Relationship dissolution planning.

• Author: Bucher, Elaine M.
• Position: Nuptial Agreements, part 1

The divorce rate in the U.S. is astronomical. Nearly half of recent first marriages end in divorce.(1) In addition, the rate of domestic partner relationships is increasing. With the increase in such relationships, there is a concomitant rise in the dissolution of such relationships.

This article is written in two parts. Part I discusses prenuptial and postnuptial agreements in the context of relationship dissolution planning. Part II of this article will address the transfer and retitling of assets and revisions to estate planning documents in contemplation of a relationship dissolution.

Types of Nuptial Agreements

There are two types of nuptial agreements: prenuptial agreements and postnuptial agreements. Prenuptial agreements (also known as premarital agreements or antenuptial agreements) are agreements entered into by the parties contemplating marriage prior to marriage that set forth the rights and obligations of each party in the event of death or divorce, and during the marriage. Postnuptial agreements (also known as postmarital agreements) are agreements entered into by the parties after marriage that set forth the rights and obligations of each party in the event of death or divorce, and during the marriage. Postnuptial agreements can be used when no divorce is contemplated or when divorce is not imminent. When divorce is imminent, postnuptial agreements are referred to as separation agreements.

Purposes of Nuptial Agreements

There are three main purposes of nuptial agreements. The first purpose is to provide for the protection of assets in the event of divorce of the parties. In property division, Florida follows the theory of equitable distribution. In other words, the court will make an "equitable" distribution of the property and assets of the marriage based on the circumstances of the parties. F.S. [section]61.075 provides for the equitable distribution of marital assets and liabilities.

Until the landmark Florida case, Posner v. Posner, 233 So. 2d 381 (Fla. 1970), most courts refused to enforce the provisions of a nuptial agreement relating to divorce or separation, reasoning that nuptial agreements covering divorce encouraged divorce and violated legal principles requiring marriage until death. In Posner, the court began to eradicate the idea that nuptial agreements which focused on the possibility of divorce were not void per se.

A second purpose of nuptial agreements is to provide for the distribution of the parties' assets in the event of the death of a party. Certain provisions should be included in a nuptial agreement to ensure that each party's assets are protected in the event of such party's death.

A third purpose of nuptial agreements is to delineate the obligations of each party during the marriage. For instance, the nuptial agreement may address which party is responsible for certain expenses during the course of the marriage. The nuptial agreement may also dictate whether the parties must file joint federal income tax returns, or must do so only at the request of one party.

Requirements of Nuptial Agreements

Florida has not adopted the Uniform Premarital Agreement Act. (2) However, Florida statutes and case law provide that nuptial agreements that meet certain requirements will be enforced by a court. (3) The requirements are as follows:

* Complete Financial Disclosure--Individuals who contemplate marriage are in a confidential relationship with each other. Florida case law provides that this confidential relationship gives rise to a duty to make a full and fair disclosure of the nature, extent, and value of the assets that each party holds so that the other party may make an informed decision as to what will be relinquished as a result of entering into the nuptial agreement. (4) Notwithstanding the foregoing, F.S. [section]732.702(2) provides that while disclosure is required in connection with an agreement waiving rights in the event of death that is executed after marriage, no disclosure shall be required for such an agreement, contract, or waiver executed before marriage. It is strongly recommended, however, that each party provide the other with full and fair disclosure in order to avoid a Florida court concluding that the nuptial agreement is invalid.

Each party must disclose his or her net worth (all assets and liabilities, and the values and amounts thereof), as well as income.5 While the income tax returns of each party should certainly be reviewed and included as part of the agreement, the preparer of the nuptial agreement must be cognizant that such returns do not include nontaxable income.

Disclosure must be complete, but it need not be exact. (6) The nuptial agreement should indicate what the value reflects (fair market value, book value, cash value, etc.). Information regarding such values, such as the party's federal income tax returns for the three years prior to the date of the nuptial agreement, appraisals, and brokerage statements, should be provided to the other party and his or her attorney for review and inclusion as part of the agreement.

Complete financial disclosure is unnecessary if the nuptial agreement makes a fair and reasonable provision for the other party or if the other party has a general knowledge of the character and extent of the other's assets, liabilities, and income. (7) However, complete...