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Premarital Agreements
(provided by David Melton & Associates)
Premarital agreements theoretically should make property settlements simpler and more predictable. Having said that, I will tell you that the two largest divorce cases (in terms of professional fees) that I ever worked on involved premarital agreements.
A poorly drafted premarital agreement can often complicate a property settlement and add a greater degree of uncertainty than would exist without an agreement. A premarital agreement is essentially a financial contract just like any other partnership agreement and should be drafted with an understanding of the client's financial situation including:
- The overall financial condition of the parties
- Specific separate assets to be preserved
- How income during the marriage will be generated
- How expenditures during the marriage will be accounted for
- How to preserve separate assets as they increase and decrease in value, are traded, sold, and reinvested
- How sources of income are likely to change over the life of the marriage
- What records will be available to monitor amounts due under the agreement
- The client's understanding of how the agreement will affect future financial decisions
- How debts incurred during the marriage are to be allocated
Define accounting terminology in the agreement. Defining major terms in the agreement is essential. Be specific when possible. Broader terms and principals of accounting should be defined as "in accordance with Generally Accepted Accounting Principals" or as defined in a specific Internal Revenue Code section.
Use examples in the agreement. This accomplishes two goals. First, by testing a comprehensive sample set of facts against the draft agreement, we see if the agreement produces the desired result. Second, during the divorce proceedings the examples will be invaluable in demonstrating and clarifying the parties' intent as evidenced by the agreement.
Set up a system to monitor the agreement. Most business people would not conduct a joint venture without an accounting system to monitor results. The same should be true in monitoring a premarital agreement.
In the final analysis, accountants and attorneys who team up to draft premarital agreements will be much more effective in the event that they meet again to prepare for trial.
Information Provided By:
David Melton & Associates located at
http://www.assettracing.com
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