What are the advantages of prenuptial agreements for international families?

What are the advantages of prenuptial agreements for international families?

Prenuptial agreements can be used to protect international family wealth and to ensure a fair settlement for all parties without the necessity of going to court.

This article relates to international families and their use of prenuptial agreements to make wealth planning decisions for the future. We look at what they are, how the courts view them in different jurisdictions and how and why they are currently being used.

What are prenuptial and postnuptial agreements?

‘Pre-nuptial agreements’ are also referred to as pre-marital agreements, ante-nuptial agreements and often shortened to ‘prenups’. They are contracts made by two parties in contemplation of marriage. They outline each party’s responsibilities and property rights in the unfortunate event of their marriage breaking down.

A ‘post nuptial agreement’ is one which is entered into during the marriage and may be, as with a prenuptial agreement, made in case of marital breakdown, or one which has been made following the breakdown of the marriage (a ‘separation agreement’). Post nuptial agreements made in contemplation of marital breakdown are often drawn up to re-enforce a previous prenuptial agreement. For ease of reading, we will refer to prenuptial agreements here.

Why do couples enter into prenuptial agreements?

In certain jurisdictions, prenuptial agreements are the norm. In others they are considered unusual, and frankly, unromantic! But there are good reasons for entering into an agreement these days in particular for wealthy families with an international lifestyle and a range of assets held globally hoping to ensure that this wealth stays with that party or his/her family:

  • to provide asset protection: protect family wealth from what has become an increasingly generous series of awards in favour of the weaker party and the vulnerability of inherited wealth, particularly in some common law jurisdictions. Where the wealth has been brought into the family solely by one party, and this could be for many reasons but including where one party is older and has successfully accumulated wealth by his own efforts or because a party has the benefit of family and inherited wealth. It is common for prenuptial agreements to ring fence premarital assets and allow for a fair distribution of only those assets which are accumulated during the marriage;
  • to simplify matters on divorce, create certainty and avoid lengthy and expensive litigation;
  • To protect the interests of children from a previous marriage;
  • Although traditionally seen as a tool for the wealthy, a prenup can also record and allow compensation to a party for giving up employment, or moving jurisdictions for the sake of the family.

How do the courts view prenuptial agreements?

There has been a significant change in attitude towards prenuptial agreements in recent years. Originally they were seen by the courts as a threat to the flexible jurisdiction which prevailed protecting the rights of the financially weaker spouse. In common law countries such as England and Hong Kong, family law has been designed to ensure a fair division of marital property, dependant on a number of different factors to determine who should get what in order to allow the parties to carry on with their lives as comfortably as possible after divorce.

The trouble was, the outcome was unpredictable and could differ from one judge to another, depending on his exercise of his judicial discretion. If there was a prenuptial agreement is was just one of the factors the court would consider. Prenuptial agreements were seen as a tool of the wealthy to limit the rights of the weaker spouse by making her (traditionally) sign an agreement which would arrange that a certain amount would be payable dependant upon the number of years they were married, how many children they had and so on.

However, with the increase in awards, particularly in common law jurisdictions, the perception of the prenuptial agreement has changed to one of prudent planning, so long as the rights of the weaker spouse and children are protected within the document.

Very recently in England, the Law Commission has recommended that there be a change in the legislation to make prenuptial agreements legally binding. This has been controversial as in many sectors of society, particularly the Church, prenuptial agreements are considered against public policy as they undermine the idea of marriage as a life long union. Now the papers are all reporting that DIY divorce will become all the rage as couples can write their own contracts before getting married which the courts will recognize as valid.

In reality, society has changed over the years and divorce has become commonplace. Consequently the courts have become more sympathetic to the parties’ wish to regulate their affairs in what is hoped to be a cost efficient way. In most jurisdictions, however, safeguards have been put in place to ensure that such agreements are fair, that financial responsibilities are met and they are not designed by the parties to defeat creditors. Some guidelines common to many jurisdictions are set out below.

Guidelines

Generally, a prenuptial agreement will be enforceable if:

  • Both parties have received independent legal advice – although this is not always fatal if a party was able to take legal advice but chose not to;
  • There has been full disclosure. It is important that each party has the information material to his or her decision and each party had intended that this agreement would govern the financial consequences of the marital breakdown;
  • There is no evidence of duress, fraud or misrepresentation which would in any event put a contract into question, but in addition to this, evidence of undue influence and other unworthy conduct, such as exploitation of a dominant position to secure an unfair advantage, may render the agreement unenforceable. It has been suggested that there should be at least 28 days between signing the agreement and the wedding to allow proper consideration of the implications of the agreement and to ensure that there is no question of pressure at the time of signing;
  • The agreement must be fair. If one party wishes to ring fence inherited or pre marital assets, it is as well to compensate the other party in the division of the post marital assets. If the marriage is long, inherited wealth, pre marital assets and trusts will all be more vulnerable to a claim. The law differs from one jurisdiction to the next in respect of premarital and inherited wealth but in England and Hong Kong the needs of both parties will be considered first. If there is any surplus for distribution, factors such as the duration of the marriage and whether the inherited or premarital wealth has been mingled and used by the parties in their general living expenses will be relevant. If so the funds will be vulnerable, even if there has been an attempt to ring fence that asset by, for example, putting it in a trust.
  • Special care should be taken to provide for children and the inclusion of a review clause is advisable as the contract may become less relevant over time.

Are nuptial agreements enforceable in all jurisdictions?

For the international client, it is important to know where prenuptial agreements will be enforceable. There is a tread, even where they are not enforceable, that they should be taken into account:

  • In most countries in Europe as well as the US and Russia, prenuptial agreements are strictly enforced and in China, they are enforceable under Article 19 of the Marriage Law;
  • In Canada, New Zealand and Australia they are binding generally. In Canada they are binding, so long as there has been independent legal advice and full disclosure. Further the courts can intervene if the provision for division of property is unfair. In Australia, prenuptial agreements are binding pursuant to Part VIIIA of the Family Law Act. In New Zealand, they are binding unless a court considers that letting the contract stand would cause ‘serious injustice’;
  • In England and Wales, following the 2010 Supreme Court case of Radmacher v Granatino, prenuptial agreements are enforceable, subject to certain conditions, and we await the outcome of the Law Commission’s report;
  • In Singapore, following the Court of Appeal case of TQ v TR, where, in addition to allowing the principle that a pre-nuptial agreement may be considered in a court’s determination of a fair result, it further held that foreign prenuptial agreements governed by foreign law will be given significant weight and would normally be enforceable
  • In Hong Kong, a recent case has determined that the English case of Radmacher is good law in Hong Kong too. Therefore it is likely that prenups, providing they contain the right conditions, will be enforceable.’

Are nuptial agreements enforceable between jurisdictions?

It is material where the agreement has been finalised but it is more important where the case is heard. In Radmacher v Granatino, the case involved a prenuptial agreement which had been settled in Germany, between a German wife and a French husband with a German law clause. As the couple were resident in London at the time of the divorce, and the petition was issued there, the matter was determined by the English court.

In Germany, the agreement would have been strictly enforced, in England, before its determination by the Supreme Court, it was not. The current disparity between jurisdictions can often give rise to a dispute over forum. The party in whose favour the prenuptial agreement has been made may well go to great lengths to establish that that country should hear the dispute as to financial division particularly where the contract is strictly enforced.

At present, if the case is to be heard in England or Hong Kong, the outcome is less certain. A governing law clause may help in a forum dispute, but may not be determinative. If there is a forum dispute, the whereabouts of the assets will be material.

Conclusion

Given the prevalence of prenuptial agreements and the fact that in most jurisdictions they are enforceable, they are a useful tool for international wealthy families. They are regularly viewed as prudent wealth planning, along with the creation of family trusts. The fact that inherited wealth and trusts, which would normally be vulnerable to asset division upon divorce, particularly in England and Hong Kong, can be ring fenced with a prenuptial agreement is particularly attractive.

However, even where such agreements are enforceable, care must be taken with the drafting as many agreements end up being litigated – the opposite of the parties’ intentions. There have been a string of high profile cases in Australia over the last few years. The idea of the ‘DIY prenup’ is therefore not an attractive thought and experts in the field should be consulted to avoid expensive court battles. https://www.withersworldwide.com/en-gb/people/philippa-hewitt

Enforceability of Pre- and Post-marital Agreements

Enforceability of Pre- and Post-marital Agreements

Enforceability of Marital Agreements

An important issue for the couple is whether the marital agreement will be enforceable. Generally, it will be upheld if it was entered into voluntarily and is not unconscionable. There are several facts the courts will look at to determine enforceability.

  • First, both parties must sign the agreement voluntarily. It should not be signed in circumstances that may indicate duress, coercion or undue pressure. This means that the parties should not sign the agreement en route to the wedding ceremony. Ideally, the agreement should be signed well in advance of the wedding.
  • Second, there must be full and complete disclosure of all of the assets, income and debts of each party before the agreement is signed. Assets include all bank, brokerage and financial accounts, all retirement accounts, such as IRA’s or 401-k’s, all stock, business and partnership interests, life insurance, personal property and real estate. Copies of current income tax returns should be exchanged to verify income. Finally, a list of liabilities, mortgages and credit card debts should be prepared by each party. This exchange of information should be made before the agreement is negotiated and well before it is signed. The agreement should also waive the right to any further disclosure of information.
  • Third, each party should be represented by his or her own attorney who can explain how the rights and obligations arising from marriage are modified or preserved by the agreement. An agreement that has been reviewed and revised by an independent attorney is more likely be viewed by the courts as having been entered into voluntarily and as being fair to both parties.
  • Fourth, some states make a determination whether the agreement was fair to both spouses when signed. Other states will not address this fairness issue when full and complete disclosure was made before the agreement was signed.

Internationally, not all countries will enforce a premarital agreement. For example, prenuptial agreements have historically not been considered legally valid in England. However, there is a 2010 Supreme Court case which indicates that such agreements can “in the right case” have decisive weight in a divorce settlement.

Thus, in England the law is quickly changing and while not strictly enforceable there, Englishcourts are becoming more open to considering them. Premarital agreements are not enforceable in the Bahamas. In Ireland, while not enforceable, the law gives Irish courts broad discretion in the distribution of property upon divorce and they can consider a premarital agreement.

Many jurisdictions specifically recognize both domestic and foreign premarital agreements (e.g., Japan). Some countries (e.g., Luxemburg and the Netherlands) are parties to the Hague Convention on the Law Applicable to Matrimonial Property Regimes which specifically authorizes premarital agreements. The Convention does not apply to (1) maintenance obligations between spouses; (2) succession rights of a surviving spouse; or (3) the capacity of the spouses. The Convention applies even if the nationality or the habitual residence of the spouse or the law to be applied by the Convention is not that of a contracting state. A marriage contract is valid as to form if it complies either with the internal law applicable to the matrimonial property regime, or with the internal law of the place where it was made. It must be in writing, dated and signed by both spouses.

In France, Belgium and Germany, the premarital agreement must be executed in front of a notary. In France, it cannot be amended during the marriage without the approval of the court. Most countries in continental Europe accept a properly drafted pre-nuptial agreement, including France, Belgium, the Netherlands, Germany, Switzerland, Sweden, Denmark, Norway, and Finland. While most jurisdictions will impose a default marital regime, it may be possible to change the default regime through an agreement.

In the United States, premartial agreements are recognized, although they may not always be enforced. Both parties should have lawyers represent them to ensure that the agreement is enforceable, there should be full disclosure of the couple’s assets, and it should be entered into far enough in advance of the marriage so as not to be considered entered into based on coercion.

Under the UPAA, a premarital agreement may not be enforced against a party if he or she provides (i) he/she did not execute the agreement voluntarily, or (ii) the agreement was unconscionable when it was executed and before execution of the agreement he or she (a) was not provided a fair and reasonable disclosure of the property or financial obligations of the other party; (b) did not voluntarily and expressly waive in writing any right to disclosure of the property or financial obligations of the other party beyond the disclosure provided; and (c) did not have (or reasonably could not have had) an adequate knowledge of the property or financial obligations of the other party.

Under the UPMAA, an agreement is unenforceable in four events:

  1. the party’s consent to the agreement was involuntary or the result of duress;
  2. the party did not have access to independent legal representation;
  3. unless the party had independent legal representation at the time the agreement was signed, the agreement did not include a notice of waiver of rights or an explanation in plain language of the marital rights or obligations being modified or waived by the agreement; or
  4. before signing the agreement the party did not receive adequate financial disclosure.

Each of these elements is explained in further detail in the UPMAA.

There are divergent interpretations of voluntary. An agreement has been found to be entered into involuntarily or as the result of duress when a significantly revised version of premarital agreement was presented 3 days before the wedding. However, in some instances an agreement presented the day before wedding was held to be voluntary.

If a party does not obtain independent legal representation then there should be a Notice of Waiver of Rights with conspicuously displayed language stating the following:

If you sign this agreement you may be: Giving up your right to be supported by the person that you are marrying or to whom you are married. Giving up your right to ownership or control of money and property. Agreeing to pay bills and debts of the person that you are marrying or to whom you are married. Giving up your right to money and property if your marriage ends or the person to whom you are married dies. Giving up your right to have your legal fees paid.

With respect to access to independent counsel, the UPMAA stops short of requiring representation for an agreement to be enforceable.

For reasonable financial disclosure, it pertains only to assets of which the party knows or reasonably should know. Disclosure will qualify as reasonably accurate even if a value is approximate or difficult to determine and even if there are minor inaccuracies. Some commentators have urged that a waiver of the right of financial disclosure be valid only if the waiver were signed after receiving legal advice. However, the UPMAA does not require legal representation for a waiver.

Some jurisdictions put the burden of proof on the party seeking enforcement of an agreement. Many jurisdictions impose greater scrutiny or higher procedural safeguards for marital agreements as compared to premarital agreements.

Unenforceable terms include those which (1) adversely affects a child’s right to support; (2) limits or restricts a remedy available to a victim of domestic violence; (3) purport to modify the grounds for a court decree, separation or marital dissolution available under law; or (4) penalizes a party for initiating a legal proceeding leading to a court decree, separation or marital dissolution.

Finally, the term in the premarital agreement or martial agreement which defines the rights or duties of the parties regarding custodial responsibility is not binding on the court. Custodial responsibility means physical or legal custody, parenting time, access, visitation or other custodial right or duty with respect to a child.

The basic point is that parents (and prospective parents) do not have the power to waive the rights of third parties (their current or future children) and do not have the power to remove the jurisdiction or the duty of the courts to protect the best interests of minor children. This also applies to stepchildren to whatever extent the state imposes child support obligations on stepparents.

The list of types of provisions that are unenforceable is not exhaustive. It is common to include escalator clauses and sunset provisions in premarital agreements and martial agreements making a party’s property rights vary with the length of the marriage. One case rejected arguments that sunset provisions in a premarital agreement are unenforceable because they are contrary to public policy. https://www.mwe.com

Leigh-Alexandra Basha

Leigh-Alexandra Basha

McDermott Will & Emery

Common law marriage, same sex marriages and divorce

Common law marriage, same sex marriages and divorce

Common Law Marriage

A right at common law to marry exists unless state law affirmatively changes the right. Common-law marriage can be contracted in eleven U.S. states: Alabama, Colorado, Iowa, Kansas, Montana, New Hampshire, Oklahoma, Rhode Island, South Carolina, Texas, Utah, and the District of Columbia. The requirements for a common-law marriage to be validly contracted differ in the eleven states which still permit them.

A common-law marriage is recognized for federal tax purposes if it is recognized by the state where the parties currently live or in the state where the common-law marriage began. If the marriage is recognized under the law and customs of the state in which the marriage takes place, the marriage is valid. Whether a state will recognize a common-law marriage from another state varies by state.

For instance, in Virginia a marriage’s validity is determined by the law of the state where the marriage took place, unless the result would be repugnant to Virginia public policy. Virginia does recognize a common-law marriage that is valid under the laws of the jurisdiction where the common-law relationship was created. If a couple runs the risk of being married at common law, they should consider a pre or post martial agreement.

Same-Sex Marriages

Same-sex marriage is legally recognized nationwide in Argentina, Belgium, Canada, Denmark, Iceland, the Netherlands, Norway, Portugal, South Africa, Spain, and Sweden. In Mexico, same-sex marriages are only performed in Mexico City, but these marriages are recognized by all Mexican states and by the Mexican federal government. Israel does not recognize same-sex marriages performed on its territory, but recognizes same-sex marriages performed in foreign jurisdictions.

In Brazil, the state of Alagoas performs same-sex marriages. Also, in other states, a same-sex couple may convert their civil union into marriage with the approval of a state judge. If approved, that marriage is recognized in all the national territory. As of 2012, proposals exist to introduce same-sex marriage in at least ten other countries.

In the United States, the federal government will recognize same-sex marriages validly conducted under the laws of a state that recognizes same-sex marriage (i.e., California, Connecticut, the District of Columbia, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, and Washington).

In California, Registered Domestic Partners (“RDPs”) may also enter into a pre-nuptial agreement. Pre-nuptial agreements for Domestic Partners can have added complexities because the federal tax treatment of Domestic Partners differs from that of married couples. It should be noted, if state law extends full community property treatment to RDPs, each partner must report one-half of the combined income derived from community property on his federal income tax return. This applies whether received in the form of compensation for personal services or income from property. California, Nevada, and Washington apply full community property rights to RDPs.

The Defense of Marriage Act (“DOMA”) denies federal benefits to same-sex married spouses, including the right for a U.S. citizen to petition for an immediate relative visa for their spouses. When DOMA was enacted in 1996, Congress defined “spouse” under all federal statutes to refer to only a husband or wife of a person of the opposite sex. The Immigration and Nationality Act (“INA”) does not contain an explicit definition of spouse, however, because immigration is a matter of federal law, the definitions set forth in DOMA apply to the U.S. Citizenship and Immigration Services.

However, it has been announced that the Department of Justice will not defend DOMA in certain cases and a U.S. district court has declared the law unconstitutional. Most recently in United States v. Windsor the United States Supreme Court ruled that section 3 of DOMA is unconstitutional. Section 3 requires that for purposes of federal enactments, marriage is limited to the union of one man and one woman and the word spouse is defined as someone of the opposite-sex who is a husband or wife.

As a result of Windsor, the provisions of the Internal Revenue Code as well as other federal laws will be applied in the same manner to married same-sex couples as they are to married opposite-sex couples–at least for those married same-sex couples residing in states that recognize their marriages. It is unclear whether the provisions will also apply to married same-sex couples who are residing in a state where the marriage is not recognized. Thus, to the extent that same-sex couples’ marriages are recognized at the federal level, it appears that married same-sex couples will have the same federal tax treatment as married opposite-sex couples.

Recently, the Congressional Research Service issued a report entitled “The Potential Federal Tax Implications of United States v. Windsor (Striking section 3 of the Defense of Marriage Act (DOMA)): Selected Issues. While Windsor is significant by providing federal benefits to same sex couples, it also may have some adverse tax implications e.g., expose the couple to the “marriage penalty”, i.e., having a higher tax liability when filing taxes as a married couple than their combined tax liability when filing as two single taxpayers.

Other married same-sex couples may benefit from a “marriage bonus” when they have a lower tax liability when filing as a couple than their combined tax liability when filing individually. In Windsor, where a same-sex couple married in Canada, the Court held that the decedent’s estate was entitled to the marital deduction for assets passing to her surviving spouse.

Couples entering a same-sex marriage or a civil union should consider a premarital agreement to address the same issues as opposite-sex couples.

Divorce

Foreign divorces are generally recognized under the discretionary principle of comity. However, “no State is bound by comity to give effect in its courts to the divorce laws of another State repugnant to its own laws and public policy.”

Domicile and residency in the foreign country at the time of the divorce and service of process, or adequate notice, are often important factors considered by state courts in determining whether to award comity to foreign divorces.

  1. For example, in the context of immigration laws, the Fourth Circuit has recognized that “the domicile of the parties has long been recognized as the primary, if not the exclusive, basis for the judicial power to grant divorce.”
  2. It is also important that the foreign country recognize the divorce as valid. Accordingly, whether a state court will recognize a foreign divorce requires a facts-and-circumstances analysis that will depend upon the domicile of the parties, the jurisdiction of the foreign court, and the procedures utilized by the foreign jurisdiction to award the divorce.
  3. Generally, “the talaq, while a valid means of divorce in Pakistan and Iran, is not recognized in the U.S. when said by a Muslim to his non-Muslim wife. . . . The talaq when said to a Muslim woman and confirmed by a foreign government is usually recognized.” https://www.mwe.com
Leigh-Alexandra Basha

Leigh-Alexandra Basha

McDermott Will & Emery
common law

Maud Udry-Alhanko

McDermott Will & Emery

Introducing Pre- and Post-Marital Agreements

Introducing Pre- and Post-Marital Agreements

Marriage today is more complex than ever given the high rates of divorce, second marriages, blended families, and increasing globalization of couples. Anyone with significant property, an inheritance, a family business, or children from a prior marriage ought to consider a pre-marital agreement. Those entering a same sex marriage or civil union should also consider one. If the couple is multinational or goes global, there could be unintended changes to property ownership and tax consequences.

What additional considerations should a couple take into account in planning for their marriage and the pre-marital agreements? While different sources present different lists, in 2012 the following were the counties with the highest divorce rates:

  1. Russia
  2. Aruba
  3. USA
  4. Panama
  5. Ukraine
  6. Belarus
  7. Moldova
  8. Cuba
  9. Czech Republic
  10. South Korea

More striking is the fact that in the United States, the rate of divorce for 1st marriages is approximately 50%, for 2nd marriages 60% and for 3rd marriages 70%. [https://www.divorcestatistics.info/divorce-statistics-and-divorce-rate-in-the-usa.html]

A premarital agreement may be one way to address issues not just upon divorce or death, but upon a move to a new jurisdiction.

This paper will examine the premarital agreement (including the international premarital agreement) and postmarital agreement, what they seek to achieve, tax and other considerations including planning for same sex couples, common law marriages, and couples on the move.

The Premarital Agreement and the Postmarital Agreement

Definition:

  • Premarital Agreement: A premarital agreement (or prenuptial or ante-nuptial agreement) is a contract between a couple prior to marriage or a civil union that typically provides how property owned before or acquired during the marriage will be divided in case of divorce or at death and can provide for alimony or maintenance. The agreement can be as broad or as limited in scope as the couple desires, except certain jurisdictions, including the United States, do not allow a marital agreement to govern child support or child custody rights.
  • Postmarital Agreement: A postmarital agreement seeks to achieve the same objectives as a premarital agreement, but it is entered into after the couple is married.
  • International Premarital Agreement: There is no such thing as an “international premarital agreement” per se. If more than one jurisdiction is involved, a couple should consider the law of each such jurisdiction. These different jurisdictions may include: where the couple celebrates their marriage, their first marital abode, their nationality, their residence, their domicile, and the location of their assets. In some instances, any one of these factors could connect the couple to a particular jurisdiction thereby requiring the advisor to look to the law of that jurisdiction. Not all countries recognize premarital agreements so one must always consult local counsel. When a couple is married, their advisor should review the nationalities of the couple, their residence, and the location of their assets. The law of the country that will govern the dissolution of the marriage may affect the marital regime or the use of a pre or postmarital agreement. For instance, some countries do not consider pre and post-nuptial agreements to be valid, so some couples will be unable to vary their marital regimes.

Legal and Tax considerations

The primary objective of a premarital agreement is to settle property rights in case of divorce or at death and maintenance in the case of divorce.  Except for child support, a couple is free to enter into any type of agreement they wish. There are many important issues to consider, such as:

  • Choice of Marital Regime:  In some jurisdictions( e.g., France), the parties are free to choose their marital regime e.g., separation de biens, communaute universelle or communaute reduite  aux acquets. Similarly in Germany, one can override the “default” marital regime of community o accrued gains or “Zugewinngemeinschat” by selecting other optional marital regimes such as exclusion of any community o property (“Gutertrennung”) or of general community of property (“Gutergemeinschat”).  In the United States, if the parties reside in a common law (separate property state) they cannot choose community property as their marital regime. This may be an oddity of U.S. tax law which permits a double basis step up upon the death of one spouse for those residing in community property states.
  • Definition of Non-Marital or Separate Property: This includes property owned before marriage, gifts and inheritances, including in some states interest and dividends earned by that property.  Non-marital property typically is not divided on a divorce and will pass on death without a claim by the surviving spouse.  However, a couple could agree to use non-marital property for the purchase of a residence and that could be treated as marital property.
  • Definition of Marital Property:  This is property acquired after the marriage other than separate property, but the agreement can limit this to only property in joint name or designated in writing as marital property.  The parties can specify how marital property is divided on a divorce or distributed at death.
  • Wages and Earned Income: Under most state laws, earned income, wages, and Social Security benefits acquired after marriage are marital property.  The agreement can provide, however, that earned income is to be treated as non-marital property.
  • Retirement Plans:  Contributions to retirement plans after the marriage are generally treated as marital property.  The couple can agree to allow each party to accumulate retirement benefits separately.  The agreement can also provide that each party may name someone else as the beneficiary, but to be effective the participant’s spouse must sign a waiver of rights to a qualified retirement plan after the marriage.
  • Maintenance or Alimony: A party can agree to waive maintenance or alimony in case of divorce or agree to a specified schedule of payments.   The couple needs to consider the ability of each spouse to support himself or herself after the divorce if circumstances change, such as the birth of a child.  Some states allow a court to award maintenance or alimony if due to unforeseen circumstances the spouse would suffer undue hardship or be eligible for public support at the time of the divorce.
  • Death: The couple can agree on how their property will be distributed on death including the waiver of certain spousal estate rights.  A party is free to name his or her spouse in his or her will or trust or may make lifetime gifts.  The couple may specify how the marital residence will be distributed if the owner dies first.  Sometimes, the surviving spouse is given the right to remain in the residence for period of time after the first spouse’s death. In the absence of an agreement, in common law states, a surviving spouse has a statutory right of election to receive a specified percentage of the probate estate or a fixed percentage of the augmented estate e.g., in Virginia.  In community property states, each spouse has the right to dispose of his or her separate property and one-half of the community property.  With an agreement, a spouse can completely waive all spousal rights including statutory right of election, community property interests, and miscellaneous rights such as homestead allowance, exempt property, and family allowance.
  • Guardianship: Conditions of guardianship may be included as well in some countries, although not in the U.S.

The Premarital and Postmarital Agreement – consider it when tying the knot or thereafter.

Leigh-Alexandra Basha focuses her practice on domestic and international tax and estate planning. She counsels an affluent international client base on a wide range of sophisticated matters, including estate and trust administration, family wealth preservation, foreign trust planning, tax compliance, as well as business succession, expatriation, and pre-immigration planning. Leigh is head of the Firm’s Washington, DC, Private Client Practice Group.

Leigh-Alexandra Basha

Leigh-Alexandra Basha

McDermott Will & Emery
common law

Maud Udry-Alhanko

McDermott Will & Emery
Advantages of Marital Agreements for Entrepreneurs

Advantages of Marital Agreements for Entrepreneurs

Marital agreements help entrepreneurs to safeguard themselves and their families against any claims from third parties. They can be also useful to protect their company in the event of a divorce, and in the event of their death or incapacity to act.

What are the advantages of marital agreements for entrepreneurs?

Entrepreneurs want to safeguard themselves and their families against any claims from third parties. They also wish to protect their company in the event of a divorce. And, furthermore, they would like to be in control of what happens to their company, not only today, but in the future, in the event of their death or incapacity to act.

Swiss family law offers entrepreneurs a powerful management tool in the form of marital agreements. Each individual case has to be analysed with regard to its specific aims and framework conditions. The objective is a personalised solution that takes account of the individual needs of the entrepreneur.

Swiss matrimonial property law provides for three property regimes:

  • The Marital Property Regime of Participation in Acquired Property, as the statutory type of regulation.
  • The Separation of Property.
  • The Community of Property.

The Separation of Property and the Community of Property can be substantiated via a marital agreement. Marital agreements require notarisation in order to be valid.

Participation in acquired property: During the existing marriage, the assets, debts, income and expenditure of the spouses (apart from those for the joint household andthe fulfilment of the duty of matrimonial support) are kept separately.  In the event of the termination of this regime due to divorce, the assets accrued during the marriage will be shared fifty-fifty between the spouses respectively the heirs.

In the case of companies this can lead to illiquidity and pose a threat to a company’s continued existence. In order to avoid this, a pre-existing company can be transferred to the entrepreneur’s individual property. This means that the entrepreneur’s spouse no longer has any claim to it.

Separation of property: In the event of a divorce, each spouse retains whatever property he/she brought to the marriage. In the event of the death of a spouse, the property succession is exclusively subject to the rules and provisions governing inheritance.

The transferral of companies, property and other assets to the individual property of one spouse is becoming increasingly possible within the community of property (however, this is not effective in the case of divorce). Companies and other assets can also be shifted to the common property of both spouses under the community of property provision and be transferred to the surviving spouse by way of inheritance with effect in rem.

However, the community of property is only to be recommended if neither spouse has any personal liability risks. It has the advantage, which should not be under-estimated, that the surviving spouse receives the company or shares in the company directly as property by way of inheritance and can compensate the co-heirs in another way, according to his/her choice. This then avoids a state of limbo in the property and controlling interests following the death of an entrepreneur.http://www.burki-law.ch/

common law

Nico H. Burki

Burki Rechtsanwälte