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Prenuptial agreements change with time but remain tricky

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Prenuptial agreements are not written to be fair. Nor should they be, according to some Indiana attorneys who draft them.

“It’s unfair no matter how you look at it,” said Marvin H. Mitchell, a partner with Mitchell Dick Hurst & McNelis LLC in Indianapolis, who recently shared with attorneys his advice for drafting effective premarriage agreements.

il-prenup09-15col.jpg Attorneys James Reed, left, and co-presenter Marvin Mitchell talk about how to draft effective premarriage agreements during a recent event hosted by the Indianapolis Bar Association. (IL Photo/ Perry Reichanadter)

“They’re not intended to be fair. Someone is getting the benefit,” explained Bingham Greenebaum Doll LLP partner James A. Reed, who joined Mitchell in an Indianapolis Bar Association panel discussion recently.

“Fifty percent of premarital agreements will be closely scrutinized in a judicial setting,” Mitchell estimated. Reed suggested that figure could be higher, because people with prenup agreements typically are in second marriages, which experience a higher rate of breakups than first marriages.

“You have to presume that this agreement will be challenged and your file will be reviewed,” Reed said.

Mitchell and Reed discussed one of the largest Indiana court cases in which a prenuptial agreement was involved, DeHaan v. DeHaan, 572 N.E.2d 1315, 1320, decided by the Court of Appeals in 1991. Jon and Christel DeHaan battled over the fortune they had created in RCI, a timeshare marketing company. Mitchell quipped that the amount at stake was enough to fund the deficit of a Central American nation.

Though the DeHaans had a prenup in which Christel DeHaan would have been entitled to 20 percent ownership in the company in the event of divorce, the trial court ruled that she was entitled to 50 percent of the company’s value – $67 million – because of the partnership nature of the business. The appeals court affirmed the ruling but reduced the award by $20 million for tax purposes.

Those types of premarriage agreements, in which wealth preservation is the key factor, remain the most common. Mitchell and Reed suggested that if parties entering a long-term relationship aren’t able to discuss assets and expectations before marriage, problems are likely.

Clarity is paramount, Mitchell said. “At the very least, have consistency about what is protected property” throughout the document. “Try to anticipate problems so the client won’t be moody. … We want the judge to see this is plain, obvious and clean.”

A 2010 survey by the American Academy of Matrimonial Lawyers found 73 percent of divorce attorneys reported increases in prenup agreements in the prior five years, and more than half said more women were initiating the requests. A 2012 AAML survey found a similar increase in postnuptial agreements.

Mitchell and Reed offered premarriage agreements and forms that can serve as models to create prenups that comply with the Uniform Premarital Agreement Act adopted by the Legislature in 1995.

Indiana is one of the few states that does not require financial disclosure in premarriage agreements, but Mitchell and Reed counseled that it was good practice to do so, and the attorneys they questioned agreed. Of about 30 in attendance, none said they had drafted a prenup that didn’t include financial disclosures.

Prenups can be attacked on bases such as the agreement was not voluntary, is unconscionable or ambiguous, or will result in hardship. Mitchell advised attorneys to include clauses in prenup agreements for the wealthier spouse to pay attorney fees in the event the agreement is challenged by the other party; some attorneys said they insist on such language.

Mitchell also warned against language that, for instance, would strictly limit a spouse’s entitlement to 10 percent of an estate. Such terms are “inviting the judge to find a problem with the agreement.”

Reed said it’s important for heirs to be involved in the discussions. He said the entire family – wealth originators, adult children and their heirs should sit down and talk frankly.

“It’s a tough conversation to have,” Reed said. But he said when adult children or heirs learn about trusts or assets they were unaware of, “that may change the way they look at their life.”

While the agreements are often unfair to one of the parties, Mitchell and Reed said those that strive for some degree of fairness are less likely to be challenged. Reed said prenups are also useful planning tools, especially for someone’s long-term needs.

“What’s the incentive for the much younger spouse” to provide care for an older spouse, for instance, Reed asked. Using tools such as escalating percentages of asset distribution over time can provide those incentives and give the older spouse peace of mind.

“It sounds very mercenary, but that’s real life,” Reed said.

In his practice, Reed said he’s experienced a new trend among those seeking prenups: younger professionals whose attitudes are, “I’m not into this whole ‘till death do us part’ crap.”

These type of prenups include entrepreneurs or young professionals who are entering their first marriage and are doing so on a strictly trial basis, he said. They often each have high net-worth or the expectation of wealth that they wish to protect.

But prenups also can serve those whose estates aren’t upwards of seven figures.

Attorneys Tara Rabiola and Jaimie Cairns of Ruppert & Schaefer P.C. in Indianapolis took some pointers from the discussion. They said their practice typically includes writing prenups for clients with estates that usually involve a principal homestead and more modest assets.

“We do a lot of agreements for second marriages,” Rabiola said.

But Cairns said the agreements can be useful in many situations. She said a recent prenup that she worked on involved a couple who was getting remarried.

In that instance, the spouse with greater assets had to come to the table with assurances in writing that were sufficient to persuade the other that the arrangement would be worthwhile, at least financially.

“I call it a reverse prenup,” Cairns said.•

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  1. Yes diversity is so very important. With justice Rucker off ... the court is too white. Still too male. No Hispanic justice. No LGBT justice. And there are other checkboxes missing as well. This will not do. I say hold the seat until a physically handicapped Black Lesbian of Hispanic heritage and eastern religious creed with bipolar issues can be located. Perhaps an international search, with a preference for third world candidates, is indicated. A non English speaker would surely increase our diversity quotient!!!

  2. First, I want to thank Justice Rucker for his many years of public service, not just at the appellate court level for over 25 years, but also when he served the people of Lake County as a Deputy Prosecutor, City Attorney for Gary, IN, and in private practice in a smaller, highly diverse community with a history of serious economic challenges, ethnic tensions, and recently publicized but apparently long-standing environmental health risks to some of its poorest residents. Congratulations for having the dedication & courage to practice law in areas many in our state might have considered too dangerous or too poor at different points in time. It was also courageous to step into a prominent and highly visible position of public service & respect in the early 1990's, remaining in a position that left you open to state-wide public scrutiny (without any glitches) for over 25 years. Yes, Hoosiers of all backgrounds can take pride in your many years of public service. But people of color who watched your ascent to the highest levels of state government no doubt felt even more as you transcended some real & perhaps some perceived social, economic, academic and professional barriers. You were living proof that, with hard work, dedication & a spirit of public service, a person who shared their same skin tone or came from the same county they grew up in could achieve great success. At the same time, perhaps unknowingly, you helped fellow members of the judiciary, court staff, litigants and the public better understand that differences that are only skin-deep neither define nor limit a person's character, abilities or prospects in life. You also helped others appreciate that people of different races & backgrounds can live and work together peacefully & productively for the greater good of all. Those are truths that didn't have to be written down in court opinions. Anyone paying attention could see that truth lived out every day you devoted to public service. I believe you have been a "trailblazer" in Indiana's legal community and its judiciary. I also embrace your belief that society's needs can be better served when people in positions of governmental power reflect the many complexions of the population that they serve. Whether through greater understanding across the existing racial spectrum or through the removal of some real and some perceived color-based, hope-crushing barriers to life opportunities & success, movement toward a more reflective representation of the population being governed will lead to greater and uninterrupted respect for laws designed to protect all peoples' rights to life, liberty & the pursuit of happiness. Thanks again for a job well-done & for the inevitable positive impact your service has had - and will continue to have - on countless Hoosiers of all backgrounds & colors.

  3. Diversity is important, but with some limitations. For instance, diversity of experience is a great thing that can be very helpful in certain jobs or roles. Diversity of skin color is never important, ever, under any circumstance. To think that skin color changes one single thing about a person is patently racist and offensive. Likewise, diversity of values is useless. Some values are better than others. In the case of a supreme court justice, I actually think diversity is unimportant. The justices are not to impose their own beliefs on rulings, but need to apply the law to the facts in an objective manner.

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