Remarital Finances Part 11: Private Trusts And Premarital Agreements In Remarriage--Psychological and Legal Concerns

By Joseph Warren Kniskern, Esq.

Remarriage Finances: Planning For A Family Merger--Not A Hostile Takeover

Part 11—Private Trusts And Premarital Agreements In Remarriage: Psychological and Legal Concerns

In our previous article, we reviewed the nature of premarital agreements and private trusts and explored some of the many practical advantages and disadvantages of using these legal instruments in a remarriage situation. In this installment, we will delve into the psychology behind these private agreements and then consider some of the relevant legal concerns involved.

The Psychology of Private Agreements. Regardless of the legal arguments made in favor of using private trusts, premarital agreements, and other types of private agreements, all of them must be balanced against the major psychological toll these agreements may impose on the heart, mind and soul of each spouse. If a couple is able to meet all of the legal challenges, but loses in the emotional and relational areas in their pursuit, the price may be too high to pay. The adverse effects can carry forward for years to come and crop up in many other areas of the relationship. This is why it is so important to pray about this controversial subject before taking any action.

It is so true that, for those flying on the wings of romance in anticipation of an upcoming wedding, working on legal documents like a premarital agreement is the last thing anyone wants to do before a remarriage! Whenever the subject of premarital agreements comes up among prospective newlyweds, the implicit assumption is that one or both lovers are more concerned about remarrying for economic reasons. But the real force behind objections to such agreements is fear—one partner may fear that the remarriage might bring an immediate claim on premarital property if and when a divorce occurs, while the other may fear losing an entitlement, which he or she believes is earned merely by entering into the remarriage.

But let's dig a little deeper here, because the underlying psychology of remarriage partners can be very enlightening. What's going on in the heart of the one requesting a premarital agreement, for example? Remember from our discussion about separateness, money represents power and control. If one spouse feels the need for a premarital agreement, he or she has something of value that needs protection—something the other spouse does not possess. So, in essence, use of a premarital agreement freezes an imbalance in monetary assets and power in favor of the spouse receiving the premarital agreement. Realistically, there is little chance that the remarriage will escape hurt feelings. And hurt feelings frequently lead to some adverse consequences. But the one wanting the agreement, very likely one who has been burned in a prior divorce, sees it as a common-sense measure of protection against possible greed and overreaching if or when the relationship ever unwinds. From a Christian perspective, this person needs to be healed from distrust. He or she needs reassurance that the other marriage partner will be trustworthy and faithful.

The mindset of the spouse wanting a premarital agreement. The requesting spouse hears his or her partner say, "Don't worry. I could care less about your money." In other words, this is a door that the other spouse promises never to go through. "Fine," the requesting spouse thinks, "then there should be no problem with locking that door—especially since it will not make any difference to my mate." But when the other spouse protests and balks at signing an agreement, the requesting spouse reflects on it, saying, "Hmm. Why would he be unwilling to sign the agreement, unless he was also unwilling to follow through on his promise to never go after these assets?"

The requesting spouse has a fear of getting stripped down once again in a divorce. He or she hopes the other mate will cooperate and help ease that fear, by signing the agreement and, at the beginning of the remarriage, agreeing to some clear boundaries to preempt confusion and conflict later on. The requesting spouse believes if the other spouse really loved him or her only for who the requesting spouse is, there should be no problem with signing. After all, the reasoning goes, there is no marital history or experience yet—no time to develop the trust necessary to truly believe an agreement is unnecessary. The requesting spouse also resents the fact that the other spouse wants to combine everything, which is easy to say when the other spouse doesn't have as much to contribute to the remarriage partnership!

But the requesting spouse must step back and see the forces at work here. He or she has the safety and security of having assets to fall back on—assets which the other remarriage partner does not own, or even have access to. Asking for the agreement is a move of power and control, regardless of intentions of the requesting spouse. Like it or not, this request also carries with a message, "I am more concerned about protecting my own children, myself and my money, than I am about you." Obviously, this is definitely not a good way to begin a remarriage.

The mindset of the spouse asked to sign a premarital agreement. What about the spouse receiving the request? He or she may think, "You know, I really am a person who keeps my word. I would never abuse my husband. I have absolutely no desire to grab something that belongs to him. Initially, I agreed to sign the agreement because I love him. I want him to know that I am not like his ex, who fleeced him in his divorce. But now I am wondering if I am getting railroaded as he and his attorney come after me to sign this piece of paper! And why is a lawyer coming between us? After all, I am bringing everything I have into our remarriage and putting it on the table without any conditions, but it seems like he is holding a lot back in his contribution. Now I feel he is treating me like a terrorist who is looking for a way to raid his bank account. And I don't feel at all good about that!"

This spouse feels diminished and put down. The perceived lack of trust, and other negative emotional messages coming with it, really cut to the heart! He or she also may be disappointed at the apparent "self-protective" attitude of the requesting spouse. What about the common goal to establish trust? If each has lawyers and counselors to proceed with this process, where is the Lord? Whose assets are under consideration here—ours or the Lord's? Who are we trusting in throughout this process?

Is there any way to reconcile the mindsets of these spouses? We will consider a few possible compromises in a moment, but first let's also consider a few of the important legal aspects of premarital agreements.

The Legal Considerations Of Premarital Agreements. What provisions should be included in a premarital agreement to make it legally binding? Obviously attorneys and tax advisors need to tailor premarital agreements to a couple's situation, but here are a few absolutely necessary steps in preparing and using a premarital agreement:

Adequate notice without pressure. Believe it or not, some short-sided souls actually have tried to deliver a premarital agreement to their prospective spouse in the limousine on the way to the wedding. Not only is this idiotic, cruel and manipulative, from a legal standpoint it is doubtful that a court will enforce it. Each spouse obviously needs enough time to read and analyze the provisions of an agreement with the advice and counsel of independent attorneys and tax advisors without pressure. Entering into the agreement also must be voluntary—not under duress. Ideally, this should be done shortly after the couple is engaged well in advance of planning any wedding to allow them time to count the cost of whether proceeding with the remarriage is appropriate. The longer the time the better (at least thirty days). Most attorneys want approximately 75 days lead time prior to a wedding to begin drafting a proper premarital agreement.

Full disclosure. In discussing how children from a prior marriage are to be provided for and premarital assets allocated, it is essential that each partner list all of their personal assets and liabilities. Each person needs to designate what he or she is contributing to the remarriage, as well as those assets which are being kept separate. Premarital agreements are creatures of precise detail, there are no shortcuts!

Statement of intent. In addition to detailing assets and liabilities, the couple needs to prepare a remarriage plan, i.e., a written statement of how they intend to provide for future contingencies such as job loss, a severe medical crisis, casualty loss, and similar surprises which could wipe out the resources of one or both spouses. Be sure to address how you will treat assets received by inheritance or by gift during the remarriage. How will proceeds from the sale of non-marital property and appreciation in value of assets or property be allocated? What about future distributions from pension plans, deferred compensation programs and bonuses? If you will have children of your own with your spouse, how will this change your plan? Will one spouse be required to stop working and stay at home to care for children or an elderly parent? This should be addressed. If there are children from a previous marriage blending together with children from a new remarriage, how will you handle their inheritance, especially if some or all of them are minors? This statement of intent should be clear and unambiguous in order to be legally binding. And, above all, the overriding priority is seeking the Lord's guidance about this factor!

Acting Consistently With The Agreement. One major trap many couples fall into after going to the trouble of preparing a premarital agreement is to allow day-to-day living practices to run counter to the written provisions of the agreement. One primary problem arises when spouses agree on what is "yours, mine and ours" and set up separate assets and debts, but then begin commingling marital and premarital accounts and assets. This makes it difficult, if not impossible, for any court to determine what belongs to whom later on.

Questionable Provisions. Be aware that there are some matters which you will not be able to adequately address in a premarital agreement. For example, many states will not allow you to agree that one parent or the other will receive sole custody of a child years in advance of a possible divorce, which may never occur. (The best interests of the child in question will almost always prevail in determining appropriate custodial care at the time of any divorce.) You also may not waive any legally applicable child support obligations. And while parties to a premarital agreement may agree on where they will live, how they will jointly or individually pursue career opportunities, the upbringing of children, they may not prescribe a child's religious upbringing after any divorce. This would require a court to encroach upon the fundamental right of individuals to question or change their religious convictions, protected by the Free Exercise and Establishment Clauses to the U.S. Constitution. Religious freedom was recognized by our Founding Fathers to be inalienable. It cannot be bargained away.[1]

A prospective waiver of retirement benefits without following specific procedures also might invalidate the agreement under Federal Law. In addition, a premarital agreement may not allow either or both spouses to infringe upon the rights of others or transgress public policy.

Judicial review. Parties to a premarital agreement may contract away numerous rights and benefits, or add responsibilities beyond the minimum limits the law requires, but the agreement as a whole always will be subject to judicial review as to fairness and enforceability. In doing so, a judge will make sure that neither spouse automatically passes from misfortune to prosperity, or from prosperity to misfortune. As one judge phrased it, "The basic criterion is fairness between the parties, which will be evaluated in light of the facts touching [one spouse's] property and the question of whether the provisions made for [other spouse] will enable [that spouse] to live after dissolution of the marriage in a manner reasonably consonant with [that spouse's] way of life before the dissolution."[2]

Even if a premarital agreement is clear, unambiguous and otherwise legally valid, a court may still not enforce it, if a party to the agreement proves that fraud, duress, deceit, coercion or overreaching occurred by the other party. This can happen directly, or indirectly. The direct method involves affirmative proof of fraud, misstatements and deceit. The indirect method, which is more widely used, allows a party to prove that the agreement is unreasonable, due to an imbalance of each party's respective financial situation, age, health, education, and similar factors.[3] This is why it is so important to promote equality and balance in considering the provisions of a premarital agreement, with each spouse having the benefit of using independent legal counsel, if the spouse wishes to do so, and marital counseling as well if necessary. (Again, this entire process should always be viewed in light of God's Word and be executed in a spirit of unity or, take another look at whether this remarriage is right for the parties involved!)

What if parties to a premarital agreement live in different states prior to the remarriage? Under the Uniform Premarital Agreement Act, the law of the state where enforcement of the agreement is sought governs. However, spouses also can stipulate in their agreement that the laws of a particular state shall govern.

Are There Ways For A Couple Considering Use Of A Private Agreement To Resolve Their Conflicts And Differences? So now the receiving and requesting spouses are caught on the horns of a dilemma. Do they walk away from the remarriage before it begins and sacrifice a promising future together, or reluctantly sign a premarital agreement, for example, just to get it over with (which certainly breeds frustration, anger and resentment for the receiving spouse)? Donald Trump's ex-wife, Marla Maples, expressed her feelings about this conflict just prior to completion of their divorce in 1997. She admitted not wanting to take the time to even read her premarital agreement, which then husband-to-be Trump asked her to sign two days before her 1993 wedding. "I refused to read it because I felt it was sealing our fate," she told the New York Daily News. "I'm sure I would not have signed it. I probably would not have gotten married either."[4]

After considering all of the pros and cons of using premarital agreements (being the most controversial type of private agreement), and without ignoring the powerful emotions generated in each spouse, is there any room for compromise? Fortunately, there is room for some negotiation, creativity and compromise, provided that each spouse steps back to see the other mate's feelings and needs, while being willing to give a little bit. Here are a few suggestions:

Focus On Underlying Feelings And Concerns. To resolve this deadlock and counter the fear and other negative emotions which both spouses are experiencing, the parties need to focus on the emotional aspects of what premarital agreements and other private agreements are all about and defuse the perceived mistrust and negative feelings. How is this done? By not using an engagement or wedding as leverage for having any such agreement. By the spouses reassuring each other of their love for one another and an overriding commitment to provide for and protect each other, regardless of what private agreements may be necessary. By emphasizing the need and underlying reasons for the requesting spouse's assets to be used in a particular way, such as providing for children from a prior marriage, rather than simply wanting the other spouse (and his or her children) not to receive them.

Sunset Provisions. Why not include a provision which allows the spouses to renegotiate a premarital agreement and adjust its scope to meet changing circumstances? Many agreements allow for such renegotiations at intervals of each five or ten years. This keeps each spouse from feeling "locked in" to an agreement that may not work out the way they initially intended.

Another possibility would be to have a premarital agreement in effect for a limited time during the remarriage, with the stipulation that it will be dissolved after the couple has time-tested the remarriage for a specified number of years. By then they will have learned to trust each other, while building up joint assets for their protection and enjoyment.

"Fear of Flying" Author Erica Jong insisted upon a premarital agreement before marrying divorce lawyer Ken Burrows in 1990. Having been wed four times, she knew well the many hazards of laying your financial future on the line with an unhappy spouse. But, at a 10th anniversary party with friends, she burned the prenuptial agreement in a wok while telling her guests, "Either that's the most romantic gesture ever made, or the stupidest. I prefer to see it as romantic.”[5]

Another form of sunset provision is to "sweeten the pot" as the remarriage continues. Prior to their tragic deaths in a private plane crash, John F. Kennedy Jr. and Carolyn Bessette signed a premarital agreement 12 days before their low-key quiet wedding in 1996. Their agreement provided that Kennedy, then worth $32.7 million, would grant Bessette a minimum of $1 million if they divorced after less than three years. However, that figure increased the longer that they remained married, peaking at $3 million after 10 years.[6] Some view provisions like this as actually preserving the marriage by giving incentives to keep the relationship going, rather than divorcing. Others find this alternative repugnant, however, and see it is an unemotional "pay to stay" deal.

Joint Asset Pools. Similar to a "sunset provision," a remarriage couple may begin the relationship with premarital assets owned separately. But the couple also agrees to make annual contributions into a new joint asset pool. Year-by-year, the joint asset pool will grow as each spouse's separate asset holdings diminish. Over time, this has the effect of equalizing what each spouse owns, resulting in a feeling of shared power and control.

Expense Subsidies. After receiving a premarital agreement, a spouse with Personal Assets may want to express generosity to his or her mate and family in various ways to compensate for any imbalance in asset ownership. For example, although Personal Assets may be characterized as a spouse's own separate property, the couple might agree that if mutually agreed upon budgeted family income does not balance with expenses in any particular year, the spouse with Personal Assets will use some of those assets and funds to provide a subsidy for the family. Then both spouses and the family can feel good that their budget will balance each year, a blessing that many blending families do not enjoy!

Explore Alternative Options. There might be other less offensive alternatives to premarital agreements as well. For example, if you are concerned about children from a prior marriage, you might consider putting some money in escrow, or in a non-cancelable life insurance policy to protect them should divorce or death occur. Also, rather than have formal premarital agreements, just keep Personal Assets separately titled in the name of the spouse owning them and be sure not to commingle any income with any joint marital funds.

Private Trusts May Be Less Controversial Than Premarital Agreements. Although none of these private agreements are without controversial elements, you might try to use private trusts as much as possible rather than premarital agreements. One primary reason is obvious. Premarital agreements specifically contemplate divorce consequences, while private trusts generally do not, in most cases. You may find that a lot of concerns, such as those illustrated in the example involving Roger and Vickie, are more easily and unobtrusively resolved without having to bring in the divorce trappings of premarital agreements.

The Bottom Line On Private Agreements. Private agreements should benefit both parties in some way, not be a declaration of war. This is an opportunity to candidly discuss critical issues and prevent serious misunderstandings in the future. It is a challenge for a couple to improve their communication skills early, lay a strong foundation of mutual respect, and set a precedent for resolving life's future obstacles—together!

For Christians struggling with the issue of using any of these private agreements, perhaps a good Bible study on having a biblical perspective on wealth and materialism should precede any discussions. Each person might want to read the Parable of the Rich Fool in Luke 12:13-21, or Jesus' admonitions in Luke 16:10-13. If a Christian couple can, from their hearts, be at peace with themselves and the Lord about this matter, then it may be appropriate for them to proceed. However, if the potential upset and hard feelings threatens the marriage, be wise and forget it! In any event, it so important that you and your remarriage partner choose wisely in this matter.

But now let's shift forward into the remarriage and consider one final important financial matter--how to teach financial responsibility to children in a blending family.

Next: Making Allowances: Modeling Good Financial Conduct For All Children In A Blending Family