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Prenuptial Agreements are Important

Spouses or children involved in a divorce proceeding seek help from forensic accountants when they believe one of the parties is hiding assets. Both spouses should hire the services of a forensic accountant when confronted with a divorce.

Probably many headaches could have been avoided if the parties had reached an agreement before they got married. In a pre nuptial agreement the future spouses express their desire to maintain their financial independence. As portrayed by a provider of a pre nuptial agreement services, “ The purpose of this agreement is to define the financial rights and responsibilities of the parties towards each other if their relationship ends (as a result of separation or death).” The price of the form they advertised is $330.00

In a recent case a couple was confronted in a court because the wife did not acknowledge the terms of their agreement, however, after an extensive verification the court reached a verdict determining that the wife should have known the implications of that agreement.

An analysis to determine whether a prenuptial agreement is procedurally fair is accomplished by looking at:

(1) Whether the spouses made a full disclosure of the amount, character, and value of the property involved and
(2) Whether the agreement was freely entered into on independent advice from counsel with full knowledge by both spouses of their rights. If this point is satisfied then a prenuptial agreement is valid and binding.

This case discussed the validity of a contract where the wife questioned it. The court reviewed the totality of the circumstances to determine whether the spouse was "in a fair position to sign the agreement freely and intelligently." It was done based on a former case presented as an exemplar of the procedural fairness analysis.

The court found the agreement valid judged in light of the circumstances in the case and the wife's range of experience. Important facts in the court's decision were:

(1) The wife was advised of the necessity of a prenuptial agreement at least 9 months before the wedding and knew and understood the purpose of the agreement;
(2) She had been given a copy of the agreement at least 7 months before the wedding;
(3) She was advised on numerous occasions by her husband's attorney to seek independent counsel;
(4) She had an excellent understanding of her husband's assets because she handled the bookkeeping and payroll for her husband's businesses and was in charge of all of his business checking accounts; and
(5) Both parties had to reaffirm and sign the agreement 3 years later because they had lost the original document. The court decided that the failure to provide the wife with a detailed explanation of the agreement and her failure to follow advice and seek out independent counsel was offset by her knowledge and the procedural fairness provided her.

Sometimes clients ask questions to their financial adviser on how they should handle their financial endeavors. A great venue for them would be signing a prenuptial agreement. Basically this document sets forth in advance of the couple’s marriage the rights and privileges that each will have in the property of the other in the event of death, divorce, or other circumstances which result in the termination of their marriage. Both parties acknowledge that they have made FULL disclosure of their assets and give a detailed report of his and her assets.

As part of their due diligence the future spouses should seek independent legal advise where they learn about pros and cons of such a determination. Obviously both parties must enter into this agreement without any form of coercion, duress, pressure, and must acknowledge that the contract they enter in is fair and that it represents their intentions with respect to there assets and to any estate that results from their marriage.

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Content copyright © 2013 by Consuelo Herrera, CAMS, CFE. All rights reserved.
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