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“Tips for Representation a Client with Diminished Capacity” by Candice A. Garcia-Rodrigo, ABA, November 7, 2018

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“Suspect a Client with Cognitive Impairment? What’s Next” by ABA, November 27, 2017

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“Ethical Challenges and Responsibilities When Working with Clients with Diminished Capacity” by Kerry Peck, ABA, September 26, 2017

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“Divorce as Temporary “Diminished Capacity”” by Collaborative Practice Marin Blog Article, Collaborative Practice California, January 23, 2019, http://www.collaborativepracticemarin.org/cpm-blog/divorce-as-temporary- diminished-capacity

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“Do You Need a Prenup” by Jane Bryant Quinn, AARP (2012)

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Amy Cross – across@gevurtzmenashe.com; 503-227-1515

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