Sunday, February 14, 2010

Marital agreements in the estate and asset protection context

In honor of Valentine's Day (with smiles -- and hearts if you like), here are some general thoughts about marital agreements. Please note that I am admittedly not a family/marital lawyer (far from it and for many reasons). Nevertheless, there are certainly times when you should consider a marital agreement in the estate and asset protection context.

One of those circumstances involves Florida homestead (that is, a Florida resident's primary residence). By default, a surviving spouse receives a life estate in Florida homestead. One of the few ways to change that fact is via the use of a valid marital agreement. Consequently, many marital agreements drafted in light of Florida law -- whether for current Florida residents or those anticipating the change of their domicile to Florida -- should typically address Florida homestead issues. A detailed discussion is well beyond the scope of this blog post, but you may find excellent articles on the subject via a simple Google search for "Florida homestead" (no quotation marks needed) and/or a visit to The Florida Bar's website, where you may access years of archives of The Florida Bar Journal (under "Archives" or use the "Search" box) and find superb relevant articles by Barry Nelson, Esq. and others.

Another situation where marital agreements are indeed relevant involves asset protection. Perhaps you thought that you could only use a marital agreement prior to marriage, known as a "prenuptial" (or, if you prefer the Latin prefix, an "antenuptial") agreement. In some states, that is true because they still regard married couples as unified for contractual purposes, meaning that married couples are not typically viewed as separate parties for contractual purposes and therefore cannot generally make a valid contract between each other. In the wonderful Sunshine State, though, you may generally enter into a marital agreement even if you are already married, known as a "postnuptial" agreement.

Marital agreements can become important in the asset protection arena because they can require transfers of assets in order to satisfy the requirements of the agreement for each spouse. Those transfers typically do not constitute "fraudulent transfers," which is basically the "undo" tool that a creditor may attempt to employ in order to avoid the transfer of your asset(s) to someone or something (such as a trust or a business entity). The basic rule of fraudulent transfers is that you cannot put an asset that was formerly available to a creditor beyond that creditor's reach, particularly if trouble arises for you. Several exceptions to this set of rules apply, though, including transfers where you receive full value ("consideration") in exchange for the asset(s) transferred. Marital agreements can offer the same type of exceptional treatment because each spouse is viewed as merely carrying out required transfers under a binding legal obligation that reflects the pre-existing rights of each party to various assets.

Again, a detailed discussion of marital agreements is well beyond the scope of this post. You may obtain additional information by searching Google or your favorite search engine. Colleague Alexander Bove, Jr., Esq. has written some excellent recent commentary on the use of marital agreements in this context (see, for example, their firm's November 2009 newsletter). The American Bar Association also has helpful information regarding marital agreements in general, such as "The ABA Guide to Marriage, Divorce & Families" (entire book here via FindLaw) or "The ABA Guide to Family Law" (entire book online, just like "The ABA Guide to Wills & Estates" available here in its entirety).

Hopefully this post will provide some helpful general information on using marital agreements in the estate and asset protection planning context. As with anything, individual facts and circumstances will inform any type of planning. There is no "cookie-cutter" solution to these issues. With careful, thoughtful planning, though, marital agreements can enhance the estate plan, provide for the various distributions of assets under the estate plan, potentially even restrict future changes to the estate plan and/or its implementation after one spouse's death, and possibly even further protect assets of the estate (during lifetime and after death if properly structured).