Special Advertising Section: Family Law in Dallas
Can at-risk marriages hold up in an even riskier economy?
Two family lawyers may not agree about much during a divorce trial, but one thing they won’t argue over are the two big reasons couples divorce – sex and money. In hard economic times, stress causes married couples to fight about both, but in the end, family lawyers say it’s the financial strain that prompts them to call it quits.
For high net worth couples, divorce in any economy is a challenge due to the tricky division of a complex estate. A crumbling economy introduces a new element into these already messy divorces.
For some couples, a recession rushes the decision to split. Now may be the time to file if there are fewer assets to divide. Some couples, in anticipation of the economy getting even worse and their income declining, decide it’s best to file while their debts are still low and they don’t depend on each other as much for financial assistance. Others may try to stall the divorce in hopes their partner’s assets will regain value later. Just a few years ago, a divorcing couple might argue over who gets the equity in a home. Today, they may argue about who has to take the home and its attached debt in a depressed housing market. Never before have couples on the brink of divorce watched economic trends and the real estate market so closely or paid such careful attention to the timing of bonus payouts. This is especially true for couples who measured the success of their marriage by that of their investment portfolio. Jeff Anderson, lead counsel with The Anderson Law Firm, says when people are faced with tough economic times and don’t have a solid foundation in their marriage, it’s often too late to fix the underlying problems.
“No matter what state the economy is in, the principal reason people divorce is a lack of fundamental marriage skills,” he says. “When times are good and money isn’t tight, couples can distract themselves from problems in their marriages by spending extra money on things which take their minds off of unpleasant issues. But those problems don’t go away. They’re just masked by diversion. When money is in short supply, the unaddressed hardships in the marriage become magnified by the stress of financial insecurity. Couples blame each other for their unhappiness. The original issues in the marriage undermine the union’s ability to survive bad times. One partner or the other reaches a point where they no longer wish to make it work. By the time the relationships reach this point, many marriages are over.”
Mike McCurley, partner with McCurley Orsinger McCurley Nelson & Downing, L.L.P., has practiced family law for 35 years. He’s seen tough economies, and couples, come and go through the years. If a couple is contemplating a divorce, their fear of the unknown during a recession is what triggers when and how the divorce will happen, as well as its intensity. “The problem isn’t necessarily the economy,” McCurley says. “It’s fear. Fear is contagious. When you have a situation where two partners aren’t operating at their maximum capacity, the fear and stress they feel can take more energy and time than what they put into working on their relationship.”
If the word ‘divorce’ hasn’t been brought up in conversation between partners, but one or both have seriously, yet quietly, been considering ending the marriage, it’s time to seek professional legal advice. Now more than ever is the time to protect assets and your estate, as recovering a loss won’t be as simple as it would have been just a year ago. Today, good legal advice in divorce is just as critical as good financial planning advice and should actually go hand in hand, McCurley says.
Kelly McClure, a family lawyer with McClure Duffee & Eitzen L.L.P. says her practice has taken on more clients than usual in the past six months, even just for initial consultations. High-profile and high net worth clients know that making poor decisions in divorce can be more costly than ever before. “More people are coming in to find out what their situation would entail should they decide to end their marriage,” McClure says. “Our practice traditionally is more active during bad times because money is such a precipitator for divorce and causes so much stress. We have couples who realize it’s simply too expensive to get a divorce right now, and we have couples who realize it’s smarter now because there is less to divide, meaning the cost of the divorce itself less. We also have couples who might normally take their case to court decide to work it out through collaborative law because it’s more discreet, more amicable, and often much less expensive. This is a time that causes people to really reflect on what they have and what they want. I caution all of my clients to carefully consider the decision, both emotionally and financially.”
Any divorce, no matter the financial circumstances, requires the advice of an experienced family law attorney. This is even more important when an entire estate is up for grabs. McCurley says potential divorce clients should seek an attorney who is experienced in a variety of types of family law, from litigation to mediation to collaborative law. You may go in thinking you know how you want to get a divorce, but your personal set of circumstances may require something completely different, he warns.
“You want to approach the divorce in a pre-mediated, careful, and expert fashion,” McCurley says. “There’s really no way to get a divorce without feeling some level of a financial pinch. The attorney you choose can help with the level of the pain you experience, at least financially. You want to seek the most sophisticated, creatively driven, expert advice possible. In this kind of economy, taking the ostrich approach—sticking your head in the sand and waiting to see if it will get better – is not a smart one. You want to be the one who is better prepared and educated about your assets and liabilities. If you have a problematic marriage now, you want to an experienced board certified lawyer who specializes in all areas of family law who will advise you every step of the way in helping you prepare for a divorce, should one occur.”
Of all the words you exchange with your soon-to-be spouse at the altar on your wedding day, the most meaningful are “I do.” Emotionally, you’re saying “I do” to loving, cherishing, and honoring your mate for the rest of your life. Legally, you’re saying “I do” to a business partnership. From that moment on, in Texas at least, everything you have is equally divided between you. Marriage symbolizes the joining of two lives, and in the dizzy whirlwind of selecting the perfect flowers, cake, and dress it’s easy to lose sight of the fact that you’re also merging your finances until either death–or divorce–do you part.
While they appreciate the beauty and romance of a wedding, Dallas family lawyers wish they could encourage more engaged couples to add exploring the advantages of a prenuptial agreement to their wedding plans. If more couples took a break from choosing china patterns to talk about their financial future and the protection of their assets, they might reduce the risk of that same china being shattered years down the road in a fight over who’s getting what in the divorce. Sure, drawing up papers for a prenuptial agreement during the engagement might steal away some of the romance, but the process doesn’t have to be contentious.
McCurley says most prenuptial agreements have both a positive and negative side. He advises his clients to look past the negative affiliations of prenups, such as mistrust and hoarding assets, and look at the agreement as a financial planning tool rather than an early plan to exit the marriage.
“Prenuptial agreements can put a bad taste in your mouth during a time that’s supposed to be a celebration of love, happiness, and trust,” he says. “When not handled correctly, prenups can wilt the beautiful flowers you spent months selecting. The intent of a prenup is to protect two people getting married, not create mistrust. If you approach it in a realistic manner and make it a part of your financial planning—especially in second or thereafter marriages—it’s less about trust and more about protection of the assets you’ve both worked so hard to achieve. If children or other family members are involved, you can look at a prenuptial agreement as a way to protect their financial futures as well.”
Also referred to as a premarital agreement, a prenup is a private agreement between two persons who plan to marry. By drafting and signing the agreement they are settling, in advance, financial matters should death or divorce occur. In most cases, the prenup will override any state’s family and probate laws that otherwise would be standard. In order for a prenuptial agreement to be valid, couples must adhere to the rules—full and fair disclosure, separate and independent counsel, and plenty of lead time prior to the marriage.
Most prenups include assets, liabilities, income, and expectations of gifts and inheritances; description of how premarital debts will be paid; a resolution of what happens to your premarital property in reference to appreciation, gains, income, rentals, dividends, and proceeds of such property in the event of death or divorce; a decision of who will own the marital residence and secondary homes in the event of death or divorce; a specification of the status of gifts, inheritances, and trusts either spouse receives or benefits from before or after marriage; division of individually or jointly owned property; determination of alimony, maintenance, or spousal support; explanation of death benefits in a will; and decisions about medical, disability, life or long-term care insurance coverage.
But can’t a couple who is in love just make these decisions on their own without legal involvement? Sure, but it’s not the most safe option.
“Almost every couple would benefit from a prenuptial agreement,” says Edwin Davis
, the only family lawyer in Texas who is board certified in both family law and tax law. “Prenuptial, post-marital, and cohabitation agreements are normally entered to clarify and protect the characterization of assets and debts, and to clarify and protect the rights and obligations of parties during marriage, and in the event of death or divorce. Many of the horror stories from divorce could have been avoided with prenuptial agreements.”
Kathryn Murphy, a family law attorney with Goranson, Bain, Larsen, Greenwald, Maultsby & Murphy, P.L.L.C.,
says prenups are advisable for people with a large amount of property who wish to have the protection of a premarital agreement signed prior to marriage. “The agreement must be signed by both parties,” Murphy says. “If the agreement is properly executed, it is presumed to be enforceable, and they are very difficult to challenge. The Texas Legislature manifested a strong policy preference that premarital and postmarital agreements are enforceable when they are voluntarily entered into. Prenuptial agreements may simplify financial situations that become complicated at the time of divorce.”
Many engaged couples avoid premarital agreements not only because negotiating them is uncomfortable but because they don’t understand how they work or how enforceable they are. “If someone is trying to challenge the enforceability of the agreement, he or she has the burden of proof on the issue, and he or she must show that it was not signed voluntarily, or that it was “unconscionable” when it was signed and certain disclosure requirements were not met,” Murphy says.
“With regard to whether the agreement was signed voluntarily, the courts have looked to whether some evidence exists that a party’s signature was coerced and free will was overcome by duress,” Murphy says. “In interpreting the issue of unconscionability, Texas appellate courts have evaluated the cases on a case-by-case basis, looking at the entire atmosphere in which the agreement was made. Unfairness is not material to the unforeceability of a premarital agreement.”
Polly Rea O’Toole, a partner in the family law firm of Atkins O’Toole & Briner L.L.C.
, says the best way couples can approach a prenuptial agreement is to look at it as protection for both of them, not just for the monied spouse. The non-monied spouse, who is often the one wary of such an agreement, might need protection of a prenuptial agreement in the event of a spouse’s death. For example, prenuptial agreements can guarantee a home and the payment of life insurance proceeds in the case of death. “I understand that couples can see a prenup as mapping out the end of a marriage before the cake has been cut,” O’Toole says. “But if you can look at a prenuptial agreement as an opportunity for financial planning, then negotiating the agreement can be a precedent for healthy communication about finances during the marriage.”
It’s no secret that successful marriages are built on equality. And this reason alone is a good way to begin a conversation with your partner about a prenuptial agreement, as these contracts help establish equality in a marriage from the beginning. Without it, you’re leaving the division of assets in the case of death or divorce in the hands of the courts which don’t always split an estate 50/50. Although the idea of talking about death and divorce during the most romantic period of your relationship is tough at best, most family lawyers agree there really isn’t a better time to discuss “what if” than when the relationship is at it’s strongest and most optimistic—the very beginning. After all, a marriage based on reality has a much better chance of survival than one based on illusion.
Much of the conversation can take place before you ever see an attorney. Schedule a time to talk privately about how you feel about money, financial goals and aspirations, and fears about your financial future. Most likely you can lay the groundwork about what you both expect prior to your first meeting with attorneys. Consider discussing the following topics during the conversation.
How do you and your partner define equality in a marriage? What non-monetary contributions are important to you—staying at home with children or staying at home to run the household and support the working spouse’s career endeavors? How important is the protection of pre-marriage assets—home, pension plans, stocks, inheritance, or property with significant emotional value? Do you both agree that children from a prior marriage receive their intended inheritance? How do we allocate pre-marriage ownership/partnership in a business? How should we protect ourselves from each other’s debt prior to marriage?
“While premarital agreements can be very beneficial, I’ve had clients who feel like they destroy the trust going into the marriage,” says Diane Snyder
, a family law attorney in Dallas. “However, if you have an experienced attorney and are educated about both the positive and negative aspects of these agreements, you can have a very mature and logical discussion about it. It’s a balancing act.”
One of crucial elements of discussing a pre-marital agreement is the timing. The rehearsal dinner certainly isn’t the best time to bring it up, nor while registering for wedding gifts. Choose a neutral location and a time when both of you are relaxed and open for discussion. Most of all, implement the details well in advance of the wedding so that majority of the engagement and wedding planning can be spent focusing on the big day rather than the prenup. By beginning the conversation early, you have plenty of time to include ideas and work out any issues that arise.
Couples who acquire the majority of their assets after they have been married may decide to protect them with a postnuptial agreement if they never signed a prenuptial agreement. Or, according to McCurley, many couples intended to sign a prenuptial agreement but just never got around to it. Once the excitement of the wedding and honeymoon ends, they realize just how important this missed step is in the success of their marriage and get to work on a postnuptial, or postmarital, agreement. As blissful as a newlywed couple might be, they are still susceptible to family laws in Texas, and unanticipated death or divorce remains a possibility no matter how slight.
“It’s never too late to define and protect your assets in a marriage, whether it’s your first, second, or even third and beyond,” McCurley says. “In fact, ironing out the details after the marriage may bring a peace of mind that will help you move forward together in planning for your financial future. Career changes, inheritance, business acquisitions—anything can happen that can dramatically change your financial status as you proceed in your marriage. I prefer to look at post-nuptial agreements as a financial planning tool.”
A postnuptial agreement is a similar contract to a prenuptial agreement except that it’s voluntarily signed by both parties during the marriage rather than before. Again, fair disclosure and separate independent counsel are the two primary rules in a postnup agreement. These agreements are valid as long as there is proof of full-disclosure of assets, a lack of duress during the creation of the agreement, and that it’s fair to both parties.
When deciding how to draft a postmarital agreement, you’ll want to discuss the assets and debts you’ve acquired as well as future income opportunities; the current financial status of the relationship including spending habits and financial roles and responsibilities; financial problems you’re experiencing; expectations about division of property in the case of death or divorce; and expectations about inheritance to children from a previous marriage if applicable. Much like a will, you’ll need to revisit the agreement periodically especially whenever your lifestyle or financial situation changes.
According to McClure, many couples find that a postnuptial agreement is the best way to resolve any re-occurring arguments about financial issues in their marriage. Once they have it in writing and signed, they can move on and enjoy the best parts of their marriage. She says postnuptial agreements have come a long way through the years, as they once were commonly linked to deceit and mistrust.
Now, thanks to open communication between both attorneys and the couple, they are connected with open, honest dialogue and full disclosure. In many cases, a postnuptial agreement creates financial accountability in a marriage, McClure says. “Maybe one spouse feels like the other’s spending is out of control,” she says. “A postnuptial agreement can put a cap on that person’s spending, say $10,000 per month. If he or she goes over it, that amount comes out of the settlement that would be awarded in the event of death or divorce”
Postnuptial agreements are also a good way to make sure that both parties rest easy that, should the marriage end in divorce, they won’t have to accept a ‘one person takes all’ settlement. There will be an agreement already in place about who gets what.
“It’s like an exit clause, just in case,” McClure says. “It creates a healthier environment. I think couples secretly fear that if one of them decides to leave the marriage, the one left behind will be left with nothing or that they’ll be left with a huge liability. With a postnup, you have a built-in estate planning tool that benefits both parties. It’s the perfect way for a couple to manage expectations.”