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The Wealthy, Prenuptial Agreements, and Large Divorce Settlements

by Steve Fritsch on June 12, 2013

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When a pro athlete, a famous singer or actor, or Harold Hamm divorces their spouse, the first question that comes to people’s minds is “Was there a Prenup?”  Over the years, there has been some hotly contested litigation in California over the validity and enforceability of prenuptial (premarital) agreements.  Two of the more well-known prenuptial agreement disputes involved the former Major League Baseball outfielder Barry Bonds and the other was the former owners of the Los Angeles Dodgers, Frank and Jamie McCourt.

Although the results in the Bonds case and the McCourt case were different, the cause for the dispute was the same.  The reason wealthy individuals enter into premarital agreements is generally to ensure assets are separate property and to limit or waive spousal support.  Because wealthy people that marry have significant assets and income prior to marriage, they generally want to keep those assets and income as their separate property.  In other words, they do not want their future spouse to have an interest in the assets or income.

The reason premarital agreements are so important for wealthy individuals who are getting married is because in California, the general rule is that assets and income acquired during marriage are presumptuously community property.  This means that the shortstop that signed a 10 year $100 million dollar contract prior to marriage or the famous actor that earns $30 million for a movie during marriage, that income that is earned during marriage is community property.  Although assets that were acquired prior to marriage may continue to be separate property, a community property interest may still arise in some instances.  This is why the prenuptial agreements are drafted.  To circumvent the community property laws in California.

What can these documents do?  They can ensure that assets remain separate property no matter what happens.  They can ensure that any after-acquired property remains separate property.  They can ensure that income earned during marriage is not community property and remains the separate property of the person that earned the money.  They also can try and limit the spousal support their spouse may get if they get divorced.  However, the waiver or limitations on spousal support in pre-nuptials are never guaranteed because the validity and enforceability of these clauses are determined at the time of enforcement (i.e., during a divorce), not when they were executed.  For example, if a woman marries a rock star and they enter into a prenuptial agreement whereby the wife waives her right to receive spousal support, whether such waiver is valid will be determined when she seeks spousal support during the divorce proceedings.

You might be thinking what happens if a woman signs a prenuptial agreement that states that her husband’s assets and income will remain his separate property and the parties have children and later get divorced?  Does that mean that she and the children do not get anything?  The good news is that in California, any agreements in a prenuptial agreement regarding child support are invalid.  As such, if the spousal support waiver is determined to be valid, the mother may still obtain a significant child support order.

In sum, a well drafted premarital agreement can have a significant monetary impact on the spouses.  It can sometimes be a change of millions of dollars.  In the McCourt divorce, where the judge invalidated the premarital agreement, resulted in a loss of millions upon millions of dollars to Frank McCourt.  For this reason, it is so uncommon for individuals that already are wealthy and are getting married to not have some type of marital agreement.

DISCLAIMER:  This article is written for educational and informational use only and is not intended to be legal advice in any way.

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