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Both Florida and Ohio now allow clients to enter into a prenuptial or postnuptial agreement prior to marriage or after marriage (Ohio previously did not allow postnuptial agreements). Both documents have statutory guidelines that must be followed in terms of execution and financial disclosure.

We often are approached by two distinct client types with the following situations:

Client #1: my son or daughter is entering into a marriage, and we have a family business. We created trusts for the benefit of our son or daughter. What options do we have to protect him or her?

Client #2: I am about to get married and my spouse to be had no role in developing my business. I love him or her, but he or she should not be benefitted if I sell my business and we later divorce.

What can we do for both clients? What are the pros and cons of a prenuptial or postnuptial agreement? What estate planning can be done?

Client #1.

First, addressing a prenuptial or postnuptial agreement with an existing client whose child is about to become married can be a difficult situation. How will the spouse-to-be react to a child’s disclosure that “mom and dad want us to enter into a prenuptial agreement”? If you wait to prepare a postnuptial agreement until after the wedding, what incentive does the now spouse have to enter into such agreement? Further, not knowing the child (potentially) puts us at a disadvantage: we do not know this person or the domestic dynamic at play. What if the spouse-to-be is the wealthier of the two and our client (the parent of the child) does not realize that? What if the marriage is 2 months away? 2 years away? 2 weeks away? 2 days away? Should that matter?

In this situation, we can work with the clients to develop a prenuptial agreement for the child, but could taking on the role of an attorney-client relationship with the child later prejudice the overall family dynamic when the parents pass away, and the other children are now at odds with the child we represented in the prenuptial agreement planning?

A potential solution is the creation of a discretionary trust for the benefit of the child. Working with our client, we can develop a trust plan that takes into account that the child may become divorced and have alimony obligations. This is not necessarily ideal for the client but could keep from straining the child’s relationship with the parent prior to the marriage.

If a prenuptial agreement is indeed desired, we can work with the child provided our engagement letter will specifically indicate that the attorney-client relationship is a one-off intended to only be a limited engagement for the pre or postnuptial agreement. In this case, it is ideal if the prenuptial agreement is prepared months in advance of the wedding, especially before the wedding invitations are mailed out. The sooner we can prepare the agreement, the better.

Client #2.

For the client with a business who is about to be married and may someday sell said business, time is of the essence. The sooner in time we can prepare the agreement, the longer it has to bake post-signing and prior to the wedding date. We have experience executing day-off prenuptial agreements (in fact, author Michael Sneeringer has married two sets of clients). But for younger clients who have never been married, the stress of a day-of signing is not ideal.

Further, the client is encouraged to have his business properly valued by a qualified appraiser. This gives the client much needed adequate disclosure when negotiating with his spouse-to-be’s counsel. Armed with all of the pertinent information, the client’s spouse-to-be’s counsel will be more likely to provide his or her client with the needed “okay” to sign the prospective prenuptial agreement. Of course, such appraisal can be dangerous if the client is beginning to seek a round of funding for business investment or is exploring a sale. The appraisal could then be “out there” in the public domain if privacy procedures are loosely followed.

If an agreement cannot be reached for this client prior to the wedding, a postnuptial agreement is a great alternative prior to the sale. Such postnuptial agreement likely would have stricter financial disclosure requirements, depending on the jurisdiction, but would nevertheless protect the client and his or her business partner(s) from any last second snag in a business sale due to a client divorce. The client may compensate his or her spouse with other assets sufficient to protect the proceeds from sale in this scenario.

Lastly, this client could, in lieu of a prenuptial or postnuptial agreement, transfer his or her business interest to a self-settled trust. This trust would only benefit him or her and his or her future descendants. The spouse-to-be could be a beneficiary, but a floating spouse terminology could be added that would automatically remove such person if divorce later occurred. Self-settled trusts such as this one are not valuable for Florida clients but are allowed in Ohio. By taking this minimum step, the client can protect his or her business as non-marital property in the event of a divorce.

While this is a general overview specific to two hypothetical client situations, we have also dealt with more advanced fact patterns. For personalized advice and solutions, please contact BMD Member Michael A. Sneeringer at masneeringer@bmdllc.com or Kimberly J. Baranovich at kjbaranovich@bmdllc.com.