Forget the fancy registry items or the checks for the honeymoon. If you come from a family that has built real generational wealth, the best gift you can give is a prenuptial agreement. It provides financial clarity and helps keep the family legacy intact. Isn’t this more valuable than the new kitchen appliance? It is a relief to be able to design your financial future with your future spouse and create your own marital contract instead of leaving it to the state to decide who will get what in the event of a divorce.
If you hear the word prenup and think of divorce, you are missing the bigger picture. Prenuptial agreements actually give you a better chance at having a successful marriage because your marriage will be built on a foundation of honesty and transparency.
The Problem With the New York Valuation Gap
Most family wealth comes from generations of hard work. Your family built a legacy and you have an obligation to protect that legacy. If you have a financial stake in a family business or a trust and no prenup, a New York divorce can be costly, difficult and invasive. Look, for example, at the divorce between Matthew Whitman Lazenby and Kristin Lazenby. Mathew Lazenby’s family has owned the Bal Harbour Shops located in the wealthy area of Miami Beach for over 60 years. Lazenby’s wife Kristin wants her share of her husband’s partnership interest in the Bal Harbour Shops and of course wants the financial records so she can pursue her claim. Had the Lazenby couple had a prenup, they may not be embroiled in this bitter divorce battle now. Significantly, the family business may not have been dragged into this divorce. If your family has a business, you need to make sure you have a prenup.
Many people hold the mistaken belief that owning a business before the wedding means it is safe from equitable distribution in a divorce. That is not, however, the complete picture. In New York, if that family business value appreciates while you are married and you were active in the business, your spouse will likely have a legal claim to the increase of value. This applies even if spouse made no direct contributions to the appreciation of the business as they may have made indirect contributions such as taking care of the children, taking care of you, overseeing the household so you could focus on the growth of the family business.
Imagine your family business is worth 10 million dollars when you marry. Twenty years later, it is worth 20 million dollars. With a prenup, you and your spouse can determine ahead of time what your spouse’s share of the value is if any. The point is that you really don’t want to leave this to a judge to determine. You want to determine this ahead of time. Making these decisions ahead of time will likely save your family and your employees from a massive headache
Watch Out for Commingling and Transmutation
In New York, inheritances are technically yours. But the moment you use that money to pay down a mortgage, for capital improvements or put it into a joint account, it can become marital property. The rules are strange and often feel unfair.
If you receive a $500,000 inheritance, place it in a jointly titled account with your spouse and then use that jointly titled account to pay down the mortgage, you may be transmuting your separate property into marital property. In the event of a divorce, you could lose a portion of your inheritance. If, however, you had made it clear in a prenuptial agreement as to what would occur in the event of receiving an inheritance, you may instead keep all $500,000 and even the appreciation. A prenuptial agreement can cover what you have now and what you might receive later. Even if you use inherited money during the marriage, your prenuptial agreement can make sure that the inherited money is protected.
Trusts and Generational Wealth
Generational money is often held in trusts or partnerships. Without a prenup, these assets get dragged into the divorce process. Even if your future ex spouse cannot touch the trust itself, a judge might consider the trust income when deciding how much alimony your spouse should receive.
If your prenup explains exactly what happens to assets held in trust, your family money can remain in the family and the legacy can continue. You can make sure, for example, that the family monies are inherited by your children instead of passing to your former spouse’s new spouse and their children. It also protects other family members who rely on that money. If your parents help you buy a home or an apartment, you may want to ensure that the money contributed by your parents remains with you in the event of a divorce. I can’t tell you how many clients I have had whose parents contributed to the marital home. Facing a divorce, they want to be credited with that money but if the money didn’t get transferred in just the right manner and there was no prenuptial agreement, your spouse may receive part of that money.
Clarity is a Real Gift
One of the best parts of a prenup is that it facilitates a conversation about money. Most marital disputes concern spending and saving. Dealing with these issues prior to your marriage saves a lot of angst later.
A prenup requires both people to have money conversations. You show what you own and what you owe. Some say prenuptial agreements aren’t romantic but I disagree. Making sure you and your spouse are on the same page financially will enhance your marriage and make communication easier. It will be honest, transparent and alleviate disputes later. Once your prenuptial agreement is signed, you and your future spouse can focus on building the best marriage together.
Signing a prenuptial agreement doesn’t mean that you expect your marriage to fail. It is just the opposite. It means that you are maturely and transparently designing your own marital contract. Why let the courts and the state decide how assets and income should be divided when you and your future spouse have the power to create and design a marital contract just for the two of you. A prenuptial agreement is a sign of respect for your future spouse and your upcoming marriage. You and your spouse aren’t going to leave your financial futures to chance. You are going to seize the opportunity to take control of your financial futures together. You are going to protect your lives, your family legacy and your future family. Entering into a prenuptial agreement may be the smartest move you can make.
Lisa Zeiderman, Esq.
New York Divorce and Family Law Attorney