Protecting Individual Wealth in New York with Prenuptial Agreements

Prior to 1980, New York's statutory regime for the distribution of property at divorce was a simple one.  The property in question was awarded to whichever spouse held title to it.  Given that women had recently begun entering the labor force as a result of the feminist movement, few women had accumulated much wealth before marriage or even after marriage.  Most husbands still held title to the property shared by the couple.  More often than not, the title system of property division at divorce left the wife in financially difficult circumstances.  A wife could be awarded alimony, but courts were reluctant to do so.  Thus divorced women easily slipped into poverty, at times becoming wards of the State.

Then in 1979 the United States Supreme Court in Orr v. Orr (440 U.S. 278 (1979)) declared that divorce laws that only provided alimony for wives and not husbands were unconstitutional because these laws violated the Equal Protection Clause of the Fourteenth Amendment.  The New York law was thus unconstitutional under Orr, and the State legislature was pressured to act to reform New York's divorce law.

The enactment of Domestic Relations section 236 part B, known as the equitable distribution law, was the result of the redrafted law.  Equitable distribution means that a court can look at the totality of the marital assets acquired jointly or separately during the marriage and divide them fairly between the spouses.  In practice and under the law, this means that no two marriages are alike.  Under equitable distribution, the goal is fairness and judges have latitude and discretion to assess each spouse's economic and non-economic contributions to the marriage.  

In New York, marriage is viewed by the courts as an economic partnership and not solely as a sacred bond.  The judge determines the dollar value of a spouse's non-economic activities, such as housework and child-rearing, and then adds that figure to the totality of the assets to be divided equitably.  Equitable distribution replaces alimony in New York.  Thus, a spouse’s post-marriage economic welfare often depends upon the size of the equitable distribution award.

Since the passage of New York’s equitable distribution law in 1980, an individual’s ability to earn a living and to create wealth prior to marriage has vastly increased.  Women and men are earning college and professional degrees in increasing numbers.  Career and professional women are also delaying marriage and child-bearing, factors that contribute to wealth-building.   Both men and women are saving for retirement in their own savings vehicles.  

As a result, each person's personal wealth acquired prior to a marriage may need to be protected in case of a termination event (divorce, separation, and death).  It is possible that one spouse entering a marriage may have substantially more assets than the other spouse and that one person’s ability to earn money may far outstrip the wage-earning capacity of his/her spouse after the marriage.  Should the couple divorce at a later time, absent a prenuptial agreement the court under equitable distribution will look to the couple’s standard of living during the marriage, among other things.

In order to be valid, each person engages separate legal representation so that the prenuptial agreement can be negotiated at arms length, as with any contract negotiation.  In addition, each party must fully disclose all assets and liabilities.   Like any other contract, it must be a signed writing that clearly states that the parties understand and intend to circumvent equitable distribution.

Therefore, a couple about to enter marriage and wishing to protect their separate future earnings and capital investments from equitable distribution in the event of a divorce or separation may want to budget for the legal fees associated with the drafting of a prenuptial agreement.  

If you would like to discuss your own personal situation with me, or put together a prenuptial agreement that is tailored for your needs, you can get a free 30-minute consultation simply by filling out this contact form. I will get back to you promptly.

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Foreign Prenuptial Agreements: A Tale of Two Cities, Two States, and Two Property Regimes

They met in Paris in the summer of 1965. She was a Canadian student studying at the Sorbonne. He had just graduated from college. They fell in love and decided to get married in Paris. Prior to the nuptials, she requested that they execute a "Contrat de Mariage," a premarital agreement under the French Civil Code. In order to abide by all of the French formalities relating to the execution of the agreement, she hired a "notaire" and arranged for an interpreter to be present in order to assure the protection of her fiancé's rights. The purpose of executing the prenuptial contract was to opt out of the default community property regime in France in favor of the "separation of estates" regime.

There are two marital property regimes in France. When if a couple does not execute a premarital contract, the default regime is the community property regime (communauté légal), under which all assets and properties acquired during the marriage become the joint property of both spouses. Where a couple does not want to have such joint ownership, they must execute a "Contrat de Mariage" whereby they retain ownership of their separate property and at death their property is passed on to their respective heirs and not to each other.

After their wedding, the couple moved to New York where they resided for the next 38 years. She worked as a professor and later as a cultural counselor for the Quebec government, all the while caring for the couple's two children. He worked in finance, having been trained as an economist. Over the course of their marriage, she acquired between $700,000 and $800,000 in liquid assets, while he acquired around $7 million in liquid assets. Together they purchased a country home in Lenox, MA in 1988 and a co-op apartment on Fifth Avenue in 1998.

She moved their belongings into the apartment in early 1999 and began living there in March. He did not move in. Instead he sent her a letter asking for a divorce. He first commenced a divorce action in New York, an equitable distribution state. For a number of reasons, he discontinued his divorce action in New York (a grounds state, where no-fault divorce is not allowed) and initiated a new action in Massachusetts in 2001, but it was dismissed for lack of jurisdiction. In the meantime, she began a divorce action in New York while he again filed for divorce in Massachusetts. He was finally granted a no-fault divorce in Massachusetts, but the Massachusetts court referred all economic issues back to New York for adjudication.

These are the facts recited in the case of Van Kipnis v Van Kipnis (2007 NY Slip Op 06074 [43 AD3d 71]), a case that would finally be decided in 2008 New York's highest court, the Court of Appeals (11 N.Y. 573 (N.Y. Dec. 18, 2008)). At issue was the validity of the French marriage contract that specifically opted out of the community property regime. In its opinion in favor of the husband, the Appellate Court, First Department found that the contract was unambiguous in setting down a framework for separate property. Specifically, the court focused on the first article of the contract titled "Marital Property System":

"The future spouses declare that they are adopting the marital property system of separation of estates, as established by the French Civil Code.

"Consequently, each spouse shall retain ownership and possession of the chattels and real property that he/she may own at this time or may come to own subsequently by any means whatsoever.

"They shall not be liable for each other's debts established before or during the marriage or encumbering the inheritances and gifts that they receive.

"The wife shall have all the rights and powers over her assets accorded by law to women married under the separate-estates system without any restriction."

The Appellate Court further found that the couple had effectively ratified this contract over the 40 years of their marriage by keeping all of their liquid assets in separate accounts. As to the real estate properties, the Supreme Court below had agreed with the findings of a Referee and had awarded the co-op apartment to the wife, as well as $7,500 a month in maintenance and a substantial portion of her legal fees, and the country home to the husband.

The Court of Appeals ruling agreed with the court below and went further to clarify the status of prenuptial agreements in New York, including those that may have been contracted abroad:

"The Domestic Relations Law therefore contemplates two basic types of prenuptial agreement that affect the equitable distribution of property. First, parties may expressly waive or opt out of the statutory scheme governing equitable distribution (see e.g. Bloomfield, 97 NY2d at 193; Housset v Housset, 200 AD2d 508, 509 [1st Dept 1994]). Second, parties may specifically designate as separate property assets that would ordinarily be defined as marital property subject to equitable distribution under Domestic Relations Law § 236 (B) (5). Such property would then remain separate property upon dissolution of the marriage. In either case, the intent of the parties "must be clearly evidenced by the writing" (Tietjen v Tietjen, 48 AD3d 789, 791 [2d Dept 2008]). "

In the Van Kipnis case, the prenuptial agreement followed the second schema by designating as separate property assets that would have ordinarily been defined as marital property.

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