Prenuptial agreements can make a world of difference for our clients in a divorce, particularly when it comes to high-net-worth clients such as celebrities. In a tale of two very different marriages, we'll highlight the difference and provide considerations to strengthen the agreement for your client and his or her partner, if their marriage fails.
Actors Johnny Depp and Amber Heard were married in February 2015, which lasted approximately 15 months. Heard filed for a divorce last May and sought spousal support from Depp, however, they did not have a prenuptial agreement. After several highly public and emotionally charged court proceedings, Heard is reported to be receiving a $7 million settlement. In hindsight, a prenuptial agreement would have better protected Depp from such a sizeable financial settlement. The prenuptial agreement may have even helped to avoid the very public litigation battle that many of us read about.
Interestingly enough, Heard is contributing the settlement to charity. While a charitable donation should be applauded and encouraged, it may also indicate that litigation itself was fueled for reasons other than money, such as for earlier perceived wrongs or even revenge.
The point is that divorces are emotionally charged and involves many issues beyond just the financial settlement. There are many stories of ex-spouses destroying cars or even houses to prevent that asset from going to the other spouse. These decisions are often made by clients under the stress of divorce or separation for reasons other than those centered on logic or common sense. Clearly establishing the boundaries for divorce in a prenuptial agreement can prevent a great deal of financial and emotional pain for these couples later on in the process.
On the other end, actress Kelly Cuoco, star of the hit TV Show "The Big Bang Theory" recently divorced professional tennis player Ryan Sweeting. In 2015, Cuoco was named Forbes highest paid TV actress, in a tie with Sofia Vergara. She enjoyed $28.5 million in earnings, including a salary of $1 million per episode, according to published reports. Her ex-husband has an estimated net worth of $2 million, about $42 million less than Cuoco's reported net worth.
The real difference here, though, is the prenuptial agreement. Unlike Depp and Heard, Cuoco and Sweeting signed such an agreement approximately one month before their marriage. This binding prenuptial agreement governed how the assets and finances would be handled in the event of a divorce. The agreement gave Cuoco full control and protection from claims for greater support or assets.
While not everyone lives the very lavish and public lifestyles of celebrities, prenuptial agreements are particularly important for clients with children from a prior relationship, older couples, clients with significant assets prior to marriage, clients who are public figures or otherwise seeking to keep such matters private and clients seeking to protect their partner from his or her debts or liabilities.
If your clients fall in any of these categories, take a lesson from the two celebrity divorce cases above. Below are protections to consider for clients who are thinking about entering into a prenuptial agreement before marriage:
- Pair the prenuptial agreement with a confidentiality agreement for greater privacy.
- Identify separate assets that are acquired prior to the marriage. Consider whether income from those separate assets will be community or separate property.
- Consider whether the wages or earnings from work or efforts during marriage are community or separate property
- Are debts to be considered community or separate? An often overlooked alternative for a prenuptial agreement is to insulate one spouse from the debts and liabilities of his or her partner.
- If one spouse has substantially greater assets and/or income (which is frequently the case), consider designating/providing certain assets to go to the less wealthy spouse over time so that a divorce after a long-term marriage does not otherwise leave one spouse with insufficient assets. Such a provision in some cases substantially enhances the effectiveness of the prenuptial agreement.
- Consider pairing the prenuptial agreement with an asset protection trust, which provides a second, considerable layer of protection from lawsuits, divorce and other claims. This trust, which should be created and funded before the prenuptial agreement, is specifically designed to provide greater creditor and asset protection for the creator or grantor of the trust. The trust can be domestic and, currently, 16 states, including Nevada, have laws which permit them. Additionally, foreign asset protection trusts or hybrid bridge trusts can be used such as trusts settled under the laws of the Cook Islands. A hybrid bridge trust begins life as a domestic asset protection trust but converts to a foreign offshore trust in the event of a crisis.
A well-crafted prenuptial agreement coupled with a confidentiality agreement and an asset protection trust may even facilitate a pre-suit divorce settlement agreement. This alternative is increasingly utilized by celebrities and high-net-worth individuals. A pre-suit divorce settlement helps maintain privacy and protect the dignity of all the family members. A pre-suit divorce settlement helps prevent the emotional reactions such as the hurt and pain from separation which make the legal process and the public nature of the procedures more problematic.
John M. Goralka, founder of the Goralka Law Firm, assists business owners, real estate owners and successful families by protecting their assets and minimizing income and estate tax. He can be reached at 916-440-8036 or [email protected].