Spousal Support Provisions in Premarital Agreements
“Spousal Support Provisions in Premarital Agreements,” that’s the subject of today’s ACTEC Trust and Estate Talk.
This is Susan Snyder, ACTEC Fellow from Chicago. What types of provisions can you have in a premarital agreement for alimony, spousal support, and other types of support for spouses in the event of divorce? ACTEC Fellow Professor Elizabeth Carter from Baton Rouge Louisiana is joining us today to explain those spousal support provisions, welcome Elizabeth.
Thank you. I’m here today to talk about some of the possibilities for spousal support provision in premarital agreement, and a lot of this would also apply to post-nuptial agreements as well. First, I’ll give an overview of some of the default laws, and then I’ll talk about the types of provisions that are possible in premarital agreements. Spousal support goes by lots of different names you’ll also hear it called alimony or separate maintenance- spousal support is essentially some form of monetary award granted to a spouse at divorce, that is given in addition to any division of marital assets. In most states you see two different types of support, the first is interim spousal support, sometimes called alimony pendente lite; this is an award given during the pendency of the divorce proceedings and it is usually designed to help maintain the status quo pending the divorce. Permanent spousal support, or final alimony, is the award given upon the conclusion of the proceedings.
Criticisms of Premarital Agreements
There are a lot of criticisms to be had of these awards, and that’s one reason that I think it’s an important discussion to have with clients whenever we’re working on a premarital agreement. These awards are usually based on some set of statutory or jurisprudential factors; the factors typically include things like the ability of one spouse to pay, the needs of the other spouse, the length of the marriage and (in some states) the existence of marital fault. Unlike child support, however, spousal support awards are highly variable, and the ultimate decision rests with the court. In fact, spousal support awards in most states are notoriously unpredictable. This is a real problem because lack of predictability really reduces the divorcing couple’s incentive to amicably settle things. And I think we can all agree that the only real winners in protracted contentious divorce proceedings are the divorce lawyers.
Another problem is that many states continue to tie spousal support awards, particularly final support awards to marital fault. So even though the couple may be getting a no-fault divorce, they might still litigate fault issues in the spousal support arena. Often a party who is at-fault is precluded from receiving spousal support. This type of litigation is extremely demoralizing and adds to the social stigma associated with the person receiving the support award. It can even prevent some spouses who really need support from even seeking it in the first place. The other obvious shortcoming of spousal support is that if we have an economically inferior spouse, spousal support does nothing to improve that spouse’s economic position during the marriage. They have to get divorced to actually benefit, which tends to be a bad incentive for staying married.
We can avoid a lot of these problems by dealing with the support contractually in a premarital agreement. In most states, premarital agreements can waive or modify final spousal support. Income support varies, some states will allow it to be modified some do not. Those that do not allow modification or waiver view it as a public policy issue and they say the income support is one of the essential elements of the duty of support that all spouses owe each other during an intact marriage, and therefore it’s a public policy issue that can’t be modified by contract. Nonetheless, in those states, we still usually address income support in premarital agreements, and we acknowledge that the law varies from state to state and from time to time, and we usually make it clear that the provisions regarding income support can be severed from other provisions in the agreement in case they’re not enforceable.
So, that brings us to the big question, “What can we do in a premarital agreement regarding support to avoid some of these problems?” Well, you basically have three options, 1) you can say nothing, 2) you can wave it entirely, or 3) you can do something more creative. If you take the first option and say nothing, then the clients are essentially opting-in to whatever the default laws are. And I think that’s a bad idea for nearly everyone, there are lots of cases out there that should illustrate this point. Number two, you can waive support entirely, this is actually a fair option for a lot of couples; couples that are on equal economic footing this makes a lot of sense. Or, you can go the third route, which is to do something more creative, in most states the law just says you can modify without giving you much example of what that means.
It is important to bear in mind that in some states courts have the power to review an agreement for substantive economic fairness at the time of divorce. So in those states you still face some incentive to litigate the substance of the agreement. But, in many other states agreements are usually enforceable as written.
Waiving Support Rights in a Premarital Agreement
So, first a word about waiving support rights entirely. Some agreements will waive support entirely, but some of those agreements, if you read the entire agreement, you’ll see that there are other provisions in there that make the outcome fairer for the couples.
So, for example, one type of provision that I really like when we have a spouse that’s in an economically inferior position, is to give that spouse economic security during the marriage and as a result after the marriage. What you do here is you have the wealthier spouse agree to just give money to the poorer spouse each year while they’re married, and the poorer spouse then gets to keep that money at death or divorce. I think these provisions are particularly helpful when the richer spouse has children from another relationship, who might try and fight any gift to the poorer spouse in a will.
You can structure these in lots of different ways. I’ve seen provisions that tie the amount of money to the richer spouse’s income and make it a set percentage. I’ve seen provisions that basically requires the richer spouse to max out an IRA for the poorer spouse each year. Some agreements just have a flat dollar amount to be paid each year, with these I would advise perhaps including an inflation adjustment. The best practice provisions will also include a penalty provision for non-payment by the wealthier spouse, say, an interest provision or something like that. One obvious advantage of this approach is that that there’s essentially no tax consequences on inter-spousal transfers during marriage. And, of course, I think there’s a real benefit that comes from enhancing the economic position of the poorer spouse during the marriage. That puts the poorer spouse in a more stable position regardless of how the marriage ends, particularly though if it ends due to the death of the richer spouse or due to divorce.
Modifying Financial Support in Advance
Now, what about contractually modifying the amount of support in advance? In appropriate cases, this is also a good idea, you see a lot of different approaches out there and this is your opportunity to really think creatively. Some agreements just set support as a flat sum of money. A pretty common approach that you’ll see is an escalator clause with increasing awards based on the length of the marriage. For instance, the provision might say, “If we are married up to five years then you get $10,000 for each year of marriage, if we’re married 10 years you get $20,000 for each year of marriage.” If you do take this approach, I would suggest including an adjustment for inflation, which is something I rarely see in these documents, but it seems to me like a no-brainer. What if a couple is married for 30 years before they divorce? Those flat dollar amounts might not make a lot of sense 30 years later. You can easily tie a dollar amount to something like the Consumer Price Index, and there are plenty of commercial lease agreements out there that do exactly that if you want to use them for model language.
Dealing with Fault
Finally, depending on the law in your jurisdiction and the desires of the parties, you probably also want to specify that fault is not relevant to the spousal support award. If you allow fault to remain on the table, you basically just agreed to litigate because that’s going to encourage the spouses to litigate about whether or not sufficient fault grounds exist and in my mind that really defeats the entire purpose of having an agreement in the first place. So, in sum, spousal support’s an issue we should always discuss with our clients when preparing premarital agreements and it’s really important to think creatively about what types of provisions might be appropriate for a particular couple.
Thank you, Elizabeth. Well, first for pointing out that some states still litigate fault in divorce, something that I didn’t realize, and how important it is really to address that in a premarital agreement. And secondly, for demystifying, in general, spousal support in premarital agreements. Thank you.
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