PRENUPTIAL AGREEMENTS

Prenuptial agreements give parties the ability to opt out of the law, as long as they are within the boundaries of public policy and meet some other pivotal conditions. 

The law gives great deference to these fairly negotiated and validly entered into agreements.

To properly understand prenuptial agreements, we need to understand what happens in New York when no prenuptial agreement is in place. We need to know the default. We need to be wise to how the applicable law, which in New York State is the Domestic Relations Law (“DRL”), defines separate property and marital property, as well as their respective appreciation, whether such appreciation is active or passive, and the mingling of these two types of properties, whether intentionally or unintentionally.

We will, therefore, cover these definitions and some seminal case law on them below.

Note that there are many variations of opt outs, for example, although income earned during the marriage is classified as marital property under the law, many prenups opt out of this and designate income earned during the marriage as separate property.

More examples of opt outs include, stating that title shall control whether the property is marital or separate as opposed to the law, which states that title doesn’t matter, so long as income or an asset is earned or acquired during the marriage, it is marital.

Many also choose to waive spousal support or set parameters for a spousal support award and to waive attorney’s fees.

There are many other opt-outs.

We do not cover children in prenuptial agreements. We can cover frozen eggs and embryos.

Speak to your attorney about all your options and what best suits your situation and goals.

We also need to highlight the importance of basic key factors to have an enforceable, strong, and binding prenuptial agreement.

These factors include having attorney representation on both sides; having the proper “acknowledgment” paragraph in conjunction with the notarization; attaching accurate and detailed sworn statements of net worth setting forth assets and liabilities; and ensuring the agreement is not unconscionable and not signed under fraud, coercion, or duress.

One of the first questions a divorce attorney should ask when onboarding a new case is “Was a prenuptial agreement executed?” If so, the attorney should make sure to get a copy immediately. It may pave the path and create the framework for the divorce.

The Guiding Statute for Prenuptial Agreements is DRL §236[B][3]:

DRL §236[B][3] sets forth, in pertinent part, “[a]n agreement, by the parties, made before or during the marriage shall be valid and enforceable in a matrimonial action if such agreement is in writing, subscribed by the parties, and acknowledged or proven in the manner required to entitled a deed to be recorded.” (emphasis added). DRL §236[B][3] [2017].

Real Property Law §291, which governs the recording of deeds, sets forth in pertinent part, “[a] conveyance of real property…on being duly acknowledged by the person executing the same…may be recorded in the office of the clerk of the county where such real property is situated….” Real Property Law §291 [2017].

Separate Property vs. Marital Property:

Separate Property – DRL §236(B)(1)(d):  The term separate property shall mean: (1) property acquired before marriage or property acquired by bequest, devise, or descent, or gift from a party other than the spouse; (2) compensation for personal injuries; (3) property acquired in exchange for or the increase in value of separate property, except to the extent that such appreciation is due in part to the contributions or efforts of the other spouse; (4) property described as separate property by written agreement of the parties pursuant to subdivision three of this part.

Marital Property – DRL §236(B)(1)(c):  The term “marital property” shall mean all property acquired by either or both spouses during the marriage and before the execution of a separation agreement or the commencement of a matrimonial action, regardless of the form in which title is held, except as otherwise provided in agreement pursuant to subdivision three of this part. Marital property shall not include separate property as hereinafter defined.

Commingling & Transmutation of Separate Property:

Commingling refers to the combination of separate property and marital property such that the separate property loses its character.

For example, one spouse putting their pre-marital separate property money into a jointly titled account.

Transmutation occurs with the intention to convert the asset into marital property. Transmutation is a change in the status of property from separate to marital.

For example, one spouse adding the other spouse’s name to a bank account that had been in his or her exclusive name and had only pre-marital separate property funds in it until that point.

Relevant Case Law:

Steinberg v. Steinberg, 59 A.D.3d 702, 874 N.Y.S.2d 230 (2d Dep’t 2009):

The Husband created his management company two years prior to the marriage.  However, the company’s only asset was acquired two years after the marriage.  Having failed to trace the source of his portion of the building’s acquisition costs to his separate property, the court concluded that the acquisition costs came from marital funds. “Marital property is to be viewed broadly, while separate property is to be viewed narrowly. Where…a party fails to trace sources of money claimed to be separate property, a court may treat it as marital property.”

Imhof v. Imhof, 259 A.D.2d 666, 686 N.Y.S.2d 825 (2d Dep’t 1999):

The Husband deposited the proceeds of sale of his separate property into the parties’ joint account. The parties then used those funds to support their shared business and their family. The Husband was not entitled to a separate property credit for the funds as his actions indicated an intention to commingle the funds.  “Separate property can be transmuted into marital property when the actions of the titled spouse demonstrate his intent to transform the character of the property from separate to marital.”

Equitable Distribution Factors:

Domestic Relations Law §236 (B)(5)(d):  In determining an equitable disposition of property, the court shall consider: (1) the income and property of each party at the time of marriage, and at the time of the commencement of the action; (2) the duration of the marriage and the age and health of both parties; (3) the need of a custodial parent to occupy or own the marital residence and to use or own its household effects; (4) the loss of inheritance and pension rights upon dissolution of the marriage as of the date of dissolution; (5) the loss of health insurance benefits upon dissolution of the marriage; (6) any award of maintenance under subdivision six of this part; (7) any equitable claim to, interest in, or direct or indirect contribution made to the acquisition of such marital property by the party not having title, including joint efforts or expenditures and contributions and services as a spouse, parent, wage earner and homemaker, and to the career or career potential of the other party. The court shall not consider as marital property subject to distribution the value of a spouse’s enhanced earning capacity arising from a license, degree, celebrity goodwill, or career enhancement. However, in arriving at an equitable division of marital property, the court shall consider the direct or indirect contributions to the development during the marriage of the enhanced earning capacity of the other spouse; (8) the liquid or non-liquid character of all marital property; (9) the probably future financial circumstances of each party; (10) the impossibility or difficulty of evaluating any component asset or any interest in a business, corporation or profession, and the economic desirability of retaining such asset or interest intact and free from any claim or interference by the other party; (11) the tax consequences to each party; (12) the wasteful dissipation of assets by either spouse; (13) any transfer or encumbrance made in contemplation of a matrimonial action without fair consideration; (14) whether either party has committed an act or acts of domestic violence, as described in subdivision one of section four hundred fifty-nine-a of the social services law, against the other party and the nature, extent, duration and impact of such act or acts; (15) in awarding the possession of a companion animal, the court shall consider the best interest of such animal. “Companion animal,” as used in this subparagraph, shall have the same meaning as in subdivision five of section three hundred fifty of the agriculture and markets law; and (16) any other factor which the court shall expressly find to be just and proper.

Contributions to Separate Property:

Price v. Price, 69 N.Y.2d 8, 511 N.Y.S.2d 219 (1986):

The test “established guidelines for determining whether the appreciation in a titled spouse’s separate property has been transmuted into marital property based on the indirect contributions of the non-titled spouse.” Hartog v. Hartog, 85 N.Y.2d 36, 623 N.Y.S.2d 537 (1995).

Fields v. Fields, 15 N.Y.3d 158, 905 N.Y.S.2d 783 (2010) i) In this divorce action, the Court analyzed the purchase history of the parties’ marital residence. (1) 8 years into the marriage, the Husband wanted to buy a multi- apartment building, in which the family would establish their marital residence. The Wife agreed to the purchase if certain conditions were met. (2) Instead of meeting those conditions, the Husband chose to purchase the building with financial assistance from his mother. (3) The apartment building served as the marital residence for the parties’ and their son for approximately 30 years. ii) In consideration of the time spent utilizing the building as the marital residence, as well as mortgage payments made by the Husband unproven to be solely from Separate Property, the Court determined that the residence was Marital Property subject to distribution.

Johnson v. Chapin, 12 N.Y.3d 461, 909 N.E.2d 66 (2009) i) Prior to the marriage, the Husband owned a home. ii) During the marriage, the parties’ expended approximately $2 million on renovations. iii) Though renovations were financed by Husband’s income and Husband’s involvement was far more extensive, Wife’s efforts in the renovations entitled her to 25% of the home’s appreciation. iv) “Any appreciation in the value of separate property due to the contributions or efforts of the non-titled spouse will be considered marital property. This includes any direct contributions to the appreciation, such as when the non-titled spouse makes financial contributions towards the property, as well as when the non-titled spouse makes direct nonfinancial contributions, such as by personally maintaining, making improvements to, or renovating a marital residence.”

Culman v. Boesky, 207 A.D.3d 18, 170 N.Y.S.3d 5 (1st Dep’t 2022) i) The Wife, prior to the marriage, acquired an art gallery. ii) The Husband made indirect contributions as a supportive spouse and parent, and direct contributions by attending events and providing occasional assistance. iii) The court determined that the initial award of 7.5% of the business’s appreciation was too low, but 25% would be too high (when compared to other cases in which the non-titled spouse worked for the titled spouse’s business). Ultimately, the Husband was awarded 15% of the appreciation of the Wife’s art business.

Know what can happen and how exposed you are if you choose not to cover certain topics in your prenup. The law will be the default in the absence of your express intention and agreement otherwise. 

You are not just retaining your attorney to draft and finalize your prenuptial agreement. You should come away with a higher financial IQ about how the law views marital finances. If you are not getting this, pepper your attorney with more questions until you are fully satisfied. 

Our firm aims to give you a well-rounded education and resources to organize and structure your marital finances.