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

2/25/2019 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 – 12 th 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 2 1

2/25/2019  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 3  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 4 2

2/25/2019  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/ 5  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 6 3

2/25/2019  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 7  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 8 4

2/25/2019  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 9 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 10 5

2/25/2019  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 11 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 12 6

2/25/2019 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 13 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 14 7

2/25/2019 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 15 10. Closing letter – send one! Outline any risks to enforcement (e.g., Oregon Grossman issue)  Amendments must be in writing, including termination  Urge periodic review, especially if parties change jurisdictions  Comply with agreement (e.g., no commingling)  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)  16 8

2/25/2019  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 ownership upon dissolution 17  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” 18 9

2/25/2019  Death provisions:  Does the agreement apply in the event of death?  Amy will discuss provisions to consider 19  Automatic termination provisions – risky  Lifestyle provisions – likely unenforceable  Younger parties  Consider reproductive assistance provision  Best not to waive spousal support if planning on children 20 10

2/25/2019  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 21  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 22 11

2/25/2019  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 23  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 24 12