What Financial Planners Should Know About Prenuptial Agreements

by Natalia Kujan Gentry, Esq

What is a Prenuptial Agreement?

• A legally binding agreement between a couple, stating how the assets would be divided if the marriage fails to last. Black’s Law Dictionary 2d Ed. 
• They are also known as antenuptial agreements and there are postnuptial agreements that are executed after the marriage.

What can a Prenuptial Agreement Accomplish?

• Attempt to fashion an award of certain property.  
• Establish valuation methods for assets for closely held business interests, stock options, and real estate.
• Ensure assets owned prior to the marriage, gifts and inheritance (separate property) remain separate property.    
• Lay groundwork for rights to embryos. 
• Lay the foundation for the separation and maintenance of digital assets. 
• Structure an Estate Plan (40% of marriages in 2013 had at least one spouse who had been previously married). 
• Establish confidentiality agreements (particularly important with celebrity clients or clients hoping to protect their social networks). 
• Bar or cap spousal support. 
• Bar or cap the payment of attorney fees. 
• Determine the method of litigation (if any). 

What are the Downsides or Risks of a Prenuptial Agreement?

• Frequently cookie-cutter documents that do not accomplish your client’s goals.
• May not be drafted by a qualified professional or reviewed by independent counsel and your client may have waived a right with devastating consequences. 
• Prenup may be poorly drafted and is either unenforceable or is enforceable but does not say what your client thought it did. 
• Assets were not properly valued at time of drafting (no experts used to value real property or businesses). 
• Cannot waive rights to ERISA plans unless a Postnuptial Agreement is signed which not all practitioners know/do and few clients execute after the marriage. 

Prenuptial Agreements in Michigan

• MCL 566.132(1) Requires that prenups be in writing in consideration of marriage. 
• A postnuptial agreement must have actual consideration (something of financial value). 

Rinvelt v. Rinvelt, 190 Mich.App. 372; 475 N.W.2d 478 (1991) 

• First Michigan case to enforce a prenuptial agreement (written in 1991!). 
• The Michigan Court for the first time recognized that the prenuptial agreement encouraged marriage rather than discouraged marriage.
• Rinvelt stated that prenups provided people the opportunity to ensure predictability, plan their future with more security and most importantly, decide their own destinies. 
• Rinvelt allowed couples to think through through the financial aspects of their marriage beforehand which can only foster strength and permanency in the relationship. 

Rinvelt Factors for Enforceability  (still applied today)

1. Was the agreement obtained through fraud, duress, mistake, or misrepresentation or nondisclosure of material fact? 
2. Was the agreement unconscionable when executed?
3. Have the facts and circumstances changed since the agreement was executed, to make its enforcement unfair and unreasonable?

Allard v. Allard, 318 Mich.App. 583; 899 N.W2d 420 (2017)

Landmark decision, “parties cannot, by antenuptial agreement, deprive a trial court of its equitable discretion under MCL 552.23(1) and MCL 552.401.”

•    Court is permitted to invade separate estate when marital estate inadequate. 
•    Court is permitted to invade separate estate based on need.

Effect of Allard Ruling

• The Court will still enforce almost all prenuptial agreements. 
• Parties will likely be able to execute an “Allard Waiver”, but must knowingly waive their right to the Court's power to invade separate property where there insufficient marital estate or where there is need. 

What will Your Role in a Prenuptial Agreement Process Be?

•  Ask Your Client if their Prenuptial Agreement is accomplishing their goals? 
• Do they really want to waive their right to spousal support? 
• Is the Prenuptial Agreement properly being mirrored by their estate plan? 
• Have they properly disclosed all of their assets? Think out of the box for your clients (embryos, digital assets, inheritance, cryptocurrency). 

Practice Tips for Fiduciaries 

1. Add Value for Your Client. If you can’t add value, be honest with your client. They may refer you or return later.
2. Build A Personal Relationship With Your Client From the First Contact. Build trust or they will go against your advice and blame you for bad outcomes, fire you, or sue you! 
3. Don’t Steal, Cheat or Lie, EVER! You will lose clients, colleagues, money, licenses…. just DON’T. 
4. Keep Learning! You have important and complicated jobs, keep learning and training.