Tag Archive for: Prenuptial Agreement

Will an Arbitration Clause Protect You?

When clients come to me wanting a prenuptial or postnuptial agreement, they are typically the party initiating and driving the process because they have assets to protect and want to minimize or completely contain their exposure. These same clients also tend to be litigation averse and view the entire litigation arena as a threatening, menacing process that will invade their privacy, wear them down, diminish their wealth, and possibly compromise their integrity.

As a mediator/litigator, I am in favor of mediation-arbitration clauses for certain clients and this genre of clients fit the bill.

Because they have money and assets, these clients may be the ones responsible for their spouse’s attorneys’ fees during a divorce (under Domestic Relations Law Sections 237 and 238) and they may also be subjected to the rather taxing plight of having to pay numerous expert’s hefty retainer fees to assess their many assets.

Conversely, when clients come in wanting me to be their review attorney for an agreement that has been drafted and prepared by their significant other, they are typically the party with less, who may benefit more from having the court-litigation card to pull out and not cornering themselves into a mandatory resolution through mediation and/or arbitration. On the one hand, I’d be woe to call it the litigation trump card; but essentially, that’s what it is.

Because they have less, they often end up being more dependent on their partner and may need additional oversight, so you want to ensure that their agreement will not bar them from seeking judicial intervention should it be necessary.

What exactly is arbitration and will it offer the first category of clients the protection they seek?

Mediation is a completely voluntary process and non-binding, whereas arbitration is binding. This means that if arbitration is written into the agreement, both parties must participate and submit to the arbitrator. Agreements that contain arbitration clauses usually state that the parties will first try to resolve their case through mediation, and if that is unsuccessful then they will submit to arbitration. Best practice is to include a mechanism for selecting a mutually agreed upon arbitrator so the parties are not left in a situation where they have to attend arbitration and cannot agree on an arbitrator.

Unlike litigation, arbitration decisions are not published. Because it is a more private process, many of the arbitrators are retired judges, and the arbitration meetings take place in comfortable offices, as opposed to courtrooms with court officers and a more authoritative, bureaucratic, and austere milieu. The arbitrator’s decision is also not the final step in the process.

The arbitrator’s decision is also not the final step in the process. Each arbitration decision needs to be signed off on by a judge and formalized by the court. As parens patriae (legal protector of citizens unable to protect themselves, such as unemancipated children), the court also has the ultimate decision-making authority with regards to custody and visitation issues.

There are notable differences between the courts.

The first department (New York County, namely Manhattan, is in the first department), will uphold an arbitrator’s decision, including custody and visitation issues — being that they believe that because a judge ultimately signs off on it, the parens patriae principle is actualized.

The second department (Kings County, namely Brooklyn, is in the second department) will not necessarily uphold an arbitrator’s decision with regards to custody and visitation issues.

New York and Kings counties are my backyard, so I’ve highlighted them to point out the differences between the court’s viewpoints regarding arbitration. These discrepancies carry over into other counties and judicial departments as well, which is why it’s important for clients to have realistic expectations regarding the enforceability of an arbitrator’s decision, particularly if they are planning to include an arbitration clause in their agreements.

While a prenuptial agreement cannot address parenting issues, such as custody and child support, it can state that the parties agree to submit to arbitration to resolve all issues in their divorce. Based on the above discrepancies between the judicial departments, if the parties have a prenuptial agreement with such an arbitration clause and they have children and live in New York County at the time of a divorce, this would mean the arbitrator can determine the custody and parenting issues, it would be binding, and the court just rubber stamps the arbitrator’s decision. However, if the parties live in Kings County at the time of the divorce, they cannot be assured the judge will uphold the arbitrator’s decision on parenting issues.

The relief and clarity for those who want to include an arbitration clause in their agreements is that while they cannot guarantee it will render the arbitrator’s parenting-related decisions enforceable, the courts across the board uphold the arbitrators’ financial-related decisions, including equitable distribution, maintenance/spousal support, and child support.

I recently had a case where opposing counsel initially objected to including an arbitration clause, which was important to my client, because she did not know the law and whether it was enforceable.

Knowledge is power and when I sent opposing counsel the law indicating the degrees and nuances of its enforceability, she acquiesced on the point and my client was relieved knowing that the financial matters, which are most important to him will be resolved through arbitration and not litigation, which he fiercely opposes. He also felt assured knowing that if they reside in New York County with their children at the time of a divorce, even the arbitrator’s custody-related decision will be upheld.

Educate both clients and opposing counsel, when warranted, of all the potential issues and limitations that could come up when they want to include mediation-arbitration clauses or straight up arbitration clauses in their agreements.

Feel free to contact me if you are considering an arbitration clause in your agreement.

Cheryl Stein, Esq.
The Law and Mediation Offices of Cheryl Stein
745 Fifth Avenue, Suite 500
New York, NY 10151
Phone: (646) 884-2324
E-mail: cheryl@cherylsteinesq.com

Do You Need a Postnup?

While the term “prenuptial agreement” has made its way into mainstream vocabulary, many still look flummoxed by the term “postnup.” What is it and are you in need of one?

A postnuptial agreement is structured like a prenup and bears similar terms, such as separate and marital property designations, specific maintenance provisions or waivers, estate provisions, and the gaping absence of rights relating to children of the marriage. Akin to a prenup, the agreement is mostly relevant and effective upon a separation at a future date. Both agreements are governed under the identical principles of contract law.  

Postnups are usually not “Oops we forgot to enter into a prenup; let’s quickly patch it up with a postnup” situations. Rather, they are typically carefully calculated events that fall into one of the following categories:

The parties start the process before their wedding and intentionally decide to finalize their agreement after the wedding when the dust has settled.  

When clients first come to me for a prenup, I ask them what their timeline is — if they can’t negotiate the terms they want in time for a pre-scheduled wedding, are they willing to proceed with the wedding, do it as a postnup and continue the negotiations after the wedding.

There are those that vehemently respond NO — come hell or high water, they are not getting married without a prenup; others are more lackadaisical about it and respond that they feel comfortable proceeding with the wedding, as long as they know a postnup will be entered into afterwards.

It is important to advise the latter category that a postnup is easier to challenge, and there are no guarantees that it will be signed within a specific duration once the wedding takes place.

Ironically, there seems to be little correlation between the generosity of people in their negotiations and their decision to either postpone the wedding until a prenup is executed or do it as a postnup. I’ve had clients say they want their spouse to get nothing in the event of a divorce, while others have wanted to give much more to the other person than the law would extend. Both these types of people have told me they could wait until after the wedding to do it as a postnup.

The psychology people have in relation to their money, accumulation, and sharing is not always logical; assumptions cannot be made; it is important to check the party’s temperature on these facets.

The parties are giving the prenuptial agreement a facelift; updating it to make it more current and reflective of their present reality, as opposed to the reality of bygone years when the prenup was entered into.

This is fairly common in a strong, healthy marriage when the parties have entered into a prenup that was more heavily in one party’s favor with the oral promise that they would agree to update it and extend more leaves to the other party as their marriage progressed, their family grew, and they had a proven track record of being happy together.

Case in point is a client who married a high net worth individual whose family carved out the terms of the prenup to protect their vast real estate conglomerate. The groom told the bride that he would agree to update the agreement every few years; true to his promise, he has, with each postnup they enter into being more favorable for her and far exceeding the prenup. At this point, approximately 7 years into their marriage, she is receiving far more under the present postnup than she would receive under the law. Her words verbatim, “He sees I’m normal, not out to spend money, and is now happy to share more.”

This postnup-to-update-a-prenup scenario is not exclusively exercised in smooth sailing waters; there are times when it is the exact opposite dynamic that triggers the postnup. A party unhappy in a marriage, who is starting to check-out, has more leverage when their spouse is dependent on them, still loves them, or wants to remain in the marriage and the unhappy spouse tries to get their spouse to sign a postnup that alters the terms of a prenup.

The parties are entering into a joint venture such as purchasing a marital residence together and wish to explicitly set forth the terms and allocation of ownership.

When parties purchase a big-ticket item such as a marital residence, especially if they got married later in life and have significant separate property funds, they often want a postnup relating to the specific responsibilities and ownership interests of the asset.

This scenario is also common when parties have a prenup with unspecified or overly generalized terms regarding jointly purchased real property.   

One or both of the parties are starting a business either together or separately or assuming debt and wish to set forth the terms and protections as it relates to their marital and separate property rights/entitlements and liabilities.

A physician who had been with her husband for over 15 years recently came to me for a postnup because she was starting her own medical practice, had significant medical school debt, was about to assume more debt towards business loans for her new venture, and her spouse had significant student loan debt as well. While her spouse was willing to have her start her own business with no agreement in place, she strongly felt she needed a postnup to allocate rights to her business and assign the parties’ respective debts. In light of her unease with her situation, I couldn’t have agreed more.

An agreement often works like a charm to settle a party’s nerves when they are about to take bold entrepreneurial steps or feel they are in over their heads in areas largely out of their control; an agreement is a way to take the reins in whatever way they can. 

Another client learned that her spouse was 9 million dollars in debt and wanted an indemnification agreement to protect herself; such an agreement would also fall under the category of a postnuptial agreement.

The parties’ marriage has entered rocky waters; they are not yet ready to throw in the towel; the thought of either a separation or divorce is still too raw and shocking, and they are wading their feet in the waters, one step at a time, and doing “Trysies” on a separation or divorce.

The expression, “Marry in haste, repent at leisure” is on point. Some need to unravel their marriage in baby steps. As opposed to ripping off the band-aid, they need incremental stages to adjust. Often they also feel there is a possibility of reconciliation and a postnup lends itself to such more than a separation agreement (or divorce), which has a greater air of finality to it.

When navigating the waters of a postnuptial agreement, party’s different paths, as described, often lead to the same result.

If you find yourself facing a time-challenge with your prenup or are considering a postnup, feel free to contact me.

Cheryl Stein, Esq.
The Law and Mediation Offices of Cheryl Stein
745 Fifth Avenue, Suite 500
New York, NY 10151
Phone: (646) 884-2324
E-mail: cheryl@cherylsteinesq.com

When Love and Marriage Don’t Go Together like a Horse and Carriage….What’s Left?

Marriage is inherently deemed an economic partnership, according to the law, and upon its dissolution, the accumulated assets and interests are to be distributed on the basis of the economic needs and circumstances of the parties.

Equitable distribution in New York is fact specific, and not a 50/50 split, like it is in the community property states, such as California, Arizona, Nevada, and Alaska. (There are 9 community property states in total.) Much is left to judicial discretion in this neck of the woods. Both parties contributions as spouse, parent, wage earner or homemaker are accounted for. The court possesses flexibility and elasticity to mold an appropriate decree, because what is fair and just in one circumstance may not be so in another.

With regards to equitable distribution, we look closely at that economic partnership, splitting interests when there are both direct and indirect contributions made to the titled spouse by the non-titled spouse. These details will oftentimes determine how much is allocated between the parties. If there were many direct or indirect contributions made by the non-titled spouse, that could give a lot of weight to how much is paid to the non-titled spouse in the equitable distribution payout.

Marriage is like being on the clock. It is “marriage time,” like punching in and out of work, with the punch-in time being the date of marriage and the punch-out time being the date of commencement of a divorce action for active assets, and date of trial for passive assets. When you sign up for marriage, your financial actions are accounted for, and there is to be a reckoning with your spouse. A large part of the marriage (contract) is a financial contract with your spouse, and whether or not you understand the provisions and their ramifications when you take those marriage vows, you are bound by them. All time you spend during the marriage may be accounted for and “billed,” so to speak, in the final pay-out equitable distribution awards.

Arguably, this result may be inherently unfair from the get-go if you consider that most people don’t read the Domestic Relations Law, Family Court Act, General Obligations Laws, enter into a prenuptial agreement, or consult with a matrimonial attorney prior to marriage, so they are clueless as to the full breadth of the financial picture and often make erroneous presumptions. For example, many people presume that money they put in their separate titled accounts during marriage is separate property, which is incorrect. All income earned during marriage is marital income, so if spouses put their incomes into separate titled accounts, rather than keeping that money separate, they are commingling their separate account and presumptively turning everything in that account into marital property – the exact opposite result they intended.

Another counterintuitive consequence and irony is that many people’s performance tanks during a bad marriage. A non-titled spouse may be requesting and entitled to equitable distribution for their contributions when the titled spouse may feel that all their spouse did during the phases of a distant or rocky marriage is hamper their performance and growth, and that their growth would have been exponentially greater without their spouse and his/her claimed contributions.

The hoi polloi are entering into marriage contracts without understanding the basic principles of the contract, and later claiming that they did not understand the contract is not a valid defense. If you are old enough to get married, you are supposedly mature and responsible enough to avail yourself of this information and plan your finances accordingly.

It would be a leap to evoke the phrase “The Follies of the Masses,” but as matrimonial attorneys and mediators, we urge people to educate themselves about managing their finances prior to marriage, and if that time has passed, much may still be salvaged. I have married people asking for consultations all the time to realign their finances and understand the financial blueprint, for example, prior to one spouse opening a business, assuming a large debt, receiving an inheritance or personal injury award or liquidating untainted premarital property towards purchasing a jointly titled home, all of which are opportune times.

Feel free to contact The Law & Mediation Offices of Cheryl Stein with any questions.

Cheryl Stein, Esq.
The Law and Mediation Offices of Cheryl Stein
745 Fifth Avenue, Suite 500
New York, NY 10151
Phone: (646) 884-2324
E-mail: cheryl@cherylsteinesq.com

The Nurse with a Purse and Sugar Daddy Dynamic

The idea of a “sugar daddy” is very common and well-known: A “sugar daddy” is an older man who marries a younger woman and takes care of her. There is a similar, but lesser-known dynamic when the older marrying spouse is a woman. This dynamic has been referred to as the “nurse with a purse.” In both cases, it’s equally important for the older spouse to obtain a Prenuptial Agreement.

Often, the woman in the “nurse with a purse” situation is in her 50s or older, highly capable, financially comfortable, healthy and has been married before; she is typically either widowed or divorced. Many — although by no means all — women who are in these circumstances come from traditional or religious backgrounds that particularly value marriage. They may feel like outcasts in their communities and immediate social circles when they are single. When they finally meet a suitor for marriage, their overwhelming relief often makes them walk on tippy toes, feeling they have little leverage to impose the contingency of signing a prenuptial agreement on the marriage. They are afraid of offending and warding off their prospective husband. They may also be more idealistic and resistant to believe that divorce can happen.

In this situation, when the woman remarries, she pays the bills and household expenses. After say — an eight-to-ten-year marriage — that ends in divorce, she often ends up completely depleted financially because the man is not well or is, for some other reason, monetarily dependent on her. The woman often has to assume more of a caretaking role. In such marriages, the woman may get very little from the relationship in terms of actual emotional support, friendship, and household help; literally, the only thing she may get is a man by her side and the status of being married. Several of my clients have fallen into this category and described these exact sentiments to me.

When the woman and her husband end up in divorce, it can have devastating financial consequences. The woman may have her own children she is trying to put through college and is carefully allocating her resources. There is an adage: “As long as you are young and healthy you can generate more money.” However, these women — who are often in their 50s and 60s — cannot generate more money that quickly. They are at the end of their working years. It is very debilitating to them to see that much money wiped out at the time of the divorce in equitable distribution and maintenance payments, as well as litigation expenses.

It is more common for sugar daddies to assert themselves pre-marriage and demand that a prenuptial agreement be signed, while women have a harder time finding their voice on this point and asserting themselves.

If you are remarrying and want to protect your assets both during your marriage and in case of divorce, please don’t hesitate to contact me.

Cheryl Stein, Esq.
The Law and Mediation Offices of Cheryl Stein
Offices in Manhattan and Brooklyn
Phone: (646) 884-2324
E-mail: cheryl@cherylsteinesq.com