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Should You Have a Pre-Nup?

02/26/18 9:35 AM

We continue with our series of general educational articles penned by one attorney, an MD, JD, giving you a view of the world through a malpractice plaintiff attorney’s eyes. This attorney is a seasoned veteran.  The series includes a number of pearls on how to stay out of harm’s way. While I do not necessarily agree with 100% of the details of every article, I think the messages are salient, on target, and fully relevant.  Please give us your feedback – and let us know if you find the series helpful. Finally, these articles are not intended as specific legal advice. For that, please consult with attorney licensed to practice in your state. 

Here’s a question recently posed. 

I am in my first year out after doing a cardiology fellowship.  I don’t have to worry about salary too much because I have a trust fund from my grandfather so I plan to stay in academia where I will be able to do teaching and research.  My fiancé is a CRNA and was just accepted to medical school with the intention of becoming an anesthesiologist.  He is very entrepreneurial and wants to eventually start his own group. We have been together very happily for three years and have contributed equally to the household but now that there is marriage equality we want to make it legal. We also want kids and want them to have married parents. Do we need a pre-nup? 

First, congratulations on your engagement and up-coming marriage. 

Now, a harsh reality: the divorce rate for first marriages in the United States is almost 50 percent and when at least one spouse is a physician is up to 20 percent higher. 

That is why many physicians use a pre-nuptial agreement to cover not just the allocation of assets in a divorce but complicated issues of their future lives together from where they will live to what schools their future children will attend.  The intention is to solve problem before they start so as to preserve the marriage against stressors and to cover likely pit-falls if there is an eventual divorce. 

Your situation actually hits some of the major settings in which a pre-nup is generally a good idea: 

  • Significant difference in starting wealth between the future spouses 

This usually applies to established doctors entering a second marriage but it applies here because you apparently have a substantial trust fund.  A pre-nup that limits your fiancé‘s access to that is a good assurance that he is marrying you for yourself and not for your bank account. That you have been equal in supporting your household up until now is a good but not certain predictor of his honesty in this regard, since as a boyfriend he has no rights to your money but as a husband he could. Meanwhile, on the other hand, he would want protection as the financially weaker spouse. A trust fund may already provide protections, but a pre-nup will provide broader ones. 

  • Significant difference in earnings between the future spouses 

Even in academia you are going to be earning a lot more than a medical student/resident for quite a while.  This situation will probably then flip, with your husband out-earning you.  In either situation, establishing in advance how you will maintain the household jointly and, if your state allows it, setting parameters on spousal support and alimony if you break up, would be prudent. 

  • One future spouse has a lot of pre-existing debt 

You did not mention how your fiancé is planning to pay for medical school but if he is going to be taking out significant loans then you want to establish that you are not liable to pay those if he defaults and that creditors cannot come after you if the marriage ends.  

By the way, if you will be supporting him through school even though you will not treat that as a formal debt secured by a promissory note, you also want this covered. If you divorce you would then be entitled to a more generous share of his earnings that that schooling allowed him to achieve. 

  • One future spouse owns a business 

This is usually a factor for a more established doctor who has an equity interest in a practice because without a pre-nup in place any subsequent appreciation in the value of the practice will likely be considered a marital asset. This means that the value has to be determined at the time of the marriage and then at the time of the divorce and the extensive forensic accounting in doing so pulls any other partners into the divorce process as well.  That is why many practices require partners to have pre-nups that exclude the practice or limit the spouse’s rights to a fixed amount to avoid just these situations. In your case, since you mention that your fiancé is going to medical school with the idea of being a physician-entrepreneur, it is a protection that he will probably want from the start. 

  • One future spouse will be acquiring a professional license 

Your fiancé probably thinks of his eventual medical degree as a personal achievement, his own separate property by dint of his work to become a doctor, but if you are in an equitable distribution state a divorce court would look at it as marital property because he attained it during the course of the marriage. What this means is that you could have a claim on its value even if you did not directly contribute to him achieving it – the acquisition during the marriage and before any separation agreement would be the dispositive issues. 

How the value of his license will be dealt with should you divorce is something that the two of you therefore want to work out in advance. 

  • Preparing for when you have children 

A pre-nup can address many issues of child-rearing such as, for example, what religion (or none) the children will be raised in or one of you decreasing work (and so decreasing household income) to stay home with the children or how tuition will be covered when they go to college even if you divorce.  Some of these may not be enforceable and a lawyer can help you think these through. It cannot, however, set custody or set child support at a fixed value – those are matters that the court granting the divorce will adjudicate in the current best interests of the child and that can be changed as required at later points. 

These are just a few of the ways that deciding in advance how you want to deal with foreseeable issues can be of value to you. 

If you and your fiancé decide that you want to go ahead with what will likely be the largest financial settlement you will ever make, including all property – inherited, earned, and unearned – that both of you have now and will ever have, you must make sure that everything is done in the most up-front manner so that a court asked to enforce it will see it as truly mutual.   

Points that a court would look to in this regard include: 

  • Each of you prepared a full financial disclosure so that you both entered into the pre-nup knowing the facts about each other’s economic statuses. 
  • You were represented by separate counsel to avoid collusion between one of you and the attorney to coerce the other party. 
  • Any negotiations and the actual execution of the final document were carried out significantly before the wedding date, preventing a claim of duress at the last minute. 

If you decide to not go with a pre-nup you can still create a Marital Property Agreement under which you agree how tangible and financial investment property will be handled if you divorce.  This is important to consider because in community property states there is a presumption that most assets acquired during marriage belong equally to the spouses and in separate property states the way that property is titled will usually determine who gets it even if the other spouse actually paid for it.  

A final issue to remember is that your minds may change as your life situations change.  If you do create a pre-nup then agree to revisit it at least once a year to see if you want to keep it as is or amend it or discard it, but always bear in mind that its current form does bind you so it should not be just put in a drawer and forgotten. 

In summary: Physician marriages are subject to an increased divorce rate. When there are issues such as a current or expected significant inequity in the financial positions of the future spouses, the acquisition of a valuable degree, the opening of a business or the taking-on of debt a pre-nuptial agreement is a potentially valuable way to plan against state laws that will assume liability, ownership and support rights that the spouses may not concur with. Issues of child-rearing can also be covered but child custody and support cannot. Pre-nups should be entered into under fair conditions and should be periodically reviewed to make sure that they remain consistent with the couple’s wishes. 

What do you think? Use the comment box below to share your thoughts.


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RICHARD RODARTEJackerrCarla H Schlissel, DDSEkkehard Bonatz Recent comment authors
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Ekkehard Bonatz
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Ekkehard Bonatz

Get a prenup. No question. My suggestion as an orthopedic surgeon divorcing after 32 years. Will save you in the long run and makes “the game” more equitable .

Carla H Schlissel, DDS
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Carla H Schlissel, DDS

I agree with the pre-nup, especially since an academic will earn significantly less than a neuro-surgeon, but will also have less liability exposure, so that, hopefully, assets can be protected in the event of a lawsuit. Also, it was suggested to periodically revisit the pre-nup to consider whether to leave it as is, change it or discard it. I don’t think it should ever be discarded – just in case, divorce comes along really late in the marriage.

Jackerr
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Jackerr

Happily married for 32/32 years but tried a post nuptial agreement met with derisive laughter

RICHARD RODARTE
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RICHARD RODARTE

I had a prenup and it enormously saver my butt. Total cost of divorce: $2000. Just attorney fees and no more.