Protecting the family farm Pre- and Post-Nuptial from the outlaws Agreements In-laws Unintended consequencesMarch 7, 2013Presenter: Miriam Robeson, Attorney
What are Pre/Post-Nuptial Agreements? Agreements specifically in anticipation of (or resolution of) a marriage “contract.” Also called “Pre-Marital Agreement” or “Ante -Nuptial Agreement” Post-Nuptial Agreements are contracts that happen after marriage Much more limited – only enforceable under certain conditions Purpose – provide for distribution of assets upon divorce or at death Helpful in second marriages, too
Starting Point - Estates Estates – 1 st or 2 nd (or more) marriages Indiana Code 29-1-4-1 – a surviving spouse is entitled to a $25,000 “spousal allowance” Indiana Code 29-1-3-1 – a surviving spouse can “take against the Will” up to ½ the net property (personal and real estate) 2 nd spouses can take up to 1/3 the personal and ¼ the real property This is true regardless of what you put in a Last Will & Testament
Starting Point - Divorce Divorce Indiana Code 31-15-7-5 says that an equal division of marital property is “just and reasonable” This is a “rebuttable presumption,” but can be expensive and unpredictable to overcome Divorce can be catastrophic to a farm family, where the primary asset is land – a divorce might require that the land be sold or mortgaged to pay the “departing spouse”
Post-Nuptial Agreements Two Types Reconciliation Agreement – Intended to preserve marriage Flansburg v Flansburg, 581 NE2nd 430, 433 (Ind Ct App 1991) – valid pre- nuptial agreements must be enforced as written. Applies in situations where the parties seek reconciliation after Court intervention (divorce or separation pending) “Adequate Consideration” is deemed to be the reconciliation of a marriage that would have otherwise dissolved Dissolution Settlement – Agreement made when parties are contemplation divorce with no attempt to reconcile Enforceable per the discretion of the Court This means that the terms can be changed by the Court Do not rely on Post-Nuptial Agreements to preserve the Farm!
Pre-Nuptial Agreements Requirements 1. Must be in writing 2. Signed by both parties 3. Each party must have independent legal counsel May be amended or revoked by mutual agreement of the parties “Consideration” (quid-pro-quo or “something for something”) not required
Elements of Pre-Nuptial Agreements Introduction – Recitations Description of property owned by the parties Terms and events of disposition of property Schedule of Husband’s property Schedule of Wife’s property Disclosures must be full and accurate and the parties must understand the agreement “Potential inheritance” need not be disclosed, but “already-inherited” property must be disclosed
Rights Covered in Pre-Nuptial Agreements “Rights and obligations of each of the parties in any property of either of them or both of them whenever and wherever acquired or located” IC 31 -11-3-5 Includes rights with respect to: Buy, sell, use, exchange, encumber, etc. Disposition of property upon separation, dissolution or death Modification or elimination of spousal maintenance (Indiana does not have “alimony”) Making estate planning documents (Wills, Trusts) Ownership rights with respect to life insurance CANNOT – affect child support obligations
Enforcement of Pre-Nuptial Agreements Comes at termination of marriage (death/divorce) Dissolution – controls distribution and division of property Estate Administration – Become a waiver of statutory elements (spousal allowance/taking against the Will)
Failure of Pre-Nuptial Agreements When is Pre-Nuptial Agreement Unenforceable? Not voluntary (spouse or wedding day held “hostage” to the Agreement, or spouse otherwise feels “compelled” to sign the document) Unconscionable “offends a sense of justice” Example: Spouse agrees to give up all right to any assets in the marriage, with the effect of reduction to poverty If the marriage is void (then, other common law rights may apply
Failure of Pre-Nuptial Agreements When can a Pre-Nuptial Agreement FAIL? If the Farm Spouse voluntarily (or carelessly) violates the terms of the Agreement Example – Farm Spouse transfers stock assets into spouse name – the Pre-Nuptial Agreement “fails” to the extent of that gift. Example – Farm Spouse specifically “bequeaths” farm ownership to spouse in Last Will & Testament – the PNA “fails” to the extent of that gift. Make sure your children understand this! Last Will & Testament should support the Pre-Nuptial Agreement
Other factors affecting farm property rights in the marital relationship “Tenants in Common” versus “Joint tenants with rights of survivorship” versus “husband and wife” Restrictions in Transfer in Operating Agreements (LLC) Buy-Sell Agreements (Corporations, LLCs) Assets in Trust (versus outright ownership)
Joint Ownership with Children Real Estate Assets held in joint ownership with children are especially vulnerable Can be claimed by creditors (and divorcing spouse) to the extent of ownership Can be “tied up” by a court proceeding or bankruptcy involving the co-owner child Creditors (or spouse) might require “partition” of real estate and you may lose that real estate out of the farm
Restricting Access to Assets Put Real Estate in an entity (LLC or Corp) Operational Documents restrict transfer - To Trust – Ancestors/Descendants – Spouse (?) Involuntary transfers (to creditors or divorcing spouses) result in “piece of the action” but no voting Buy-Sell Agreements Restricts transfer to certain conditions, controls price, and controls “control” Makes the asset of limited value to creditors (and spouses)
Restricting Access to Assets Trusts Allows access to income Provides protection against creditors (and spouses) Beneficiary does not “own” assets Can be “tiered” with LLC to severely limit access to the farm by creditors (and spouses) Issue – These devices only work when you plan ahead! Once the creditor (or spouse) claims the asset, it is too late!
Case Study – Goodacre Family Family structure Parents Three children Two married, one engaged to be married Issue If willing to sign Pre-Nuptial Agreement Be sure it fully discloses farm interest Be sure prospective spouse understands it Be sure prospective spouse has independent counsel (you can pay for it)
Case Study – Goodacre Family Issue If Prospective Spouse is NOT willing to sign Pre-Nuptial Agreement Cannot force the issue Avoid co-ownership of assets with the child who marries that spouse Use alternate devices to get “value” to child Buy-Sell Agreement, Trusts, Restriction on Transfer “Skip” to next generation (which skips the current generation of problems – could create a whole new set of problems in 20 years)
Summary – Pre/Post Nuptial Agreements Pre-Nuptial Agreements work better than Post -Nuptial Agreements Requires GOOD COMMUNICATION to child and prospective spouse Works best if used hand -in-hand with other devices (Entity Ownership, Buy -Sell Agreements, Trusts, and Last Will & Testament!) May not be available if - Prospective spouse does not consent Spouse is already married (barn door – horse)
Thank you for QUESTIONS? your kind attentionContact information:Miriam RobesonEmail: MiriamRobeson@lawlatte.comWebsite: Lawlatte.com
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